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   <TITLE>Longhai Steel, Inc.: Form S-1 - Filed by newsfilecorp.com</TITLE>
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<P align=center style="margin-top: 0; margin-bottom: 0">As filed with the
Securities and Exchange Commission on July 20, 2010 </P>
<div style="border-bottom-style: double; border-bottom-width: 3">
<P align=right style="margin-bottom: 0; margin-top:0"><B>Registration No. 333- </B></P>
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<P align=center><B><font size="5">UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION </font><font size="3">
<BR></font>WASHINGTON, D.C. 20549 <BR>____________________________</B></P>
<P align=center><B><font size="5">FORM S-1 </font></B></P>
<P align=center><B>REGISTRATION STATEMENT<BR></B><B>UNDER
<BR></B><B>THE SECURITIES ACT OF 1933 </B></P>
<P align=center><B><font size="6">LONGHAI STEEL, INC.</font></B><font size="6"> <BR>
</font>(Exact name of registrant as
specified in its charter) </P>
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    <TD noWrap align=center width="33%"><B>Nevada</B> </TD>
    <TD noWrap align=center width="33%"><B>3310</B> </TD>
    <TD noWrap align=center width="33%"><B>11-3699388</B> </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center width="33%">(State or other jurisdiction of incorporation </TD>
    <TD noWrap align=center width="33%">(Primary Standard Industrial
      Classification </TD>
    <TD noWrap align=center width="33%">(I.R.S. Employer </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center width="33%">or organization) </TD>
    <TD noWrap align=center width="33%">Code Number) </TD>
    <TD noWrap align=center width="33%">Identification No.)
</TD></TR></TABLE>
<P align=center><B>No. 1 Jingguang Road, Neiqiu County <BR>Xingtai City, Hebei
Province, China 054000 <BR>+86 (319) 686-1111</B> <BR>(Address, including zip
code, and telephone number, including area code, of registrant&#146;s principal
executive offices) </P>
<P align=center><B><SUP>___________________________</SUP></B><B><I> </I></B></P>
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    <TD noWrap align=center><B>Dr. Eberhard Kornotzki, CFO</B> </TD>
    <TD noWrap align=center width="50%"><B>Scott Kline, Esq.</B> </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>Longhai Steel, Inc. </TD>
    <TD noWrap align=center width="50%">Pillsbury Winthrop Shaw Pittman LLP
  </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>No. 1 Jingguang Road, Neiqiu County </TD>
    <TD noWrap align=center width="50%">50 Fremont Street </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>Xingtai City, Hebei Province, China </TD>
    <TD noWrap align=center width="50%">San Francisco, CA 94105-2228 </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>+86 (319) 686-1111 </TD>
    <TD noWrap align=center width="50%">(415) 983-1523 </TD></TR></TABLE>
<P align=center><B>(Names, addresses and telephone numbers of agents for
service)<BR>____________________________</B></P>
<P align=center><B><I>Copies to: </I></B></P>
<P align=center><B>Bradley A. Haneberg, Esq. <BR>Anthony W. Basch, Esq.
<BR></B>Kaufman &amp; Canoles, P.C. <BR>Three James Center, 12th Floor <BR>1051
E. Cary St., <BR>Richmond, Virginia 23219 <BR>(804) 771-5700 <B><SUP><br>
____________________________</SUP></B><B> </B> </P>
<P align=justify style="text-indent: 5%"><B>Approximate date of commencement of proposed sale to the
public: </B>As soon as practicable after the effective date of this registration
statement.<B> </B></P>
<P align=justify style="text-indent: 5%">If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box [X] </P>
<P align=justify style="text-indent: 5%">If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [&nbsp; ]</P>
<P align=justify style="text-indent: 5%">If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [&nbsp; ]</P>
<P align=justify style="text-indent: 5%">If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [&nbsp; ]</P>
<P align=justify style="text-indent: 5%">Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of &#147;large accelerated filer,&#148;
&#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule 12b-2 of the
Exchange Act.</P>
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    <TD noWrap align=center>Large accelerated filer [&nbsp; ]</TD>
    <TD noWrap align=center width="50%">Accelerated filer [&nbsp; ]</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>&nbsp;</TD>
    <TD noWrap align=center width="50%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>Non-accelerated filer [&nbsp; ] <br>
    <font size="1">(Do not check if a
      smaller reporting company) </font> </TD>
    <TD noWrap align=center width="50%">Smaller reporting company [X]
  </TD></TR></TABLE><BR>
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<P align=center><b>CALCULATION OF REGISTRATION FEE </b> </P>
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    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">
    <p style="text-indent: -20; margin-left: 30">&nbsp; </TD>
    <TD noWrap align=left width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1"><I>Proposed</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1"><I>Proposed</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="text-indent: -20; margin-left: 30">&nbsp; </TD>
    <TD noWrap align=left width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%"><I>Maximum</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%"><I>Maximum</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%"><I>Amount of</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="text-indent: -20; margin-left: 30">&nbsp; </TD>
    <TD noWrap align=left width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%"><I>Amount to be</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%"><I>Offering Price</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%"><I>Aggregate</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1">&nbsp;</TD>
    <TD noWrap align=center width="10%"><I>Registration</I> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left>
    <p style="text-indent: -20; margin-left: 30"><I>Title of
      Each Class of Securities to be Registered</I> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><I>Registered</I> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><I>Per Unit</I><SUP>(</SUP><I><SUP>1)</SUP></I></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><I>Offering Price</I><SUP>(</SUP><I><SUP>1)</SUP></I></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><I>Fee</I><SUP>(</SUP><I><SUP>2)</SUP></I></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left
      bgColor=#e6efff>
    <p style="text-indent: -20; margin-left: 30">Units, each consisting of two shares of common stock,
      $0.0001 par value, and one warrant</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=left width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff>20,000,000 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff>1,430 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left>
    <p style="text-indent: -20; margin-left: 30">Shares of
      common stock included as part of the units </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%">-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%">-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%">-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%">-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left
      bgColor=#e6efff>
    <p style="text-indent: -20; margin-left: 30">Warrants to purchase shares of common stock included as
      part of the units </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=left width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#e6efff><B>--</B><EM><SUP>(4)</SUP></EM></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left>
    <p style="text-indent: -20; margin-left: 30">Shares of common
      stock underlying the warrants included in the units<I><SUP>(3)</SUP></I>
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%">--
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%">--
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%">--
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%">--
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="text-indent: -20; margin-left: 30">Underwriter Representative warrants<I><SUP>(4)</SUP></I>
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff>-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff><B>--</B><I><SUP>(4)</SUP></I></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left>
    <p style="text-indent: -20; margin-left: 30">Shares of common
      stock underlying Underwriter Representative warrants, $0.0001 par
      value<I><SUP>(3)</SUP></I> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%">--
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%">--
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%">$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center
      width="10%">800,000 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%">$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%">60
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="text-indent: -20; margin-left: 30">Total </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff>&nbsp; </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff>&nbsp; </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff>20,800,000 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff>1,490<EM><SUP>(5)</SUP></EM></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff>&nbsp;</TD></TR></TABLE><BR>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD vAlign=top width="5%">(1) </TD>
    <TD>
      <P align=justify>Estimated solely for the purpose of calculating the
      registration fee pursuant to Rule 457(o) promulgated under the Securities
      Act of 1933, as amended </P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD vAlign=top width="5%">(2) </TD>
    <TD>
      <P align=justify>Calculated pursuant to Rule 457(o), based on an estimate
      of the proposed maximum aggregate offering price. </P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD vAlign=top width="5%">(3) </TD>
    <TD>
      <P align=justify>Pursuant to Rule 416, there are also being registered
      such indeterminable additional securities as may be issued to prevent
      dilution resulting from stock splits, stock dividends or similar
      transactions as a result of the adjustment provisions contained in the
      warrants and the warrants included in the Underwriter Representative&#146;s
      unit purchase option. </P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD vAlign=top width="5%">(4) </TD>
    <TD>
      <P align=justify>No fee due pursuant to Rule 457(g). </P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD vAlign=top width="5%">(5) </TD>
    <TD>
      <P align=justify>Paid herewith. </P></TD></TR></TABLE>
<P align=justify><B>The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine. </B></P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<font FACE="Times New Roman" SIZE="2" color="#FF0000"><b>
<p ALIGN="JUSTIFY">The information in this prospectus is not complete and may be
changed. No person may sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and no person named in this prospectus
is soliciting offers to buy these securities in any state where the offer or
sale is not permitted. </p>
</b></font>
<P align=justify><B><I>PRELIMINARY PROSPECTUS</I></B> </P>
<P align=center><font color="#FF0000"><B><I>Subject to completion, dated July
20, 2010 </I></B>
</font></P>
<P align=center>
<img border="0" src="longha1.jpg" width="318" height="119"> </P>
<P align=center><B>[___] Units <BR>Each Unit Consisting of <BR>Two Shares of
Common Stock and<BR></B><B>One Warrant to Purchase One Share of Common
Stock</B></P>
<P align=justify>We are offering up to <B>[___]</B> units, each of which
consists of two shares of our common stock, par value $0.0001 per share, and one
warrant to purchase one share of our common stock at an exercise price per share
equal to 62.5% of the public offering price per unit
<font FACE="Times New Roman" SIZE="2">(or 125% of the proportionate price per
share of common stock underlying the units)</font>, during the
<B>[___]</B>-year period commencing on the date of this prospectus. The common
stock and the warrants may be transferred separately immediately upon
issuance.</P>
<P align=justify>Our common stock is quoted on the inter-dealer electronic
quotation and trading system maintained by Pink OTC Markets Inc., under the
symbol &#147;ACTND.&#148; The closing bid price for our common stock on July 19, 2010 was
$15.00 per share, as reported by the Pink OTC Markets Inc., after giving effect
to our 1-for-125 reverse stock split effected on June 30, 2010. We have applied to
list our common stock on the NASDAQ Global Market under the symbol &#147;LHAI&#148; upon
consummation of this offering, however, the units and warrants included in the
units will not publicly trade. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>Per Unit</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>Total</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Public offering price </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"
      bgColor=#e6efff>&nbsp;&nbsp;$</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Underwriting discount <SUP>(1)</SUP> </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;&nbsp;$</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Proceeds to us, before expenses </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;&nbsp;$</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%"
>&nbsp;</TD></TR></TABLE><BR>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD vAlign=top width="5%">(1) </TD>
    <TD>
    <p align="justify">The underwriting discount will be [___]% of the public
    offering price per unit. The discount does not reflect additional
    compensation to the underwriters in the form of warrants to purchase up to a
    number of shares equal to 4% of the number of shares of common stock
    underlying the units sold in this offering, not including any shares of
    common stock issuable upon exercise of the warrants underlying the units.
    See &#147;Underwriting.&#148;</TD></TR></TABLE>
<P align=justify><B>Investing in our units involves a high degree of risk. See
&#147;Risk Factors&#148; beginning on page 6 to read about factors you should consider
before buying the units. </B></P>
<P align=justify><B>Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense. </B></P>
<P align=center><B><font size="4">Ladenburg Thalmann &amp; Co. Inc. </font> </B></P>
<P align=center>The date of this Prospectus is ___________, 2010. </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<div style="border-style: solid; border-width: 1; padding-left: 4; padding-right: 4; padding-top: 1; padding-bottom: 1">
<P align=center><B><U>TABLE OF CONTENTS</U></B> </P>
  <div align="center">
    <center>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="98%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%"><U>Page</U> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15">&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">SUMMARY </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>1 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">RISK FACTORS </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">6 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">SPECIAL NOTE REGARDING
      FORWARD-LOOKING STATEMENTS </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>15 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">DETERMINATION OF OFFERING PRICE </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">16 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">USE OF PROCEEDS </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>16 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">MARKET FOR OUR COMMON STOCK </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">16 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">DIVIDEND POLICY </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>18 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD align=left>
    <p style="margin-left: 15">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS </TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="12%">19 </TD>
    <TD align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">OUR BUSINESS </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>27 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">MANAGEMENT </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">37 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">EXECUTIVE COMPENSATION </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>43 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD align=left>
    <p style="margin-left: 15">TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN
      CONTROL PERSONS; CORPORATE GOVERNANCE </TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="12%">45 </TD>
    <TD align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">CHANGE IN ACCOUNTANTS </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>47 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">48 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">DESCRIPTION OF SECURITIES TO BE
      REGISTERED </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>49 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">UNDERWRITING </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">52 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">CORPORATE STRUCTURE AND HISTORY </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>56 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">LEGAL MATTERS </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">58 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">EXPERTS </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>58 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15">INTERESTS OF NAMED EXPERTS AND COUNSEL </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">59 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>
    <p style="margin-left: 15">WHERE YOU CAN FIND MORE INFORMATION
    </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>59 </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE> </center>
  </div>
  <BR>
<P align=justify style="margin-left: 15; margin-right: 15"><B>You should only rely on the information contained in this
prospectus. We have not authorized any other person to provide you with
different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is accurate only as of the
date on the front cover, but the information may have changed since that date.
</B></P>
</div>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<div style="border-style: solid; border-width: 1; padding-left: 4; padding-right: 4; padding-top: 1; padding-bottom: 1">
<P align=center style="margin-left: 15; margin-right: 15"><B>SUMMARY </B></P>
<P align=justify style="margin-left: 15; margin-right: 15"><I>The items in the following summary are described in more
detail later in this prospectus. This summary provides an overview of selected
information and does not contain all the information you should consider.
Therefore, you should also read the more detailed information set out in this
prospectus, including the financial statements, the notes thereto and matters
set forth under &#147;Risk Factors.&#148; For certain defined terms, see &#147;Use of Terms&#148; on
page 3. </I></P>
<P align=justify style="margin-left: 15; margin-right: 15"><B>Overview of Our Business </B></P>
<P align=justify style="margin-left: 15; margin-right: 15">Through our PRC operating variable interest entity, or VIE,
Xingtai Longhai Wire Rod Co. Ltd., or &#147;Longhai&#148;, we are a leading producer of steel
wire products in eastern China. We produce steel wire ranging from 6mm to 10mm
in diameter on two wire production lines, which have a combined annual capacity
of approximately nine hundred thousand tons per year. Our products are sold to a
number of distributors who transport the wire to nearby wire processing
facilities. Our wire is then further processed by these third party wire
refiners into a variety of products such as nails, screws, and wire mesh for use
in reinforced concrete and fencing.</P>
<P align=justify style="margin-left: 15; margin-right: 15">Demand for our steel wire is driven primarily by spending in
the construction and infrastructure industries. We have benefited from strong
fixed asset investment and construction growth as the PRC has rapidly grown
increasingly urbanized and invested in modernizing its infrastructure. </P>
<P align=justify style="margin-left: 15; margin-right: 15">We sell our products to a number of distribution companies that
transport our wire to nearby wire processors. Our products are manufactured on
an on-demand basis, and we usually collect payment in advance. Sales prices are
set at the market price for wire on a daily basis. Our customers generally
prepay for their orders, and the final price may be adjusted to the market price
on the day of pick up. This allows us to maintain a low inventory of both wire
and billet and largely protects us from exposure to commodity price volatility.
In order to increase sales and be competitive in the market, we occasionally
offer discounted wholesale prices to newer or larger customers at our
discretion. Our sales efforts are directed toward developing long-term
relationships with customers who are able to purchase in large quantities.
During the year&nbsp; 2009, our top five distributors accounted for
39% of our revenues. </P>
<P align=justify style="margin-left: 15; margin-right: 15">Our production facilities are located
at a 107,000 square meter property in Xingtai, Hebei. Our production facilities include a fifth
generation Morgan steel rolling mill, and we have a production capacity of
approximately 900,000 metric tons of wire per year. We believe our rolling and
drawing facilities are among the most advanced in the world.</P>
<P align=justify style="margin-left: 15; margin-right: 15"><B>Overview of Our Industry </B></P>
<P align=justify style="margin-left: 15; margin-right: 15">China is the world&#146;s largest producer of steel, and it is
estimated that actual production in 2009 was over 567 million metric tons, or
MMT. Japan, the second largest producer, produces less than 30% of that amount.
In total, China accounts for roughly 45% of global steel production. China&#146;s
steel industry, while enormous in total scale, is a fractured industry where a
great number of&nbsp; producers each account for a small amount of total output. China&#146;s steel
industry includes a wide range of producers, including smaller, inefficient
backyard operations, huge state-owned enterprises with large, unionized labor
forces and their accompanying pension obligations as well as newly constructed
steel plants built according to the highest technology and efficiency standards
in the world.</P>
<P align=justify style="margin-left: 15; margin-right: 15"><B>Competition </B></P>
<P align=justify style="margin-left: 15; margin-right: 15">Competition within the steel industry in the PRC is intense.
There is an estimated capacity of 660 MMT of steel capacity in China. Our
competitors range from small private enterprises to extremely large state-owned
enterprises. Our VIE, Longhai, is located in Xingtai, Hebei province. Hebei is
the largest producer of steel by province in the PRC; therefore, we are located
near numerous wire facilities. We are the largest non-state owned steel wire
manufacturer in Hebei. We believe that many of our competitors are significantly
smaller, lesser equipped and less technologically developed than we are. Due to
our modern equipment, economies of scale and management experience, we believe
that we can produce steel wire at higher efficiencies and lower prices than
these competitors. The state-owned enterprises with whom we compete tend to be
significantly larger, primarily because of general steel production rather than
just wire processing, and often have unionized labor forces with attendant
pension and healthcare liabilities and operate with lower production efficiency.
Our profitability may be adversely affected if competition intensifies or if our
competitors develop efficiencies and reduce prices. We currently distinguish
ourselves in the market based on our reputation for fast order turnaround, high
quality and low prices. </P>
<P align=center style="margin-left: 15; margin-right: 15">- 1 - </P>
</div>
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<P align=justify style="margin-left: 15; margin-right: 15"><B>Our Growth Strategy</B></P>
<P align=justify style="margin-left: 15; margin-right: 15">We believe that the market for high quality steel wire will
continue to grow in the PRC. The PRC has placed a temporary moratorium on new
steel wire plant construction in an effort to encourage consolidation of
facilities; therefore, our expansion plan is to build capacity through the
acquisition of facilities at attractive prices from competitors who lack our
management experience, efficient labor force, and financial resources. We plan
to continue to improve margins through increased efficiencies in our production
process. </P>
<P align=justify style="margin-left: 15; margin-right: 15">We intend to pursue the following strategies to achieve our
goal: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify"><I>Identify and acquire modern, high quality producers at low
  valuations</I>: In light of the moratorium on building new wire making
  facilities in China, we plan to expand our business and operations through the
  acquisition of steel wire producers with production facilities in the vicinity of
  our current facilities. We expect to limit our acquisition targets to
  producers with facilities that have had a major overhaul or modernization of
  production machinery in the last 2-3 years, as we expect such facilities to
  achieve better production efficiency, lower maintenance costs and increased
  output, as compared to less modern facilities, and will help us to more
  rapidly achieve higher margins and increase our market share.
  <LI>
  <p style="margin-left: 15; margin-right: 15" align="justify"><I>Expansion to create economies of scale</I>: We expect that our
  acquisition of modernized facilities will result in increased wire-making
  capacity, resulting in greater bargaining power with supplier and customer
  pricing and otherwise enable us to capitalize on economies of scale to produce
  at higher margins. </LI></UL>
<P align=justify style="margin-left: 15; margin-right: 15"><B>Risk Factors</B> </P>
<P align=justify style="margin-left: 15; margin-right: 15">Our ability to successfully operate our business and achieve
our goals and strategies is subject to numerous risks as discussed more fully in
the section titled &#147;Risk Factors,&#148; including for example: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">our ability to produce steel wire at a consistently profitable margin as
  we have historically;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">the impact that a downturn or negative changes in the steel market may
  have on sales;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">our ability to obtain additional capital in future years to fund our
  planned expansion;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">economic, political, regulatory, legal and foreign exchange risks
  associated with our operations; or
  <LI>
  <p style="margin-left: 15; margin-right: 15" align="justify">the loss of key members of our senior management and our qualified sales
  personnel. </LI></UL>
<P align=justify style="margin-left: 15; margin-right: 15">Any of the above risks could materially and negatively affect
our business, financial position and results of operations. An investment in our
common stock involves risks. You should read and consider the information set
forth in &#147;Risk Factors&#148; and all other information set forth in this prospectus
before investing in our common stock. </P>
<P align=justify style="margin-left: 15; margin-right: 15"><B>Corporate Information</B> </P>
<P align=justify style="margin-left: 15; margin-right: 15">We were originally incorporated under the laws of the State of
Georgia on December 4, 1995. On March 14, 2008, the Georgia corporation was
merged with and into a newly formed Nevada corporation also named Action
Industries, Inc., and all of the outstanding shares of the Georgia corporation
were exchanged for shares in the surviving Nevada corporation. Prior to our
reverse acquisition of Kalington Limited, or &#147;Kalington,&#148; we were primarily in
the business of providing prepaid long distance calling cards and other
telecommunication products and had not commenced planned principal operations.
As a result of our reverse acquisition of Kalington we are no longer a shell
company and active business operations were revived.</P>
<P align=justify style="margin-left: 15; margin-right: 15">On June 30, 2010, we amended our Articles of Incorporation to
change our name to &#147;Longhai Steel Inc.&#148; to reflect our current business and
operations. The following chart reflects our corporate organizational structure
(after giving effect to the name change): </P>
<P align=center style="margin-left: 15; margin-right: 15">- 2 - </P>
</div>
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<div style="border-style: solid; border-width: 1; padding-left: 4; padding-right: 4; padding-top: 1; padding-bottom: 1">
<p align="center" style="margin-left: 15; margin-right: 15"><A name=page_7></A>
<img border="0" src="longha2.jpg" width="783" height="425"> <BR>
</p>
<P align=justify style="margin-left: 15; margin-right: 15">Our principal executive offices are located at No. 1 Jingguang
Road, Neiqiu County, Xingtai City, Hebei Province, People&#146;s Republic of China
054000. Our corporate telephone number is +86 (319) 686-1111 and our fax number
is +86 (319) 688-8851.</P>
<P align=justify style="margin-left: 15; margin-right: 15"><B>Use of Terms</B> </P>
<P align=justify style="margin-left: 15; margin-right: 15">Except as otherwise indicated by the context, all references in
this prospectus to:</P>
<UL>
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">the &#147;Company,&#148; &#147;we,&#148; &#147;us,&#148; and &#147;our&#148; are to the combined business of (i)
  Longhai Steel, Inc., or &#147;LSI&#148;, a Nevada corporation, (ii) Kalington Limited,
  or &#147;Kalington,&#148; a Hong Kong limited company and wholly-owned subsidiary of
  LSI, (iii) Xingtai Kalington Consulting Service Co., Ltd., or &#147;Kalington
  Consulting,&#148; a PRC limited company and wholly-owned subsidiary of Kalington,
  and (iv) Kalington Consulting&#146;s variable interest entity, or VIE, Xingtai
  Longhai Wire Rod Co. Ltd. Ltd., or &#147;Longhai,&#148; a PRC limited company, as the case may be;

  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">&#147;Exchange Act&#148; are to the Securities Exchange Act of 1934, as amended;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">&#147;Securities Act&#148; are to the Securities Act of 1933, as amended;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">&#147;Hong Kong&#148; are to the Hong Kong Special Administrative Region of the
  People&#146;s Republic of China;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15" align="justify">&#147;PRC,&#148; &#147;China,&#148; and &#147;Chinese,&#148; are to the People&#146;s Republic of China
  (excluding Macau, Hong Kong and Taiwan);
  <LI>
  <p style="margin-left: 15; margin-right: 15" align="justify">&#147;Renminbi&#148; and &#147;RMB&#148; are to the legal currency of China, for purposes of
  this prospectus only; and &#147;U.S. dollar,&#148; &#147;$,&#148; &#147;USD&#148; and &#147;US$&#148; are to the legal
  currency of the United States. </LI></UL>
<P align=justify style="margin-left: 15; margin-right: 15">In this prospectus we are relying on and refer to information
and statistics regarding the steel wire industry and economy in China that we
have obtained from various cited government and institute research publications.
Much of this information is publicly available for free and has not been
specifically prepared for us for use or incorporation in this prospectus or
otherwise. We have not independently verified such information, and you should
not unduly rely upon it. </P>
<P align=center style="margin-left: 15; margin-right: 15">- 3 - </P>
</div>
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<P align=center><B>The Offering</B> </P>
  <div align="center">
    <center>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="98%" border=0>

  <TR vAlign=top>
    <TD align=left>
    <p style="margin-left: 15; margin-right: 15">Units Offered </TD>
    <TD align=left width="50%">
    <p align="justify" style="margin-left: 15; margin-right: 15">Up to [_____] Units, each comprised of two
      shares of common stock and one warrant to purchase one share of common
      stock </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">Common Stock: </TD>
    <TD noWrap align=left width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">&nbsp; &nbsp;Common stock outstanding before the
      offering </TD>
    <TD noWrap align=left width="50%">
    <p style="margin-left: 15; margin-right: 15">[_____] shares. </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">&nbsp; &nbsp;Common stock included in units </TD>
    <TD noWrap align=left width="50%">
    <p style="margin-left: 15; margin-right: 15">Up to [_____] shares. </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">&nbsp; &nbsp;Common stock issuable upon exercise of
      warrants </TD>
    <TD noWrap align=left width="50%">
    <p style="margin-left: 15; margin-right: 15">Up to [_____] shares. </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">&nbsp; &nbsp;included in units </TD>
    <TD noWrap align=left width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD align=left>
    <p style="margin-left: 15; margin-right: 15">Common stock outstanding after the offering </TD>
    <TD align=left width="50%">
    <p align="justify" style="margin-left: 15; margin-right: 15">Up to [_____] shares, assuming exercise of all
      warrants included in the Units.<SUP>(1)</SUP> </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">Warrants: </TD>
    <TD noWrap align=left width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">&nbsp; &nbsp;Warrants included in units </TD>
    <TD noWrap align=left width="50%">
    <p style="margin-left: 15; margin-right: 15">Up to [_____] </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD align=left>
    <p style="margin-left: 15; margin-right: 15">&nbsp;&nbsp; Warrant exercise price and term </TD>
    <TD align=justify width="50%">
    <p style="margin-left: 15; margin-right: 15">Each warrant entitles the
    holder to purchase one share of common stock at an exercise price equal to
    62.5% of the public offering price per unit
    <font FACE="Times New Roman" SIZE="2">(or 125% of the proportionate price
    per share of common stock underlying the units)</font>, during the five-year
    period commencing on the date of this prospectus. </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%" align="justify">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD align=left>
    <p style="margin-left: 15; margin-right: 15">Proceeds to us </TD>
    <TD align=justify width="50%">
    <p style="margin-left: 15; margin-right: 15">Assuming a public offering price of $[_____]
      per unit and the sale of all of the units offered in this offering, we
      will receive net proceeds of approximately $[_____] million from our sale
      of units in this offering, after deducting underwriting discounts and
      estimated offering expenses payable by us. We intend to use these proceeds
      as follows: (i) to construct and expand our production facilities and
      maintain existing machinery; (ii) to acquire new production facilities;
      and (iii) for general corporate purposes, including working capital. The
      proceeds from the exercise of any warrants will be used for working
      capital. </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%" align="justify">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">Pink OTC Markets Inc. Symbol: </TD>
    <TD noWrap align=justify width="50%">
    <p style="margin-left: 15; margin-right: 15">ACTND </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%" align="justify">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>
    <p style="margin-left: 15; margin-right: 15">Reserved NASDAQ Global Market Symbol: </TD>
    <TD noWrap align=justify width="50%">
    <p style="margin-left: 15; margin-right: 15">LHAI </TD></TR>
  <TR>
    <TD>
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD>
    <TD width="50%" align="justify">
    <p style="margin-left: 15; margin-right: 15">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD align=left>
    <p style="margin-left: 15; margin-right: 15">Risk Factors: </TD>
    <TD align=justify width="50%">
    <p style="margin-left: 15; margin-right: 15">See &#147;Risk Factors&#148; beginning on page 10 and the
      other information in this prospectus for a discussion of the factors you
      should consider before deciding to invest in our common stock.
  </TD></TR></TABLE>
    </center>
  </div>
<P align=justify>_____________<BR>(1) Based on 10,000,000 shares of common stock
outstanding at the filing of this Registration Statement, after giving effect to
the 1-for-125 reverse split effected on June 30, 2010.&nbsp; </P>
<P align=center>- 4 - </P>
</div>
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<P align=center><B>SUMMARY CONSOLIDATED FINANCIAL INFORMATION </B></P>
<P align=justify>The following table summarizes selected financial data
regarding our business and should be read in conjunction with our consolidated
financial statements and related notes contained elsewhere in this prospectus
and the information under &#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations.&#148; The financial statement data as of and for
each of the fiscal years ended December 31, 2009 and 2008 have been derived from
our audited consolidated financial statements included elsewhere in this
prospectus. The financial statement data as of and for each of the three months
ended March 31, 2010 and 2009 have been derived from our unaudited consolidated
financial statements included elsewhere in this prospectus. </P>
<P align=center>(All amounts in U.S. dollars, except number of shares
outstanding data) </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left><B>STATEMENT OF INCOME</B> </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="23%" colSpan=4><B>Three Months Ended March
      31,</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="23%" colSpan=4><B>Years Ended December
      31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2010</U></B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2009</U></B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2009</U></B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2008</U></B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Revenue</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>105,976,651 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>89,061,713 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>373,660,461 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>511,487,983 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Gross profit</B> </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">4,044,400 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">4,509,331 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">16,827,420 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">18,695,064 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Income before income taxes</B>
</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3,840,332 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,415,532 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>15,596,813 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>17,785,820 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Net income</B> </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">2,879,789 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">3,310,621 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">11,697,610 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">13,339,365 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD align=left>Net Income per share &#150; basic and diluted </TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">0.29 </TD>
    <TD align=left width="2%" >&nbsp;</TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">0.34 </TD>
    <TD align=left width="2%" >&nbsp;</TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">1.19 </TD>
    <TD align=left width="2%" >&nbsp;</TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">1.35 </TD>
    <TD align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Weighted average shares </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>outstanding &#150; basic and diluted </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">9,860,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">9,850,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">9,850,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">9,850,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Diluted Earnings Per Share </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>0.29 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>0.34 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>1.19 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>1.35 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="10%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>BALANCE SHEET DATA</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=center width="10%" bgColor=#e6efff><B>March 31,</B> </TD>
    <TD noWrap align=center width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=center width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=center width="10%" bgColor=#e6efff><B>December 31,</B>
</TD>
    <TD noWrap align=center width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=center width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=center width="23%" bgColor=#e6efff colSpan=4><B>December
      31,</B> </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2010</U></B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2009</U></B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2009</U></B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B><U>2008</U></B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Working capital </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>8,159,725 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,424,801 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,424,801 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(9,919,449</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Current assets </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">69,829,564 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">62,064,611 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">62,064,611 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">26,409,519 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Total assets </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>95,813,207 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>88,744,855 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>88,744,855 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>55,795,191 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Current liabilities </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">61,669,839 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">57,449,459 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">57,449,459 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">36,328,968 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Long-term debt </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Total liabilities </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">61,853,897 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">57,639,810 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">57,639,810 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">36,442,240 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Noncontrolling interest </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>-- </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD align=left>Total liabilities and stockholders&#146; equity </TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">95,813,207 </TD>
    <TD align=left width="2%" >&nbsp;</TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">88,744,855 </TD>
    <TD align=left width="2%" >&nbsp;</TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">88,744,855 </TD>
    <TD align=left width="2%" >&nbsp;</TD>
    <TD align=left width="1%" >&nbsp;</TD>
    <TD align=right width="10%">55,795,191 </TD>
    <TD align=left width="2%" >&nbsp;</TD></TR></TABLE>
<P align=center>- 5 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<P align=center><B>RISK FACTORS </B></P>
<P align=justify><I>The shares of our common stock are highly speculative in
nature, involve a high degree of risk and should be purchased only by persons
who can afford to lose the entire amount invested in the common stock. Before
purchasing our common stock, you should carefully consider the following factors
relating to our business and prospects. If any of the following risks actually
occurs, our business, financial condition or operating results will suffer, the
trading price of our common stock could decline, and you may lose all or part of
your investment. You should also refer to the other information about us
contained in this prospectus, including our financial statements and related
notes. </I></P>
<P align=justify><B>RISKS RELATED TO OUR BUSINESS </B></P>
<P align=justify><B><I>We face risks related to general domestic and global
economic conditions and to the current credit crisis.</I></B> </P>
<P align=justify>Our current operating cash flows provide us with stable funding
capacity. However, the current uncertainty arising out of domestic and global
economic conditions, including the recent disruption in credit markets, poses a
risk to the PRC economy and may impact our ability to manage normal
relationships with our customers, suppliers and creditors. If the current
situation deteriorates significantly, our business could be materially
negatively impacted, as demand for our products and services may decrease from a
slow-down in the general economy, or supplier or customer disruptions may result
from tighter credit markets. </P>
<P align=justify><B><I>Our business is dependent on continued infrastructure and
construction spending and our growth may be inhibited by the inability of
potential customers to fund purchases of our products and services.</I></B> </P>
<P align=justify>Our products are dependent on the continued growth of
infrastructure and construction projects in the PRC. There is no guarantee that
the PRC will continue to invest in infrastructure and construction. </P>
<P align=justify><B><I>In order to grow at the pace expected by management, we
will require additional capital to support our long-term growth strategies. If
we are unable to obtain additional capital in future years, we may be unable to
proceed with our plans and we may be forced to curtail our growth.</I></B> </P>
<P align=justify>We will require additional working capital to support our
long-term growth strategies, which includes identifying suitable points of
market entry for expansion growing the number of points of sale for our
products, so as to enhance our product offerings and benefit from economies of
scale. Our working capital requirements and the cash flow provided by future
operating activities, if any, may vary greatly from quarter to quarter,
depending on the volume of business and the price level of steel during the
period. We may not be able to obtain adequate levels of additional financing,
whether through equity financing, debt financing or other sources. Additional
financings could result in significant dilution to our earnings per share or the
issuance of securities with rights superior to our current outstanding
securities. In addition, we may grant registration rights to investors
purchasing our equity or debt securities in the future. If we are unable to
raise additional financing, we may be unable to implement our long-term growth
strategies, develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures on a timely basis. </P>
<P align=justify><B><I>If we are unable to attract and retain senior management
and qualified technical and sales personnel, our operations, financial condition
and prospects will be materially adversely affected.</I></B> </P>
<P align=justify>Our future success depends in part on the contributions of our
management team and key technical and sales personnel and our ability to attract
and retain qualified new personnel. In particular, our success depends on the
continuing employment of our Chief Executive Officer, Mr. Chaojun Wang, our
Chief Technology Officer, Ms. Dongmei Pan, and our Chief Financial Officer, Dr.
Eberhard Kornotzki. There is significant competition in our industry for
qualified managerial, technical and sales personnel, and we cannot assure you
that we will be able to retain our key senior managerial, technical and sales
personnel or that we will be able to attract, integrate and retain other such
personnel that we may require in the future. If we are unable to attract and retain key personnel in the future, our business,
operations, financial condition, results of operations and prospects could be
materially adversely affected. </P>
<P align=center>- 6 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
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<P align=justify><B><I>We do not carry business interruption or other</I></B><B>
</B><B><I>commercial</I></B><B> </B><B><I>insurance, so we have to bear losses
ourselves.</I></B> </P>
<P align=justify>We are subject to risk inherent to our business, including
equipment failure, theft, natural disasters, industrial accidents, labor
disturbances, business interruptions, property damage, product liability,
personal injury and death. We do not carry any business interruption insurance
or third-party liability insurance or other insurance to cover risks associated
with our business. As a result, if we suffer losses, damages or liabilities,
including those caused by natural disasters or other events beyond our control
and we are unable to make a claim again a third party, we will be required to
bear all such losses from our own funds, which could have a material adverse
effect on our business, financial condition and results of operations. </P>
<P align=justify><B><I>Our quarterly operating results are likely to fluctuate,
which may affect our stock price.</I></B> </P>
<P align=justify>Our quarterly revenues, expenses, operating results and gross
profit margins vary from quarter to quarter. As a result, our operating results
may fall below the expectations of securities analysts and investors in some
quarters, which could result in a decrease in the market price of our common
stock. The reasons our quarterly results may fluctuate include: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12">variations in the price of steel and steel wire;
  <LI>
  <p style="margin-bottom: 12">changes in the general competitive and economic conditions; and
  <LI>delays in, or uneven timing in the delivery of, customer orders. </LI></UL>
<P align=justify>Period to period comparisons of our results should not be
relied on as indications of future performance. </P>
<P align=justify><B>RISKS RELATED TO THE VIE AGREEMENTS</B> </P>
<P align=justify><B><I>The PRC government may determine that the VIE Agreements
are not in compliance with applicable PRC laws, rules and
regulations.</I></B><I> </I></P>
<P align=justify>Kalington Consulting manages and operates our steel wire
production business through Longhai pursuant to the rights it holds under the
VIE Agreements. Almost all economic benefits and risks arising from Longhai&#146;s
operations are transferred to Kalington Consulting under these agreements.
Details of the VIE Agreements are set out in &#147;OUR BUSINESS - Acquisition of
Kalington Limited&#148;<B><I> </I></B>below. </P>
<P align=justify>There are risks involved with the operation of our business in
reliance on the VIE Agreements, including the risk that the VIE Agreements may
be determined by PRC regulators or courts to be unenforceable. Our PRC counsel
has provided a legal opinion that the VIE Agreements are binding and enforceable
under PRC law, but has further advised that if the VIE Agreements were for any
reason determined to be in breach of any existing or future PRC laws or
regulations, the relevant regulatory authorities would have broad discretion in
dealing with such breach, including: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12">imposing economic penalties;
  <LI>
  <p style="margin-bottom: 12">discontinuing or restricting the operations of Longhai or Kalington
  Consulting;
  <LI>
  <p style="margin-bottom: 12">imposing conditions or requirements in respect of the VIE Agreements with
  which Longhai or Kalington Consulting may not be able to comply;
  <LI>
  <p style="margin-bottom: 12">requiring our company to restructure the relevant ownership structure or
  operations;
  <LI>
  <p style="margin-bottom: 12">taking other regulatory or enforcement actions that could adversely affect
  our company&#146;s business; and
  <LI>revoking the business licenses and/or the licenses or certificates of
  Kalington Consulting, and/or voiding the VIE Agreements. </LI></UL>
<P align=justify>Any of these actions could adversely affect our ability to
manage, operate and gain the financial benefits of Longhai, which would have a
material adverse impact on our business, financial condition and results of
operations. </P>
<P align=center>- 7 - </P>
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<P align=justify><B><I>Our ability to manage and operate Longhai under the VIE
Agreements may not be as effective as direct ownership.</I></B><I> </I></P>
<P align=justify>We conduct our steel wire production business in the PRC and
generate virtually all of our revenues through the VIE Agreements. Our plans for
future growth are based substantially on growing the operations of Longhai.
However, the VIE Agreements may not be as effective in providing us with control
over Longhai as direct ownership. Under the current VIE arrangements, as a legal
matter, if Longhai fails to perform its obligations under these contractual
arrangements, we may have to (i) incur substantial costs and resources to
enforce such arrangements, and (ii) reply on legal remedies under PRC law, which
we cannot be sure would be effective. Therefore, if we are unable to effectively
control Longhai, it may have an adverse effect on our ability to achieve our
business objectives and grow our revenues. </P>
<P align=justify><B><I>As the VIE Agreements are governed by PRC law, we would
be required to rely on PRC law to enforce our rights and remedies under them;
PRC law may not provide us with the same rights and remedies as are available in
contractual disputes governed by the law of other jurisdictions.</I></B><I>
</I></P>
<P align=justify>The VIE Agreements are governed by the PRC law and provide for
the resolution of disputes through arbitral proceedings pursuant to PRC law. If
Longhai or its shareholders fail to perform the obligations under the VIE
Agreements, we would be required to resort to legal remedies available under PRC
law, including seeking specific performance or injunctive relief, or claiming
damages. We cannot be sure that such remedies would provide us with effective
means of causing Longhai to meet its obligations, or recovering any losses or
damages as a result of non-performance. Further, the legal environment in China
is not as developed as in other jurisdictions. Uncertainties in the application
of various laws, rules, regulations or policies in PRC legal system could limit
our liability to enforce the VIE Agreements and protect our interests. </P>
<P align=justify><B><I>The payment arrangement under the VIE Agreements may be
challenged by the PRC tax authorities.</I></B><I> </I></P>
<P align=justify>We generate our revenues through the payments we receive
pursuant to the VIE Agreements. We could face adverse tax consequences if the
PRC tax authorities determine that the VIE Agreements were not entered into
based on arm&#146;s length negotiations. For example, PRC tax authorities may adjust
our income and expenses for PRC tax purposes, which could result in our being
subject to higher tax liability or cause other adverse financial consequences.
</P>
<P align=justify><B><I>The controlling shareholder of Longhai may have potential
conflicts of interest with our company that may adversely affect our
business.</I></B><I> </I></P>
<P align=justify>Chaojun Wang is our chief executive officer, and is also the
largest shareholder of Longhai. Conflicts could arise from time to time between
our interests and the interests of Mr. Wang. Conflicts could also arise between
us and Longhai that would require our shareholders and Longhai&#146;s shareholders to
vote on corporate actions necessary to resolve the conflict. There can be no
assurance in any such circumstances that Mr. Wang will vote his shares in our
best interest or otherwise act in the best interests of our company. If Mr. Wang
fails to act in our best interests, our operating performance and future growth
could be adversely affected. </P>
<P align=justify><B><I>We rely on the approval certificates and business license
held by Kalington Consulting and any deterioration of the relationship between
Kalington Consulting and Longhai could materially and adversely affect our
business operations.</I></B><I> </I></P>
<P align=justify>We operate our steel wire production business in China on the
basis of the approval certificates, business license and other requisite
licenses held by Kalington Consulting and Longhai. There is no assurance that
Kalington Consulting and Longhai will be able to renew their licenses or
certificates when their terms expire with substantially similar terms as the
ones they currently hold. </P>
<P align=justify>Further, our relationship with Longhai is governed by the VIE
Agreements, which are intended to provide us with effective control over the
business operations of Longhai. However, the VIE Agreements may not be effective
in providing control over the application for and maintenance of the licenses
required for our business operations. Longhai could violate the VIE Agreements,
become insolvent, suffer from difficulties in its business or otherwise become
unable to perform its obligations under the VIE Agreements and, as a result, our
operations, reputations and business could be materially harmed. </P>
<P align=justify><B><I>If Kalington Consulting exercises the purchase option it
holds over Longhai&#146;s share capital pursuant to the VIE Agreements, the payment
of the purchase price could materially and adversely affect our financial
position.</I></B><I> </I></P>
<P align=justify>Under the VIE Agreements, Longhai&#146;s shareholders have granted
Kalington Consulting an option for the maximum period of time allowed by law to
purchase all of the equity interest in Longhai at a price equal to the capital
paid in by the transferors, adjusted pro rata for purchase of less than all of
the equity interest, unless applicable PRC laws and regulations require an appraisal of the equity interest or stipulate other
restrictions regarding the purchase price of the equity interest. Since Longhai
is already our contractually controlled affiliate, our exercise of the option
would not bring immediate benefits to our company, and we would only do so if
Longhai or its shareholders fail to perform the obligations under the VIE
Agreements and we are unable to obtain specific performance, injunctive relief,
or other damages in PRC courts, or otherwise protect our interests. The parties
have agreed that if the applicable PRC laws and regulations require an appraisal
of the equity interest or stipulate other restrictions regarding the purchase
price of the equity interest at the time that the option is exercised, then the
purchase price will be set at the lowest price permissible under the applicable
laws and regulations. However, due to uncertainties in the application of
various laws, rules, regulations or policies in PRC legal system, we cannot be
sure that if we choose to exercise such option, any appraisal of equity interest
or other stipulated restrictions required by PRC law will not materially
increase the payment price for the option and adversely affect our results of
operations. </P>
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<P align=justify><B>RISKS RELATED TO DOING BUSINESS IN CHINA</B> </P>
<P align=justify><B><I>Changes in China&#146;s political or economic situation could
harm us and our operating results.</I></B> </P>
<P align=justify>Economic reforms adopted by the Chinese government have had a
positive effect on the economic development of the country, but the government
could change these economic reforms or any of the legal systems at any time.
Such a change could either benefit or damage our operations and profitability.
Some other political and economic factors that could affect our operations and
profitability include the following: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12">level of government involvement in the economy;
  <LI>
  <p style="margin-bottom: 12">control of foreign exchange;
  <LI>
  <p style="margin-bottom: 12">methods of allocating resources;
  <LI>
  <p style="margin-bottom: 12">balance of payments position;
  <LI>
  <p style="margin-bottom: 12">international trade restrictions; and
  <LI>international conflict. </LI></UL>
<P align=justify>The Chinese economy differs from the economies of most
countries belonging to the Organization for Economic Cooperation and
Development, or OECD, in many ways. For example, state-owned enterprises still
constitute a large portion of the Chinese economy, and weak corporate governance
and a lack of flexible currency exchange policy still prevail in China. As a
result of these differences, we may not develop in the same way or at the same
rate as might be expected if the Chinese economy was similar to those of the
OECD member countries. </P>
<P align=justify><B><I>Uncertainties with respect to the PRC legal system could
limit the legal protections available to you and us.</I></B> </P>
<P align=justify>We conduct substantially all of our business through our
operating subsidiary and affiliate in the PRC. Our principal operating
subsidiary and controlled affiliate, Kalington Consulting and Longhai,
respectively, are subject to laws and regulations applicable to foreign
investments in China and, in particular, laws applicable to foreign-invested
enterprises. The PRC legal system is based on written statutes, and prior court
decisions may be cited for reference but have limited precedential value. Since
1979, a series of new PRC laws and regulations have significantly enhanced the
protections afforded to various forms of foreign investments in China. However,
since the PRC legal system continues to evolve rapidly, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties, which may limit legal
protections available to you and us. In addition, any litigation in China may be
protracted and result in substantial costs and diversion of resources and
management attention.</P>
<P align=justify><B><I>You may have difficulty enforcing judgments against
us.</I></B> </P>
<P align=justify>Our principal operating subsidiary and affiliate, Kalington
Consulting and Longhai, respectively, are located in the PRC. We conduct most of
our current operations in the PRC, and most of our assets are located outside
the United States. In addition, most of our officers and directors are nationals
and residents of countries other than the United States. A substantial portion
of the assets of these persons are also located outside the United States. As a
result, it could be difficult for investors to effect service of process in the
United States or to enforce a judgment obtained in the United States against our
Chinese operations and subsidiary and/or controlled affiliate. It may also be
difficult for you to enforce in U.S. courts judgments predicated on the civil liability provisions of the U.S. federal securities laws
against us and our officers and directors, most of whom are not residents in the
United States and the substantial majority of whose assets are located outside
the United States. In addition, there is uncertainty as to whether the courts of
the PRC would recognize or enforce judgments of U.S. courts. The recognition and
enforcement of foreign judgments are provided for under the PRC Civil Procedures
Law. Courts in China may recognize and enforce foreign judgments in accordance
with the requirements of the PRC Civil Procedures Law based on treaties between
China and the country where the judgment is made or on reciprocity between
jurisdictions. China does not have any treaties or other arrangements that
provide for the reciprocal recognition and enforcement of foreign judgments with
the United States. In addition, according to the PRC Civil Procedures Law,
courts in the PRC will not enforce a foreign judgment against us or our
directors and officers if they decide that the judgment violates basic
principles of PRC law or national sovereignty, security or the public interest.
So it is uncertain whether a PRC court would enforce a judgment rendered by a
court in the United States. </P>
<P align=center>- 9 - </P>
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<P align=justify><B><I>The PRC government exerts substantial influence over the
manner in which we must conduct our business activities.</I></B> </P>
<P align=justify>The PRC government has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China may be harmed by
changes in its laws and regulations, including those relating to taxation,
import and export tariffs, environmental regulations, land use rights, property,
and other matters. We believe that our operations in China are in material
compliance with all applicable legal and regulatory requirements. However, the
central or local governments of the jurisdictions in which we operate may impose
new, stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations. </P>
<P align=justify>Accordingly, government actions in the future, including any
decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the
implementation of economic policies, could have a significant effect on economic
conditions in China or particular regions thereof and could require us to divest
ourselves of any interest we then hold in Chinese properties or joint ventures.
</P>
<P align=justify><B><I>Future inflation in China may inhibit our ability to
conduct business in China.</I></B> </P>
<P align=justify>In recent years, the Chinese economy has experienced periods of
rapid expansion and highly fluctuating rates of inflation. During the past ten
years, the rate of inflation in China has been as high as 20.7% and as low as
-2.2%. These factors have led to the adoption by the Chinese government, from
time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. High inflation
may in the future cause the Chinese government to impose controls on credit
and/or prices, or to take other action, which could inhibit economic activity in
China, and thereby harm the market for our products and our company. </P>
<P align=justify><B><I>Restrictions on currency exchange may limit our ability
to receive and use our revenues effectively.</I></B> </P>
<P align=justify>All of our revenues are generated in RMB and any future
restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside China or to make
dividend or other payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign-invested enterprises may only buy, sell
or remit foreign currencies after providing valid commercial documents, at those
banks in China authorized to conduct foreign exchange business. In addition,
conversion of RMB for capital account items, including direct investment and
loans, is subject to governmental approval in China, and companies are required
to open and maintain separate foreign exchange accounts for capital account
items. We cannot be certain that the Chinese regulatory authorities will not
impose more stringent restrictions on the convertibility of the RMB.</P>
<P align=justify><B><I>Fluctuations in exchange rates could adversely affect our
business and the value of our securities.</I></B> </P>
<P align=justify>The value of our common stock will be indirectly affected by
the foreign exchange rate between U.S. dollars and RMB and between those
currencies and other currencies in which our sales may be denominated.
Appreciation or depreciation in the value of the RMB relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations.
Fluctuations in the exchange rate will also affect the relative value of any
dividend we issue that will be exchanged into U.S. dollars as well as earnings
from, and the value of, any U.S. dollar-denominated investments we make in the
future. Please refer to a further discussion of exchange rates on page 27 of
this document. </P>
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<P align=justify>Since July 2005, the RMB is no longer pegged to the U.S.
dollar. Although the People&#146;s Bank of China regularly intervenes in the foreign
exchange market to prevent significant short-term fluctuations in the exchange
rate, the RMB may appreciate or depreciate significantly in value against the
U.S. dollar in the medium to long term. Moreover, it is possible that in the
future PRC authorities may lift restrictions on fluctuations in the RMB exchange
rate and lessen intervention in the foreign exchange market.</P>
<P align=justify>Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions. While we may enter into hedging transactions in
the future, the availability and effectiveness of these transactions may be
limited, and we may not be able to successfully hedge our exposure at all. In
addition, our foreign currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert RMB into foreign
currencies. </P>
<P align=justify><B><I>Restrictions under PRC law on our PRC subsidiary&#146;s
ability to make dividends and other distributions could materially and adversely
affect our ability to grow, make investments or acquisitions that could benefit
our business, pay dividends to you, and otherwise fund and conduct our
businesses.</I></B> </P>
<P align=justify>Substantially all of our revenues are earned by Kalington
Consulting, our PRC subsidiary. PRC regulations restrict the ability of our PRC
subsidiary to make dividends and other payments to its offshore parent company.
PRC legal restrictions permit payments of dividends by our PRC subsidiary only
out of its accumulated after-tax profits, if any, determined in accordance with
PRC accounting standards and regulations. Our PRC subsidiary is also required
under PRC laws and regulations to allocate at least 10% of our distributed
annual after-tax profits determined in accordance with PRC GAAP to a statutory
general reserve fund until the amounts in said fund reaches 50% of our
registered capital; however, our PRC subsidiary has not distributed any
after-tax profits to date. Allocations to these statutory reserve funds can only
be used for specific purposes and are not transferable to us in the form of
loans, advances or cash dividends. Any limitations on the ability of our PRC
subsidiary to transfer funds to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to
our business, pay dividends and otherwise fund and conduct our business. </P>
<P align=justify><B><I>Failure to comply with PRC regulations relating to the
establishment of offshore special purpose companies by PRC residents may subject
our PRC resident shareholders to personal liability, limit our ability to
acquire PRC companies or to inject capital into our PRC subsidiary or affiliate,
limit our PRC subsidiary&#146;s and affiliate&#146;s ability to distribute profits to us
or otherwise materially adversely affect us.</I></B> </P>
<P align=justify>In October 2005, State Administration of Foreign Exchange of
the People&#146;s Republic of China, or SAFE, issued the Notice on Relevant Issues in
the Foreign Exchange Control over Financing and Return Investment Through
Special Purpose Companies by Residents Inside China, generally referred to as
Circular 75, which required PRC residents to register with the competent local
SAFE branch before establishing or acquiring control over an offshore special
purpose company, or SPV, for the purpose of engaging in an equity financing
outside of China on the strength of domestic PRC assets originally held by those
residents. Internal implementing guidelines issued by SAFE, which became public
in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (1)
purporting to cover the establishment or acquisition of control by PRC residents
of offshore entities which merely acquire &#147;control&#148; over domestic companies or
assets, even in the absence of legal ownership; (2) adding requirements relating
to the source of the PRC resident&#146;s funds used to establish or acquire the
offshore entity; covering the use of existing offshore entities for offshore
financings; (3) purporting to cover situations in which an offshore SPV
establishes a new subsidiary in China or acquires an unrelated company or
unrelated assets in China; and (4) making the domestic affiliate of the SPV
responsible for the accuracy of certain documents which must be filed in
connection with any such registration, notably, the business plan which
describes the overseas financing and the use of proceeds. Amendments to
registrations made under Circular 75 are required in connection with any
increase or decrease of capital, transfer of shares, mergers and acquisitions,
equity investment or creation of any security interest in any assets located in
China to guarantee offshore obligations, and Notice 106 makes the offshore SPV
jointly responsible for these filings. In the case of an SPV which was
established, and which acquired a related domestic company or assets, before the
implementation date of Circular 75, a retroactive SAFE registration was required
to have been completed before March 31, 2006; this date was subsequently
extended indefinitely by Notice 106, which also required that the registrant
establish that all foreign exchange transactions undertaken by the SPV and its
affiliates were in compliance with applicable laws and regulations. Failure to
comply with the requirements of Circular 75, as applied by SAFE in accordance
with Notice 106, may result in fines and other penalties under PRC laws for
evasion of applicable foreign exchange restrictions. Any such failure could also
result in the SPV&#146;s affiliates being impeded or prevented from distributing
their profits and the proceeds from any reduction in capital, share transfer or
liquidation to the SPV, or from engaging in other transfers of funds into or out
of China. </P>
<P align=center>- 11 - </P>
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<P align=justify>We have advised our shareholders who are PRC residents, as
defined in Circular 75, to register with the relevant branch of SAFE, as
currently required, in connection with their equity interests in us and our
acquisitions of equity interests in our PRC subsidiary and affiliate. However, we cannot provide any
assurances that their existing registrations have fully complied with, and they
have made all necessary amendments to their registration to fully comply with,
all applicable registrations or approvals required by Circular 75. Moreover,
because of uncertainty over how Circular 75 will be interpreted and implemented,
and how or whether SAFE will apply it to us, we cannot predict how it will
affect our business operations or future strategies. For example, our present
and prospective PRC subsidiary&#146;s and affiliate&#146;s ability to conduct foreign
exchange activities, such as the remittance of dividends and foreign
currency-denominated borrowings, may be subject to compliance with Circular 75
by our PRC resident beneficial holders. In addition, such PRC residents may not
always be able to complete the necessary registration procedures required by
Circular 75. We also have little control over either our present or prospective
direct or indirect shareholders or the outcome of such registration procedures.
A failure by our PRC resident beneficial holders or future PRC resident
shareholders to comply with Circular 75, if SAFE requires it, could subject
these PRC resident beneficial holders to fines or legal sanctions, restrict our
overseas or cross-border investment activities, limit our subsidiary&#146;s and
affiliate&#146;s ability to make distributions or pay dividends or affect our
ownership structure, which could adversely affect our business and prospects. </P>
<P align=justify><B><I>Our business and financial performance may be materially
adversely affected if the PRC regulatory authorities determine that our
acquisition of Longhai constitutes a Round-trip Investment without MOFCOM
approval.</I></B> </P>
<P align=justify>On August 8, 2006, six PRC regulatory agencies promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, or the 2006 M&amp;A Rule, which became effective on September 8,
2006. According to the 2006 M&amp;A Rule, when a PRC business that is owned by
PRC individual(s) is sold to a non-PRC entity that is established or controlled,
directly or indirectly, by those same PRC individual(s) it must be approved by
the Ministry of Commerce, or MOFCOM, and any indirect arrangement or series of
arrangements which achieves the same end result without the approval of MOFCOM
is a violation of PRC law. </P>
<P align=justify>On March 18, 2010, Mr. Chaojun Wang, our Chief Executive
Officer, who is a PRC citizen, entered into a call option agreement with Mr.
Jinhai Guo, a US passport holder and the sole shareholder of Merry Success
Limited, our principal shareholder after the reverse acquisition. Under the call
option agreement, Mr. Wang shall have right and option to acquire up to 100%
shares of Merry Success Limited for fixed consideration within the next 3 years.
The call option agreement also provides that Mr. Guo shall not dispose any of
the shares of Merry Success Limited without Mr. Wang&#146;s consent. </P>
<P align=justify>The PRC regulatory authorities may take the view that the
reverse acquisition transaction and related transaction documents are part of an
overall series of arrangements which constitute a Round-trip Investment, because
at the end of these transactions, the Founder will become majority owner and
effective controlling party of a foreign entity that acquired ownership of our
Chinese subsidiary. The PRC regulatory authorities may also take the view that
the registration of the reverse acquisition with the Beijing office of the PRC
State Administration of Industry and Commerce, or AIC, and the filings with the
SAFE may not be evidence that the Acquisition has been properly approved because
the relevant parties did not fully disclose to the AIC, SAFE or MOFCOM the
overall restructuring arrangements, the existence of the Share Exchange
Agreement and its link with the Acquisition. If the PRC regulatory authorities
take the view that the Acquisition constitutes a Round-trip Investment under the
2006 M&amp;A Rule, we cannot assure you that we will be able to obtain the
approval required from MOFCOM. </P>
<P align=justify>If the PRC regulatory authorities take the view that the
Acquisition constitutes a Round-trip Investment without MOFCOM approval, they
could invalidate our acquisition and ownership of our Chinese subsidiary.
Additionally, the PRC regulatory authorities may take the view that the
Acquisition constitutes a transaction that requires the prior approval of the
China Securities Regulatory Commission, or CSRC, before MOFCOM approval is
obtained. We believe that if this takes place, we may be able to find a way to
re-establish control of our Chinese subsidiary&#146;s business operations through a
series of contractual arrangements rather than an outright purchase of our
Chinese subsidiary. But we cannot assure you that such contractual arrangements
will be protected by PRC law or that we can receive as complete or effective
economic benefit and overall control of our Chinese subsidiary&#146;s business as if
we had direct ownership of our Chinese subsidiary. In addition, we cannot assure
you that such contractual arrangements can be successfully effected under PRC
law. If we cannot obtain MOFCOM or CSRC approval if required by the PRC
regulatory authorities to do so, and if we cannot put in place or enforce
relevant contractual arrangements as an alternative and equivalent means of
control of our Chinese subsidiary, our business and financial performance will
be materially adversely affected. </P>
<P align=justify><B><I>Under the New EIT Law, we may be classified as a
&#147;resident enterprise&#148; of China. Such classification will likely result in
unfavorable tax consequences to us and our non-PRC shareholders.</I></B> </P>
<P align=justify>Under the New EIT Law effective on January 1, 2008, an
enterprise established outside China with &#147;de facto management bodies&#148; within
China is considered a &#147;resident enterprise,&#148; meaning that it can be treated in a
manner similar to a Chinese enterprise for enterprise income tax purposes. The
implementing rules of the New EIT Law define de facto management as &#147;substantial and overall management and control over the
production and operations, personnel, accounting, and properties&#148; of the
enterprise. </P>
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<P align=justify>On April 22, 2009, the State Administration of Taxation issued
the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment
Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to
Criteria of de facto Management Bodies, or the Notice, further interpreting the
application of the New EIT Law and its implementation to non-Chinese enterprise
or group controlled offshore entities. Pursuant to the Notice, an enterprise
incorporated in an offshore jurisdiction and controlled by a Chinese enterprise
or group will be classified as a &#147;non-domestically incorporated resident
enterprise&#148; if (i) its senior management in charge of daily operations reside or
perform their duties mainly in China; (ii) its financial or personnel decisions
are made or approved by bodies or persons in China; (iii) its substantial assets
and properties, accounting books, corporate chops, board and shareholder minutes
are kept in China; and (iv) at least half of its directors with voting rights or
senior management primarily reside in China. A resident enterprise would be
subject to an enterprise income tax rate of 25% on its worldwide income and must
pay a withholding tax at a rate of 10% when paying dividends to its non-PRC
shareholders. However, it remains unclear as to whether the Notice is applicable
to an offshore enterprise incorporated by a Chinese natural person. Nor are
detailed measures on imposition of tax from non-domestically incorporated
resident enterprises are available. Therefore, it is unclear how tax authorities
will determine tax residency based on the facts of each case. </P>
<P align=justify>We may be deemed to be a resident enterprise by Chinese tax
authorities. If the PRC tax authorities determine that we are a &#147;resident
enterprise&#148; for PRC enterprise income tax purposes, a number of unfavorable PRC
tax consequences could follow. First, we may be subject to the enterprise income
tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise
income tax reporting obligations. In our case, this would mean that income such
as interest on financing proceeds and non-China source income would be subject
to PRC enterprise income tax at a rate of 25%. Second, although under the New
EIT Law and its implementing rules dividends paid to us from our PRC subsidiary
would qualify as &#147;tax-exempt income,&#148; we cannot guarantee that such dividends
will not be subject to a 10% withholding tax, as the PRC foreign exchange
control authorities, which enforce the withholding tax, have not yet issued
guidance with respect to the processing of outbound remittances to entities that
are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, it is possible that future guidance issued with respect to the new
&#147;resident enterprise&#148; classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC shareholders and
with respect to gains derived by our non-PRC shareholders from transferring our
shares. We are actively monitoring the possibility of &#147;resident enterprise&#148;
treatment for the 2010 tax year. </P>
<P align=justify>If we were treated as a &#147;resident enterprise&#148; by PRC tax
authorities, we would be subject to taxation in both the U.S. and China, and our
PRC tax may not be creditable against our U.S. tax. </P>
<P align=justify><B><I>We may be exposed to liabilities under the Foreign
Corrupt Practices Act and Chinese anti-corruption laws, and any determination
that we violated these laws could have a material adverse effect on our
business.</I></B> </P>
<P align=justify>We are subject to the Foreign Corrupt Practice Act, or FCPA,
and other laws that prohibit improper payments or offers of payments to foreign
governments and their officials and political parties by U.S. persons and
issuers as defined by the statute, for the purpose of obtaining or retaining
business. We have operations, agreements with third parties and we make all of
our sales in China. The PRC also strictly prohibits bribery of government
officials. Our activities in China create the risk of unauthorized payments or
offers of payments by the employees, consultants, sales agents or distributors
of our company and its affiliate, even though they may not always be subject to
our control. It is our policy to implement safeguards to discourage these
practices by our employees, and we have implemented a policy to comply
specifically with the FCPA. In spite of these efforts, our existing safeguards
and any future improvements may prove to be less than effective, and the
employees, consultants, sales agents or distributors of our company and its
affiliate may engage in conduct for which we might be held responsible.
Violations of the FCPA or Chinese anti-corruption laws may result in severe
criminal or civil sanctions, and we may be subject to other liabilities, which
could negatively affect our business, operating results and financial condition.
In addition, the U.S. government may seek to hold our company liable for
successor liability FCPA violations committed by companies in which we invest or
that we acquire. </P>
<P align=justify><B><I>Because our business is located in the PRC, we may have
difficulty establishing adequate management, legal and financial controls, which
we are required to do in order to comply with U.S. securities laws.</I></B> </P>
<P align=justify>PRC companies have historically not adopted a Western style of
management and financial reporting concepts and practices, which includes strong
corporate governance, internal controls and, computer, financial and other
control systems. Most of our middle and top management staff are not educated
and trained in the Western system, and we may have difficulty hiring new
employees in the PRC with such training. In addition, we may need to rely on a
new and developing communication infrastructure to efficiently transfer our information from
retail outlets to our headquarters. 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. Therefore, we may, in turn, experience difficulties in implementing
and maintaining adequate internal controls as required under Section 404 of the
Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or
material weaknesses in our internal controls, which could impact the reliability
of our financial statements and prevent us from complying with SEC rules and
regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such
deficiencies, weaknesses or lack of compliance could have a materially adverse
effect on our business. </P>
<P align=center>- 13 - </P>
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<P align=justify><B>RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY</B> </P>
<P align=justify><B><I>Our common stock is quoted on the OTC Bulletin Board,
which may have an unfavorable impact on our stock price and liquidity.</I></B>
</P>
<P align=justify>Our common stock is quoted on the inter-dealer electronic
quotation and trading system maintained by Pink OTC Markets Inc., under the
symbol &#147;ACTND.&#148; The Pink OTC Markets Inc. is a significantly more limited market
than established trading markets such as the New York Stock Exchange or NASDAQ.
The quotation of our shares by the Pink OTC Markets Inc. may result in a less
liquid market available for existing and potential shareholders to trade shares
of our common stock, could depress the trading price of our common stock and
could have a long-term adverse impact on our ability to raise capital in the
future. We are submitting an application to list our common stock on the NASDAQ
Global Market under the symbol &#147;LHAI,&#148; concurrently with the filing of the
registration statement of which this prospectus is a part, however, we cannot
assure you that we will be able to meet the NASDAQ initial listing standards, or
that we will be able to maintain such listing.</P>
<P align=justify><B><I>We may be subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common
stock.</I></B> </P>
<P align=justify>The SEC has adopted regulations which generally define
so-called &#147;penny stocks&#148; to be an equity security that has a market price less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exemptions. Our common stock is a &#147;penny stock&#148; and is subject to
Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes
additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and &#147;accredited
investors&#148; (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser&#146;s
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market,
thus possibly making it more difficult for us to raise additional capital. </P>
<P align=justify>For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in penny stock, of a disclosure
schedule required by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock. </P>
<P align=justify>There can be no assurance that our common stock will qualify
for exemption from the Penny Stock Rule. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest. </P>
<P align=justify><B><I>Provisions in our Articles of Incorporation and Bylaws or
Nevada law might discourage, delay or prevent a change of control of us or
changes in our management and, therefore depress the trading price of the common
stock.</I></B> </P>
<P align=justify>Our Articles of Incorporation authorize our board of directors
to issue up to 10,000,000 shares of preferred stock. The preferred stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the board of directors without further action by stockholders.
These terms may include preferences as to dividends and liquidation, voting
rights, conversion rights, redemption rights and sinking fund provisions. The
issuance of any preferred stock could diminish the rights of holders of our
common stock, and therefore could reduce the value of such common stock. In
addition, specific rights granted to future holders of preferred stock could be
used to restrict our ability to merge with, or sell assets to, a third party.
The ability of our board of directors to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly to acquire or
effect a change-in-control, which in turn could prevent our stockholders from
recognizing a gain in the event that a favorable offer is extended and could
materially and negatively affect the market price of our common stock. </P>
<P align=center>- 14 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
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<P align=justify>In addition, Nevada corporate law and our Articles of
Incorporation and Bylaws also contain other provisions that could discourage,
delay or prevent a change in control of our Company or changes in its management
that our stockholders may deem advantageous. These provisions: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12">deny holders of our common stock cumulative voting rights in the election
  of directors, meaning that stockholders owning a majority of our outstanding
  shares of common stock will be able to elect all of our directors;
  <LI>
  <p style="margin-bottom: 12">require any stockholder wishing to properly bring a matter before a
  meeting of stockholders to comply with specified procedural and advance notice
  requirements; and
  <LI>allow any vacancy on the board of directors, however the vacancy occurs,
  to be filled by the directors. </LI></UL>
<P align=justify><B><I>We do not intend to pay dividends for the foreseeable
future.</I></B> </P>
<P align=justify>For the foreseeable future, we intend to retain any earnings to
finance the development and expansion of our business, and we do not anticipate
paying any cash dividends on our common stock. Accordingly, investors must be
prepared to rely on sales of their common stock after price appreciation to earn
an investment return, which may never occur. Investors seeking cash dividends
should not purchase our common stock. Any determination to pay dividends in the
future will be made at the discretion of our board of directors and will depend
on our results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors our board deems
relevant. </P>
<P align=justify><B><I>Our controlling stockholder holds a significant
percentage of our outstanding voting securities, which could hinder our ability
to engage in significant corporate transactions without his approval.</I></B>
</P>
<P align=justify>Mr. Chaojun Wang, through his option to purchase Merry Success
Limited, is the beneficial owner of approximately 51% of our outstanding voting
securities, prior to commencement of this offering and will have [____]% upon
completion of this offering. As a result, he possesses significant influence,
giving him the ability, among other things, to elect a majority of our board of
directors and to authorize or prevent proposed significant corporate
transactions. His ownership and control may also have the effect of delaying or
preventing a future change in control, impeding a merger, consolidation,
takeover or other business combination or discourage a potential acquirer from
making a tender offer. </P>
<P align=center><B>SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS </B></P>
<P align=justify>This prospectus contains forward-looking statements. The
forward-looking statements are contained principally in the sections entitled
&#147;Summary,&#148; &#147;Risk Factors,&#148; &#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations,&#148; and &#147;Business.&#148; These statements involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from any
future results, performances or achievements expressed or implied by the
forward-looking statements. These risks and uncertainties include, but are not
limited to, the factors described in the section captioned &#147;Risk Factors&#148; above.
</P>
<P align=justify>In some cases, you can identify forward-looking statements by
terms such as &#147;anticipates,&#148; &#147;believes,&#148; &#147;could,&#148; &#147;estimates,&#148; &#147;expects,&#148;
&#147;intends,&#148; &#147;may,&#148; &#147;plans,&#148; &#147;potential,&#148; &#147;predicts,&#148; &#147;projects,&#148; &#147;should,&#148;
&#147;would&#148; and similar expressions intended to identify forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and are based on assumptions subject to risks and uncertainties. Given
these uncertainties, you should not place undue reliance on these
forward-looking statements. </P>
<P align=justify>Also, forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus. You should read this
prospectus and the documents that we reference in this prospectus, or that we
filed as exhibits to the registration statement of which this prospectus is a
part, completely and with the understanding that our actual future results may
be materially different from what we expect. </P>
<P align=justify>Except as required by law, we assume no obligation to update
any forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the future. </P>
<P align=center>- 15 - </P>
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<P align=center><B>DETERMINATION OF OFFERING PRICE </B></P>
<P align=justify>The public offering price of the units and the exercise price
and other terms of the warrants were negotiated between us and the underwriters,
based on the trading prior to the offering, among other things. Other factors
considered in determining the public offering price of the units and the
exercise price and other terms of the warrants include the history and prospects
of the company, the stage of development of our business, our business plans for
the future and the extent to which they have been implemented, an assessment of
our management, general conditions of the securities markets at the time of the
offering and such other factors as were deemed relevant. </P>
<P align=center><B>USE OF PROCEEDS </B></P>
<P align=justify>We estimate that the net proceeds from our sale of units in
this offering, assuming the sale of all of the units offered in this offering
and a public offering price of $[___] per unit after deducting underwriting
discounts and estimated offering expenses payable by us, will be approximately
$[___] million. </P>
<P align=justify>We intend to use the net proceeds from this offering (i) to acquire new production facilities and (ii) for general corporate
purposes, including working capital. If not all of the units are sold in the
offering, less capital will be available, which may result in a delay of
acquisitions. <B></B></P>
<P align=justify>The proceeds from
the exercise of any warrants issued as part of the units will be used for working capital. </P>
<P align=justify>We will have broad discretion over the manner in which the net
proceeds of the offering will be applied, and we may not use these proceeds in a
manner desired by our shareholders. Although we have no present intention of
doing so, future events may require us to reallocate the offering proceeds. </P>
<P align=center><B>CAPITALIZATION</B> </P>
<P align=justify>The following table sets forth our capitalization (i) as of
March 31, 2010, and (ii) as adjusted as of that date to give effect to the
application of the estimated net proceeds of this offering (at an assumed public
offering price of $[____] per unit). This table should be read in conjunction
with our consolidated financial statements and the related notes, appearing
elsewhere in this prospectus. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="12%" valign="bottom"><B>March 31,</B> </TD>
    <TD noWrap align=center width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="12%" valign="bottom"><B>March 31,</B> </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="12%" valign="bottom"><B>2010</B> </TD>
    <TD noWrap align=center width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="12%" valign="bottom"><B>2010</B> </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="12%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="12%" valign="bottom">(as adjusted) </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">&nbsp; </TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Cash and cash equivalents </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">&nbsp;211,416 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">211,416</TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Equipment, net </TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">&nbsp;25,983,643 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">25,983,643</TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10; margin-left: 10">&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Due to related parties, short term portion </TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD noWrap align=right width="12%" valign="bottom">&nbsp;90,026 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD noWrap align=right width="12%" valign="bottom">90,026</TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Shareholder&#146;s equity: </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10; margin-left: 10">100,000,000, par value $.0001, authorized, actual
      and as adjusted; </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="12%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="12%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF" valign="bottom">
    <p style="text-indent: -10; margin-left: 10">10,000,000* and [____] million
      shares of common stock, issued and outstanding, actual and as adjusted </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" valign="bottom" >$</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF" valign="bottom">&nbsp;10,000 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" valign="bottom" >$</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF" valign="bottom">&nbsp;[____] </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Additional paid-in capital </TD>
    <TD noWrap align=left width="1%" valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">2,624,390 </TD>
    <TD noWrap align=left width="2%" valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">[____] </TD>
    <TD noWrap align=left width="2%" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF" valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Retained earnings </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" bgcolor="#E6EFFF" valign="bottom">30,224,962 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" bgcolor="#E6EFFF" valign="bottom">[____] </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Total shareholder&#146;s equity </TD>
    <TD noWrap align=left width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%" valign="bottom">33,959,310 </TD>
    <TD noWrap align=left width="2%" valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%" valign="bottom">[____] </TD>
    <TD noWrap align=left width="2%" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF" valign="bottom">
    <p style="text-indent: -10; margin-left: 10">Total capitalization </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" valign="bottom" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%" bgcolor="#E6EFFF" valign="bottom">&nbsp;34,049,336 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" valign="bottom" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%" bgcolor="#E6EFFF" valign="bottom">&nbsp;[____] </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" valign="bottom" >&nbsp;</TD></TR></TABLE>
<P align=justify>__________<br>
* After giving effect to the 1-for-125 reverse split to be
effected on June 30, 2010. </P>
<P align=center><B>MARKET FOR OUR COMMON STOCK </B></P>
<P align=justify>Our common stock is quoted on the inter-dealer electronic
quotation and trading system maintained by Pink OTC Markets Inc., under the
symbol &#147;ACTND.&#148; The closing bid price for our common stock on July 19, 2010 was
$15.00 per share, as reported by the Pink OTC Markets Inc., after giving effect
to the 1-for-125 reverse split effected on June 30, 2010.&nbsp; We expect that upon consummation of
this offering, our common stock will be separately listed on the NASDAQ Global
Market under the symbols &#147;LHAI&#148;. The units and warrants included in the units
will not publicly trade. </P>
<P align=center>- 16 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_21></A>
<P align=justify>The following table sets forth, for the periods indicated, the
high and low closing prices of our common stock. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=center>&nbsp; </TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="27%" colSpan=4><B>Closing Bid
      Prices</B><B><SUP>(1)</SUP></B></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>&nbsp; </TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>High</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>Low</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B><I>Year Ended December 31,
      2010</I></B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>First Quarter </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">30.00</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">7.50</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Second Quarter (through June 17,
      2010) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>23.75</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>8.875</TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>Third Quarter (through July 19, 2010)</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">
    <p align="right">15.00</TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">
    <p align="right">15.00</TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B><I>Year Ended December 31,
      2009</I></B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>First Quarter </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">3.75</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">1.25</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Second Quarter </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>3.75</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>0.9375</TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Third Quarter </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">10.00</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">7.50</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Fourth Quarter </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>3.125</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>7.50</TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B><I>Year Ended December 31,
      2008</I></B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>First Quarter </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">8.75</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">6.25</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Second Quarter </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>6.25</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>6.25</TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Third Quarter </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">3.75</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">3.75</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Fourth Quarter </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>6.25</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>6.25</TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=justify>________________<br>
(1) The above tables set forth the range of high and low
closing bid prices per share of our common stock as reported by
www.quotemedia.com for the periods indicated, after giving effect to the
1-for-125 reverse split effected on June 30, 2010.</P>
<P align=justify><B>Holders</B> </P>
<P align=justify>As of July 19, 2010 there were approximately 464 stockholders
of record of our common stock. This number does not include shares held by
brokerage clearing houses, depositories or others in unregistered form.
<B></B></P>
<P align=justify>We plan to furnish our stockholders with an annual report for
each fiscal year ending December 31 containing financial statements audited by
our independent certified public accountants. We are subject to the information
reporting requirements of the Exchange Act. As such, we file annual, quarterly
and current reports and other documents with the SEC. We intend to maintain
compliance with the periodic reporting requirements of the Exchange Act. </P>
<P align=justify><B>Securities Authorized for Issuance under Equity Compensation
Plans</B> </P>
<P align=justify>We do not have in effect any compensation plans under which our
equity securities are authorized for issuance and we do not have any outstanding
stock options. </P>
<P align=justify><B>Recent Sales of Unregistered Securities</B> </P>
<P align=justify>On March 26, 2010, we issued 10,000 shares of our Series A
Preferred Stock to the shareholders of Kalington. The total consideration for
the 10,000 shares of our Series A Preferred Stock was 10,000 ordinary shares of
Kalington, which is all the issued and outstanding capital stock of Kalington.
The number of our shares issued to the shareholders of Kalington was determined
based on an arm&#146;s length negotiation. The issuance of our shares to the
shareholders of Kalington was made in reliance on the exemption provided by
Section 4(2) of the Securities Act for the offer and sale of securities not
involving a public offering and Regulation D promulgated thereunder. </P>
<P align=justify>On March 26, 2010, we issued 7,450,000 shares of our Common
Stock to Goodwin Ventures, Inc. in consideration for Goodwin Ventures, Inc.
paying off approximately $90,000 in liabilities incurred by LSI prior to the
reverse merger acquisition. The issuance of our shares to Goodwin Ventures, Inc.
was made in reliance on the exemption provided by Section 4(2) of the Securities
Act for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder. </P>
<P align=center>- 17 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
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<P align=justify>We issued securities in reliance upon Rule 506 of Regulation D
of the Securities Act. These shareholders who received the securities in such
instances made representations that (a) the shareholder is acquiring the
securities for his, her or its own account for investment and not for the account of any other
person and not with a view to or for distribution, assignment or resale in
connection with any distribution within the meaning of the Securities Act, (b)
the shareholder agrees not to sell or otherwise transfer the purchased shares
unless they are registered under the Securities Act and any applicable state
securities laws, or an exemption or exemptions from such registration are
available, (c) the shareholder has knowledge and experience in financial and
business matters such that he, she or it is capable of evaluating the merits and
risks of an investment in us, (d) the shareholder had access to all of our
documents, records, and books pertaining to the investment and was provided the
opportunity to ask questions and receive answers regarding the terms and
conditions of the offering and to obtain any additional information which we
possessed or were able to acquire without unreasonable effort and expense, and
(e) the shareholder has no need for the liquidity in its investment in us and
could afford the complete loss of such investment. Management made the
determination that the investors in instances where we relied on Regulation D
are accredited investors (as defined in Regulation D) based upon management&#146;s
inquiry into their sophistication and net worth. In addition, there was no
general solicitation or advertising for securities issued in reliance upon
Regulation D. </P>
<P align=justify>In instances described above where we indicate that we relied
upon Section 4(2) of the Securities Act in issuing securities, our reliance was
based upon the following factors: (a) the issuance of the securities was an
isolated private transaction by us which did not involve a public offering; (b)
there were only a limited number of offerees; (c) there were no subsequent or
contemporaneous public offerings of the securities by us; (d) the securities
were not broken down into smaller denominations; and (e) the negotiations for
the sale of the stock took place directly between the offeree and us. </P>
<P align=justify>On June 30, 2010, we effected a 1-for-125 reverse split of our
outstanding common stock, after which shares of our Series A Preferred Stock
automatically converted into shares of common stock on the basis of 1 share of
Series A Preferred Stock for 985 shares of common stock. This resulted in the
automatic conversion of the 10,000 outstanding shares of Series A Preferred
Stock into 9,850,000 shares of common stock, constituting 98.5% of our
outstanding common stock.</P>
<P align=justify><B>Purchases of Equity Securities</B> </P>
<P align=justify>No repurchases of our common stock were made during the fiscal
year ended December 31, 2009 or during the first two quarters of 2010.</P>
<P align=justify><B>Transfer Agent and Registrar</B> </P>
<P align=justify>Our independent stock transfer agent is PacWest Transfer, LLC.
Their mailing address is 4045 South Spencer Street, Suite 403, Las Vegas, NV
89119, and their phone number is (702) 270-9646. </P>
<P align=center><B>DIVIDEND POLICY </B></P>
<P align=justify>In the past, we have not distributed earnings to shareholders.
Any future decisions regarding dividends will be made by our board of directors.
We currently intend to retain and use any future earnings for the development
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Our board of directors has complete discretion on
whether to pay dividends. Even if our board of directors decides to pay
dividends, the form, frequency and amount will depend upon our future operations
and earnings, capital requirements and surplus, general financial condition,
contractual restrictions and other factors that the board of directors may deem
relevant. </P>
<P align=justify>Substantially all of our revenues are earned by Longhai or
Kalington Consulting, our PRC controlled affiliate and subsidiary, respectively.
PRC regulations restrict the ability of our PRC affiliate and subsidiary to make
dividends and other payments to their offshore parent company. PRC legal
restrictions permit payments of dividend by our PRC subsidiary and affiliate
only out of their accumulated after-tax profits, if any, determined in
accordance with PRC accounting standards and regulations. Our PRC subsidiary and
affiliate are also required under PRC laws and regulations to allocate at least
10% of our distributed annual after-tax profits determined in accordance with
PRC GAAP to a statutory general reserve fund until the amounts in said fund
reaches 50% of our registered capital, however, our PRC subsidiary has not
distributed any after-tax profits to date. Allocations to these statutory
reserve funds can only be used for specific purposes and are not transferable to
us in the form of loans, advances or cash dividends. Any limitations on the
ability of our PRC subsidiary to transfer funds to us could materially and
adversely limit our ability to grow, make investments or acquisitions that could
be beneficial to our business, pay dividends and otherwise fund and conduct our
business. </P>
<P align=center>- 18 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
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<!--$$/page=--><A name=page_23></A>
<P align=center><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS </B></P>
<P align=justify><B>Overview</B> </P>
<P align=justify>Longhai was originally formed on August 26, 2008 as a result of
a carve-out from the Longhai Steel Group. We are a leading producer of steel
wire products in eastern China. Demand for our steel wire is driven primarily by
spending in the construction and infrastructure industries. We have benefited
from strong fixed asset investment and construction growth as the PRC has
rapidly grown increasingly urbanized and invested in modernizing its
infrastructure. </P>
<P align=justify>Our principal business is the production of steel wire ranging
from 6mm to 10mm in diameter. We operate two wire production lines, which have a
combined annual capacity of approximately 0.9MMT. Our products are sold to
a number of distributors who transport the wire to nearby wire processing
facilities. Our wire is then further processed by these third party wire
refiners into a variety of products such as nails, screws, and wire mesh for use
in reinforced concrete and fencing. Our facilities and head offices are located
in the town of Xingtai in southern Hebei Province. </P>
<P align=justify><B>Principal Factors Affecting Our Financial Performance</B>
</P>
<P align=justify>Our operating results are primarily affected by the following
factors: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12"><B><I>Growth in the Chinese Economy - </I></B>We operate our facilities in
  China and derive almost all of our revenues from sales to customers in China.
  Economic conditions in China, therefore, affect virtually all aspects of our
  operations, including the demand for our products, the availability and prices
  of our raw materials and our other expenses. China has experienced significant
  economic growth, achieving a compound annual growth rate of over 10% in gross
  domestic product from 1996 through 2008. China is expected to experience
  continued growth in all areas of investment and consumption, even in the face
  of a global economic recession. However, China has not been entirely immune to
  the global economic slowdown and is experiencing a slowing of its growth rate.

  <LI>
  <p style="margin-bottom: 12"><B><I>Supply and Demand in the Steel Market &#150; </I></B>We are subject to
  macroeconomic factors dictating the supply and demand of steel and wire in the
  PRC. Steel commodity prices have been volatile in the past, and while they
  have stabilized since the first quarter of 2009, our revenues and earnings
  could be dramatically affected by increases and decreases in raw material and
  wire costs.
  <LI><B><I>Infrastructure and Construction Growth &#150; </I></B>We have in the past
  benefited from strong growth in fixed asset investment in roads, residential
  and commercial construction, bridges and other fundamental infrastructure and
  construction projects in the PRC. As the Chinese economy matures and develops,
  we expect this growth to slow and fixed asset investment to fall as a
  percentage of GDP, however, we believe demand for our products will remain
  strong for many years to come. </LI></UL>
<P align=justify><B>Taxation</B> </P>
<P align=justify><B><I>United States and Hong Kong</I></B> </P>
<P align=justify>We are subject to United States tax at a tax rate of 34%. No
provision for income taxes in the United States has been made as we have no
income taxable in the United States due to the fact that we operate a VIE
structure in China. Our subsidiary, Kalington, is incorporated in Hong Kong and
is taxed on profits generated in Hong Kong at the rate of 16.5%. However, since Kalington is merely a holding company, we do not expect to generate any profits
in Hong Kong or be subject to such taxes.<B> </B></P>
<P align=justify><B><I>People&#146;s Republic of China</I></B> </P>
<P align=justify><I>Income Taxes</I> &#150; We account for income taxes in accordance
with ASC 740 &#147;Income Taxes.&#148; ASC 740 requires an asset and liability approach
for financial accounting and reporting for income taxes and allows recognition
and measurement of deferred tax assets based upon the likelihood of realization
of tax benefits in future years. Under the asset and liability approach,
deferred taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is
provided for deferred tax assets if it is more likely than not these items will
either expire before we are able to realize their benefits, or that future
deductibility is uncertain. There was no deferred tax asset or liability for the
years ended December 31, 2009 and 2008.</P>
<P align=center>- 19 - </P>
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<P align=justify>Because all of our operations are conducted in the PRC, we are
governed by the Income Tax Law of the PRC applied to privately-run enterprises.
On March 16, 2007, the National People&#146;s Congress of China passed a new
Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both
of which became effective on January 1, 2008. Before the implementation of the
New EIT Law, foreign invested enterprises (&#147;FIE&#146;s&#148;) established in the PRC,
unless granted preferential tax treatment by the PRC government, were generally
subject to an earned income tax, or EIT, at the rate of 33%, which included a
30% state income tax and a 3% local income tax. The New EIT Law and its
implementing rules impose a unified EIT rate of 25% on all domestic-invested
enterprises and FIEs, unless they qualify under certain limited exceptions.</P>
<P align=justify>In addition to the changes to the current tax structure, under
the New EIT Law, an enterprise established outside of China with &#147;de facto
management bodies&#148; within China is considered a resident enterprise and will
normally be subject to an EIT of 25% on its global income. The implementing
rules define the term &#147;de facto management bodies&#148; as &#147;an establishment that
exercises, in substance, overall management and control over the production,
business, personnel, accounting, etc., of a Chinese enterprise.&#148; If the PRC tax
authorities subsequently determine that we should be classified as a resident
enterprise, then our organization&#146;s global income will be subject to PRC income
tax of 25%. For detailed discussion of PRC tax issues related to resident
enterprise status, see &#147;Risk Factors &#150; Risks Related to Our Business &#150; Under the
New EIT Law, we may be classified as a &#145;resident enterprise&#146; of China. Such
classification will likely result in unfavorable tax consequences to us and our
non-PRC stockholders.&#148; </P>
<P align=justify>In fiscal years 2009 and 2008 we were subject to tax at a
statutory rate of 25%, on income reported in the statutory financial statements
after appropriated tax adjustments in the relevant periods. Our future effective
income tax rate depends on various factors, such as tax legislation, the
geographic composition of our pre-tax income and non-tax deductible expenses
incurred. Our management carefully monitors these legal developments and will
timely adjust our effective income tax rate when necessary. </P>
<P align=justify><I>Value Added Taxes</I> &#150; We are also subject to value added
tax, or VAT, on the sale of merchandise. The applicable VAT rate is 17% for
products sold in the PRC. The amount of VAT liability is determined by applying
the applicable tax rate to the invoiced amount of goods sold (output VAT) less
VAT paid on purchases made with the relevant supporting invoices (input VAT).
Under the commercial practice of the PRC, we pay VAT based on tax invoices
issued. The tax invoices may be issued subsequent to the date on which revenue
is recognized, and there may be a considerable delay between the date on which
the revenue is recognized and the date on which the tax invoice is issued. In
the event that the PRC tax authorities dispute the date on which revenue is
recognized for tax purposes, the PRC tax office has the right to assess a
penalty, which can range from zero to five times the amount of the taxes which
are determined to be late or deficient. According to PRC tax laws, any potential
tax penalty payable on late or deficient payments of this tax could be between
zero and five times the amount of the late or deficient tax payable, and will be
expensed as a period expense if and when a determination has been made by the
taxing authorities that a penalty is due. As of December 31, 2009 and 2008, we
accrued zero and $1,328,830, respectively, of unpaid value-added taxes. </P>
<P align=justify><B>Results of Operations </B></P>
<P align=justify><B><I>Comparison of Three Months Ended March 31, 2010 and March
31, 2009 (Unaudited)</I></B><I> </I></P>
<P align=justify>The following table sets forth key components of our results of
operations during the three month periods ended March 31, 2010 and 2009, both in
dollars and as a percentage of our revenues. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="23%" colSpan=4><B>Three Months Ended</B>
</TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="23%" colSpan=4><B>Three Months Ended</B>
</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="23%"
    colSpan=4><B>March 31, 2010</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="23%"
    colSpan=4><B>March 31, 2009</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%">&nbsp; </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>% of</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%">&nbsp; </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>% of</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>Amount</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>Revenues</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>Amount</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>Revenues</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Revenues </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;105,976,651 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>100.0% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;89,061,713 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>100.0% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Cost of revenues </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">101,932,251 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">96.2% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">84,552,382 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">94.9% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Gross profit </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,044,400 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3.8% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,509,331 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>5.1% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>General and administrative expenses </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">151,281 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">0.1% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">76,303 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">0.1% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Operating income </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3,893,119 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3.7% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,433,028 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>5.0% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Other income &amp; interest expense </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">(52,787</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">0.0% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">(17,496</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">0.0% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Income before income tax </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3,840,332 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3.6% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,415,532 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>5.0% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Income tax expense </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">960,543 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">0.9% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">1,104,911 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">1.2% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Net income </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>2,879,789 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>2.7% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3,310,621 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3.7% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Other comprehensive income </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">4,977 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">0.0% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">24,792 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">0.0% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Comprehensive income </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;2,884,766 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>2.7% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;3,335,413 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3.7% </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=center>- 20 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_25></A>
<P align=justify><I>Revenues</I>. Our revenues increased to $105,976,651 in the
three months ended March 31, 2010 from $89,061,713 in the same period in 2009,
representing a 19.0% increase. This increase was mainly due to the
quarter-over-quarter increase of 11.57% in average steel wire prices. </P>
<P align=justify><I>Cost of revenues</I>. Our cost of revenues increased
$17,379,869 to $101,932,251 in the three months ended March 31, 2010, from
$84,552,382 in the same period in 2009. The cost of goods sold as a percentage
of total revenues increased from 94.9% to 96.2% primarily due to an increase in
the average price of steel billet by 14.71% during the period.</P>
<P align=justify><i>Gross Profit and Gross Margin.</i> Our gross profit
decreased $464,931 to $4,044,400 in the three months ended March 31, 2010 from
$4,509,331 in the same period in 2009. Gross margin declined from 5.1% for the
three months ended March 31, 2010 to 3.8% for the three months ended March 31,
2010. The decrease in gross margin was primarily due to an increase in the price
of steel billet. <br>
<br>
<i>General and Administrative Expenses. </i>Our general and administrative
expenses nearly doubled to $151,281 in the three months ended March 31, 2010,
from $76,303 in the same period in 2009. During the period we prepaid land use
taxes for the full year in the amount of approximately $31,600, as compared to
$7,800 in land use taxes during the 2009 period. Other general and
administrative expenses increased due to increased payments for insurances and
for expenses related to becoming a publicly traded company. The increase is not
material because general and administrative expenses as a whole are still less
than 0.15% of revenues. <br>
<br>
<i>Other Income and Expenses. </i>Other expenses increased to $52,787 in the
three months ended March 31, 2010 from $17,496 in the same period in 2009 due to
an increase in interest expenses as a result of increased usage of bank
acceptance as payment method.<br>
<br>
<i>Income Before Income Taxes. </i>Our income before income taxes decreased to
$3,840,332 in the three months ended March 31, 2010 from $4,415,532 in the same
period in 2009. This decrease was due to a decrease in our gross profit as
discussed above.<br>
<br>
<i>Income Tax. </i>Income tax decreased to $960,543 in the three months ended
March 31, 2010 from $1,104,911 in the same period in 2009 as we had lower
taxable income.<br>
<br>
<i>Net Income.</i> In the three months ended March 31, 2010, we generated net
income of $2,879,789, compared to $3,310,621 in the same period in 2009. This
decrease was primarily attributable to the factors discussed above.<br>
<br>
<i><b>Comparison of Fiscal Years Ended December 31, 2009 and 2008<br>
</b></i><br>
The following table sets forth key components of our results of operations
during the twelve months ended December 31, 2009 and 2008, both in U.S. dollars
and as a percentage of our revenues. As the reverse acquisition of Kalington was
entered into after December 31, 2009 and during the periods indicated Longhai
was the only entity in our combined business that had operations, the results of
operations below refer only to that of Longhai.<br>
&nbsp;</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=center>&nbsp; </TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="23%" colSpan=4><B>Fiscal Year Ended</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="23%" colSpan=4><B>Fiscal Year Ended</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>&nbsp; </TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="23%"
    colSpan=4><B>December 31, 2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="23%"
    colSpan=4><B>December 31, 2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>&nbsp; </TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%">&nbsp; </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>% Net</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%">&nbsp; </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="10%"><B>% Net</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=center>&nbsp; </TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><B>Amount</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><B>Sales</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><B>Amount</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><B>Sales</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Revenues </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;373,660,461 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>100.0% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;511,487,983 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>100.0% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Cost of revenues </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">356,833,041 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">95.5% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">492,792,919 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">96.3% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Gross profit </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>16,827,420 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>4.5% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>18,695,064 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>3.7% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>General and administrative expenses </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">1,114,016 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">0.3% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">798,083 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">0.2% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Operating Income </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>15,713,404 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4.2% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>17,896,981 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3.5% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Other income &amp; interest expense </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(116,591</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">0.0% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(111,161</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">0.0% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Income Before Income Taxes </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>15,596,813 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>4.2% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>17,785,820 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>3.5% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Income taxes </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">3,899,203 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">1.0% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">4,446,455 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">0.9% </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Net income </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>&nbsp;11,697,610 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>3.1% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>&nbsp;13,339,365 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>2.6% </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=center>- 21 - </P>
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<P align=justify><i>Revenues.</i> Our revenues decreased to $373,660,461 in the
twelve months ended December 31, 2009 from $511,487,983 in the same period in
2008, representing a 26.9% decrease year-over-year. This decrease was mainly due
to a sharp decline in the commodity prices of steel and steel wire. We
experienced no change in our manufacturing output year over year, as we operated
at nearly full capacity during both 2008 and 2009, producing 859,000 MT of wire in
2008 and 848,000 MT in 2009. The graph below shows the (unaudited) average sales
price of steel wire versus the purchase price we experienced in the marketplace
for the past two years:</P>
<P align="center">
<img border="0" src="longha3.jpg" width="549" height="378">
</P>
<P align="justify">
Steel wire sales prices fell 45% from a high of RMB 5,133 (approximately &#36;755) per metric ton in June of 2008 to a low of RMB 2,802 (approximately &#36;411) per metric ton in March of 2009. Our average purchase price for steel billet reached a
peak in May 2008 at RMB 4,766 (approximately &#36;701) per metric ton and fell to a low of RMB 2,540 (approximately &#36;374) per metric ton in March of 2009, a decline of 46.7%. Throughout this period of intense volatility we were able to maintain
positive margins throughout every fiscal quarter due to our inventory systems and controls and sales model. </P>
<P align="justify">
<I>Cost of revenues</I>. Our cost of revenues decreased to &#36;356,833,041 in the twelve months ended December 31, 2009 from &#36;492,792,919 in the same period in 2008. The cost of goods sold as a percentage of revenues declined from 96.3% to
95.5%, mainly due to greater efficiencies in our cost control program. </P>
<P align="justify">
<I>Gross Profit and Gross Margin. </I>Our gross profit decreased from &#36;18,695,064 in 2008 to &#36;16,827,420 in 2009. Gross margin as a percentage of net revenue increased 0.8 percentage points to 4.5% in 2009, from 3.7% in 2008. The increase in
gross margin was primarily due to greater production efficiencies and lower volatility in the steel and steel wire market.</P>
<P align="justify">
<I>General and Administrative Expenses</I>. Our general and administrative expenses increased by 39.6% to &#36;1,114,016 in 2009 from &#36;798,083 in 2008, primarily due to an increase in business taxes and surcharges during the 2009 period. This
increase was, as a percentage of revenues, an increase of 0.1 percentage points.</P>
<P align="justify">
<I>Other Income</I>. Other income, attributable to interest expense and other expenses, remained at roughly the same level over the two year period, at &#36;(116,591) for 2009 and &#36;(111,161) in 2008. </P>
<P align="justify">
<I>Income before Income Taxes</I>. Our income before income taxes decreased to &#36;15,596,813 in 2009 from &#36;17,785,820 in 2008. This decrease was mainly due to the change in commodity prices discussed above. </P>
<P align="justify">
<I>Income Tax</I>. Income tax fell to &#36;3,899,203 in 2009 from &#36;4,446,455 in 2008. The decrease was due to lower net income, as our income tax rate remained constant at 25%. </P>
<P align="justify">
<I>Net Income</I>. In the twelve months ended December 31, 2009, we generated net income of &#36;11,697,610, a decrease of 12% from &#36;13,339,365 in the same period in 2008 primarily due to the change in commodity prices discussed above. </P>
<P align="center">
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<P align=justify><B>Liquidity and Capital Resources </B></P>
<P align=justify>As of March 31, 2010, we had cash and cash equivalents of
$211,416, consisting primarily of cash on hand and demand deposits. The
following table provides detailed information about our net cash flow for all
financial statement periods presented in this prospectus. To date, we have
financed our operations primarily through cash flows from investing activities
and equity contributions by our shareholders. </P>
<P align=justify>As of December 31, 2009, we had cash and cash equivalents of
$115,510, primarily consisting of cash on hand and demand deposits. The
following table provides detailed information about our net cash flow for all
financial statement periods presented in this prospectus. To date, we have
financed our operations primarily through cash flows from operations and equity
contributions by our shareholders. </P>
<P align=justify>The following table sets forth a summary of our cash flows for
the periods indicated: </P>
<P align=center><B>Cash Flow</B> <BR>(all amounts in U.S. dollars) </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="27%" colSpan=4><B>Three Months Ended</B>
</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="27%"
    colSpan=4><B>March 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2010</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Net cash provided by (used in)
      operating activities </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;(41,508,356 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>)&nbsp; </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>15,202,528 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Net cash provided by (used in) investing activities
    </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">41,603,246 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">(10,092,101</TD>
    <TD noWrap align=left width="2%" >) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Net cash used in financing
      activities </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>(4,212,458</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Effect of Exchange Rate Changes on Cash </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">(14 </TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">5,082 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Net Increase in Cash and Cash
      Equivalents </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>94,876 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>903,051 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Cash and Cash Equivalents at Beginning of the
      Quarter </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">116,540 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">363,903 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Cash and Cash Equivalents at End of
      the Quarter </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>211,416 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>1,266,954 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=center width="27%" bgColor=#e6efff colSpan=4><B>Year
      Ended</B> </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="27%"
    colSpan=4><B>December 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="12%"
    bgColor=#e6efff><B>2009</B> </TD>
    <TD noWrap align=center width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=center width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="12%"
    bgColor=#e6efff><B>2008</B> </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Net cash provided by operating activities </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">&nbsp;30,776,570 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">&nbsp;2,607,070 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Net cash used in investing
      activities </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>(29,565,474</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>- </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Net cash used in financing activities </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">(1,468,253</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">(2,449,545</TD>
    <TD noWrap align=left width="2%" >) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Effect of Exchange Rate Changes on
      Cash </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>8,764 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>206,378 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Net (Decrease) Increase in Cash and Cash Equivalents
    </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">(248,393</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">363,903 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Cash and Cash Equivalents at
      Beginning of the Year </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>363,903 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>- </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Cash and Cash Equivalents at End of the Year </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">115,510 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">363,903 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR></TABLE>
<P align=justify><B><I>Operating activities</I></B> </P>
<P align=justify>Net cash used by operating activities was $41,508,356 for the
three months ended March 31, 2010, as compared to net cash provided by operating
activities of $15,202,528 for the same period in 2009. The decrease in net cash
provided by operating activities was due to increases in accounts receivable,
inventory, advances to suppliers, prepaid expenses, and accounts payable
resulting from an increase in inventory. As steel prices rose rapidly in the
first quarter of 2010, we intentionally accumulated a larger-than-normal amount
of inventory in order to benefit from the increasing price of steel wire. We
anticipate returning to normal inventory levels in the near future. </P>
<P align=justify>Net cash used in operating activities was $30,776,570 for the
twelve months ended December 31, 2009, as compared to $2,607,070 for the same
period in 2008. The net cash used in 2009 came from operations and prepayments
from our customers. </P>
<P align=justify><B><I>Investing activities</I></B> </P>
<P align=justify>Net cash provided by investing activities for the three months
ended March 31, 2010 was $41,603,246, as compared to net cash used in investing
activities of $10,092,101 during the same period of 2009. This amount was mainly
due to repayment of a loan that had been granted to related parties. </P>
<P align=center>- 23 - </P>
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<P align="justify">
Net cash used in investing activities for the twelve months ended December 31, 2009 was &#36;29,565,474, as compared to &#36;Nil net cash used in investing activities during the same period of 2008. This amount was mainly due to advances made to
Longhai Steel Group. See-- &#147;Certain Relationships and Related Transactions, and Director Independence &#150; Transactions with Related Persons&#148; on page 44 of this prospectus. </P>
<P align="justify">
<B><I>Financing activities</I></B> </P>
<P align="justify">
Net cash used in financing activities for the three months ended March 31, 2010 was &#36;Nil, as compared to &#36;4,212,458 during the same period of 2009 as a result of the repayment of a related party loan during first quarter of 2009. </P>
<P align="justify">
Net cash used in financing activities for the twelve months ended December 31, 2009 was &#36;1,468,253, as compared to &#36;2,449,545 during the same period of 2008 primarily as a result of repayments on loans to related parties. </P>
<P align="justify">
We believe that our cash on hand and cash flows from operations will meet our present cash needs, but we may require additional cash resources to meet our expected capital expenditure and working capital needs for the next 12 months to implement our
expansion through the acquisition of additional facilities. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The
sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would
restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations
and could harm our overall business prospects. </P>
<P align="justify">
<B>Inflation</B> </P>
<P align="justify">
Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price
changes in the steel industry and continually maintain effective cost control in operations. </P>
<P align="justify">
<B>Off Balance Sheet Arrangements</B> </P>
<P align="justify">
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our securities. </P>
<P align="justify">
<B>Seasonality</B> </P>
<P align="justify">
Our operating results and operating cash flows have not historically been subject to seasonal variations, however, the first quarter is usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.
</P>
<P align="justify">
<B>Significant Accounting Policies</B> </P>
<P align="justify">
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (&#147;US GAAP&#148;) requires our management to make assumptions, estimates and judgments that affect the amounts reported,
including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are
important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management&#146;s
difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive
because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management&#146;s current judgments. We believe the following critical accounting policies
involve the most significant estimates and judgments used in the preparation of our financial statements: </P>
<P align="justify">
<B><I>Revenue Recognition</I></B><I> </I></P>
<P align="justify">
Retail sales are recognized at the point of sale to customers, are recorded net of estimated returns, and exclude VAT. Wholesales to contracted customers are recognized as revenue at the time the product is shipped and title passes to the customer
FOB shipping point.</P>
<P align="center">
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<P align="justify">
<B><I>Use of Estimates</I></B><I> </I></P>
<P align="justify">
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially
from those estimates. </P>
<P align="justify">
<B><I>Accounts Receivable</I></B><I> </I></P>
<P align="justify">
Accounts receivable consists of unpaid balances due from the wholesale customers. Such balances generally are cleared in the subsequent month when the wholesale customers place another order. We do not provide an allowance for doubtful accounts
because we have not experienced any credit losses in collecting these amounts from whole-sale customers. </P>
<P align="justify">
<B><I>Impairment of Long-Lived Assets</I></B><I> </I></P>
<P align="justify">
We account for impairment of property and equipment and amortizable intangible assets in accordance with ASC 360, &#147;Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of&#148;, which requires us to evaluate a
long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not
recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset&#146;s (or asset group&#146;s) fair value. There was no impairment of
long-lived assets for the three month periods ended March 31, 2010 and 2009 or the years ended December 31, 2009 or 2008. </P>
<P align="justify">
<B><I>Inventories</I></B><I> </I></P>
<P align="justify">
Merchandise inventories are stated at the lower of cost or market. Cost is determined on a weighted average basis and includes all expenditures incurred in bringing the goods to the point of sale and putting them in a
salable condition. In assessing
the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase as our projected demand requirements or decrease
due to market conditions and product life cycle changes. We estimate the demand requirements based on market conditions, forecasts prepared by customers, sales contracts and orders in hand. </P>
<P align="justify">
In addition, we estimate net realizable value based on intended use, current market value and inventory ageing analyses. We write down inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of
inventories and their estimated market value based upon assumptions about future demand and market conditions.<B><I> </I></B></P>
<P align="justify">
<B><I>Comprehensive Income</I></B><I> </I></P>
<P align="justify">
We have adopted the provisions of ASC 220 &#147;Reporting Comprehensive Income,&#148; which establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose
financial statements. </P>
<P align="justify">
ASC 220 defines comprehensive income as comprised of net income and all changes to the statements of stockholders&#146; equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders, including
adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities. Our other comprehensive income arose from the effect of foreign currency translation adjustments. </P>
<P align="justify">
<B><I>Foreign Currency Translation</I></B><I> </I></P>
<P align="justify">
Our reporting currency is the U.S. dollar. The functional currency of our PRC subsidiary and affiliate is the Renminbi (RMB). The financial statements of our PRC subsidiary are translated to U.S. dollars using year-end exchange rates as to assets
and liabilities and average exchange rates as to revenues, expenses and cash flows. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. Translation adjustments resulting from this process are
included in &#147;accumulated other comprehensive income&#148; in the statement of shareholders&#146; 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. </P>
<P align="center">
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<P align="justify">
The balance sheet amounts with the exception of stockholders&#146; equity at March 31, 2010 were translated at the rate of 6.8361 RMB to &#36;1.00 as compared to 6.8376 RMB to &#36;1.00 at December 31, 2009. The stockholders&#146; equity accounts
were stated at their historical exchange rate. The average translation rates applied to the income and cash flow statement amounts for the three months ended March 31, 2010 and 2009 were 6.83604 RMB and 6.84659 RMB to &#36;1.00, respectively. </P>
<P align="justify">
Translation adjustments resulting from this process are included in &#147;accumulated other comprehensive income&#148; in the consolidated statement of stockholders&#146; equity and were &#36;811,795 and &#36;806,818 as of March 31, 2010 and
December 31, 2009, respectively. </P>
<P align="justify">
<B>Recent Accounting Pronouncements</B> </P>
<P align="justify">
In December 2007, the FASB issued SFAS No. 141R (now included in ASC 805), &#147;Business Combinations&#148; which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any non-controlling&nbsp; interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and for disclosure to enable
evaluation of the nature and financial effects of the business combination. We adopted this standard as of January 1, 2009 and do not expect it to have an impact on our financial statements. </P>
<P align="justify">
In December 2007, the FASB issued SFAS No. 160 (now ASC 810-10), "Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.&#148; ASC 810-10 introduces significant changes in the accounting and reporting for business
acquisitions and non-controlling&nbsp; interest in a subsidiary. ASC 810-10 also changes the accounting and reporting for the deconsolidation of a subsidiary. Companies are required to adopt the new standard for fiscal years beginning after January 1,
2009. We adopted this standard effectively January 1, 2009 and the adoption of this ASC did not have a material impact on the company&#146;s consolidated financial statements. </P>
<P align="justify">
Effective July 1, 2008, we adopted SFAS No. 157 (now ASC 820), &#147;Fair Value Measurements,&#148; which provides guidance on how to measure assets and liabilities that use fair value. ASC 820 applies whenever another US GAAP standard requires (or
permits) measurement of assets or liabilities at fair value, but does not expand the use of fair value to any new circumstances. We also adopted FASB Staff Position ("FSP") No. FAS 157-2, which allows us to partially defer the adoption of ASC 820.
This FSP defers the effective date of ASC 820 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years. Nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or financial liability
as defined in paragraph 6 of Statement No. 159, &#147;The Fair Value Option for Financial Assets and Financial Liabilities.&#148; The adoption of ASC 820 had no impact on our financial statements. </P>
<P align="justify">
In May 2009, the FASB issued SFAS No. 165 (now ASC 855), &#147;Subsequent Events,&#148; which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. This disclosure should alert all users
of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. ASC 855 is effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 855
did not have a material impact on our financial position, results of operations or cash flows. </P>
<P align="justify">
In June 2009, the FASB issued Update No. 2009-01 (ASU 2009-01), &#147;Generally Accepted Accounting Principles.&#148; ASU 2009-01 establishes &#147;The FASB Accounting Standards Codification&#148;, or Codification, which became the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become non-authoritative. ASU 2009-01 is effective for interim and annual periods ending after September 15, 2009. We will adopt the provisions of ASU 2009-01 for the period ended September 30, 2009.
There will be no impact on our operating results, financial position or cash flows as a result of adoption. </P>
<P align="justify">
We do not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flows. </P>
<P align="justify">
<B>Quantitative and Qualitative Disclosures about Market Risk</B></P>
<P align="justify">
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.
</P>
<P align="center">
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<P align=justify><B><I>Foreign Currency Exchange Rates</I></B><I> </I></P>
<P align=justify>All of our sales revenues are collected in and substantially
all of our expenses are paid in the Chinese Renminbi. We face foreign currency
rate translation risk when our results are translated to U.S. Dollars. The
registered equity capital denominated in the functional currency is translated
at the historical rate of exchange at the time of capital contribution. </P>
<P align=justify>The Chinese Renminbi had remained stable against the U.S.
Dollar at approximately 8.28 RMB to 1.00 U.S. Dollar for several years and it
was not until July 21, 2005 that the Chinese currency regime was altered, with a
2.1% revaluation versus the U.S. Dollar. This move initially valued the Renminbi
at 8.11 RMB per U.S. Dollar. In addition, the Renminbi is no longer linked to
the U.S. currency but rather to a basket of currencies with a 0.3% margin of
fluctuation. However, there remains international pressure on the Chinese
government to adopt an even more flexible currency policy and since June 30,
2009 the exchange rate has remained stable at 6.8307 Yuan to 1.00 U.S. Dollar
until June 30, 2010 when the Chinese Central Bank allowed a further appreciation
of the RMB by 0.43% to 6.798 RMB to 1.00 U.S. Dollar. The exchange rate of
Renminbi is subject to changes in China&#146;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 denominated in Renminbi, and (ii) the payment of dividends, if
any, will be in U.S. dollars, any decrease in the value of the Renminbi against
other foreign currencies would adversely affect the value of the shares and
dividends payable to shareholders, in foreign currency terms. </P>
<P align=justify><B><I>Commodity Prices </I></B></P>
<P align=justify>We are generally exposed to commodity price swings. Although
there is no guaranteed correlation, steel wire prices generally fluctuate with
steel prices, but the differential between market prices of steel billet and
steel wire also fluctuates. Although we generally hold inventory for the duration of
our 24-hour production cycle, sudden changes in the market price of steel and
wire may directly impact the valuation of inventory and goods in progress, which
influences earnings. So long as the market price differential between billets
and wire does not shrink disproportionally, rising steel prices generally work
in our favor as inventory purchased at lower prices would appreciate in such a
scenario, resulting in additional profits when the wire is sold. </P>
<P align=center><B>OUR BUSINESS </B></P>
<P align=justify><B>Business Overview</B> </P>
<P align=justify>Through our PRC operating variable interest entity, Xingtai
Longhai Wire Rod Co. Ltd., Ltd., we are a leading producer of steel wire products in
eastern China. We produce steel wire ranging from 6mm to 10mm in diameter on two
wire production lines, which have a combined annual capacity of approximately
900,000 metric<B> </B>tons. Our products are sold to a number of distributors
who transport the wire to nearby wire processing facilities. Our wire is then
further processed by these third party wire refiners into a variety of products
such as nails, screws, and wire mesh for use in reinforced concrete and
fencing.</P>
<P align=justify>We sell our products to a number of distribution companies that
transport our wire to nearby wire processors. Our products are manufactured on
an on-demand basis and we usually collect payment in advance. Sales prices are
set at the market price for wire on a daily basis. Our customers generally
prepay for their orders, and the final price may be adjusted to the market price
on the day of pick up. This allows us to maintain a low inventory of both wire
and billet, and protects us from exposure to commodity price volatility, except
with respect to any changes in pricing that may occur between production and
delivery. In order to increase sales and be competitive in the market, we
occasionally offer discounted wholesale prices to newer or larger customers at
our discretion. Our sales efforts are directed toward developing long term
relationships with customers who are able to purchase in large quantities.
During the year ended December 31, 2009, our top five distributers accounted for
39% of our revenues, and during the three months ended March 31, 2010, our top
five distributers accounted for 43.9% of our revenues. </P>
<P align=justify>Our production facilities are located at a 107,000 square meter
property in Xingtai, Hebei Province. Our production facilities include a fifth
generation Morgan steel rolling mill.&nbsp; We believe our rolling and
drawing facilities are among the most advanced in the world.</P>
<P align=justify>All our business has been conducted in Renminbi, the official
currency of China. Renminbi is still not a free floating currency. The value of
Renminbi is subject to changes in the Chinese government&#146;s policies and depends
to a large extent on China&#146;s
domestic and international economic and political developments, as well as supply and demand in the local market. The Renminbi has slowly but steadily appreciated against the U.S. dollar since July 2005. </P>
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<P align="justify">
Our revenues increased from &#36;238,644,939 in fiscal year 2007 to &#36;511,487,983 in fiscal year 2008, representing a growth rate of approximately 214%, primarily due to our ramping up our capacity during the 2008 period, but decreased in the
2009 fiscal year to &#36;373,660,461, primarily due to a sharp decline in the price of steel wire caused by the global economic downturn during the period, though our gross margins improved markedly as we improved our operational efficiency. Our
revenues increased from &#36;89,061,713 in the three months ended March 31, 2009, to &#36;105,976,651 in the same 2010 period, representing a growth rate of approximately 19%. </P>
<P align="justify">
<B>Our Industry </B> </P>
<P align="justify">
China is the world&#146;s largest producer of steel and it is estimated that annual
production capacity in 2009 was 567MMT. Japan, the second largest producer, produces less than 30% of that
amount. In total, China accounts for roughly 45% of
global steel production. China&#146;s steel industry, while enormous in total scale, is a fractured industry where a great number
of producers each account for a small amount of total output. China&#146;s steel
industry includes a wide range of producers, including smaller, inefficient
backyard operations, huge state owned enterprises beset with unnecessarily large, unionized labor forces and their accompanying pension burdens as well as newly constructed steel plants possessing  facilities
built according to the highest technology and efficiency standards in the world.<B> </B> </P>
<P align="justify">
<B><I>PRC Macroeconomic Drivers </I></B></P>
<P align="justify">
The steel industry is a fundamental cornerstone of the economy and growth in the steel industry has coincided with consistent and strong growth in the PRC economy as a whole. It is estimated that real GDP year over year quarterly growth has been
well over an average of 9% since 2000, with a low of 6.1% in the first quarter of 2009: </P>
<P align="center">
<img border="0" src="longha4.jpg" width="508" height="336">
</P>
<P align="justify">
We believe that GDP growth will gradually slow but remain positive on the whole as China industrializes further.</P>
<P align="justify">
<B><I>Steel Consumption, Construction and Fixed Asset Investment </I></B></P>
<P align="justify">
Steel consumption in the PRC is highly correlated with nominal fixed asset investment. Construction is the largest driver of steel usage in China. The following table details steel consumption by economic sector; construction consumes the most steel
by a wide margin. </P>
<P align="center">
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<P align="center">
<img border="0" src="longha5.jpg" width="545" height="356">
</P>
<P align="justify">
Construction growth has been strong and has rebounded from the financial downturn in late 2008 robustly. We expect to continue to benefit from the housing and commercial needs created by urbanization trends and infrastructure trends in the future:
</P>
<P align="center">
<img border="0" src="longha6.jpg" width="607" height="384">
</P>
<P align="justify">
There is also a close relationship between steel consumption and fixed asset investment (FAI) in China. The PRC&#146;s fixed asset investment as a portion of GDP has been historically strong and growing. It is estimated that in 2009, fixed asset
investment comprised as much as 70% of GDP. The graph below details the rapid and strong growth in FAI: </P>
<P align="center">
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<P align="center">
<img border="0" src="longha7.jpg" width="606" height="408">
</P>
<P align="justify">
<B><I>The Steel Wire Market </I></B></P>
<P align="justify">
China is estimated to have produced roughly 567MMT of steel wire in 2009. Steel wire is used in a variety of products and serves the construction industry. </P>
<P align="justify">
The chart below details average steel wire prices we experienced over the past two years in our local market: </P>
<P align="center">
<img border="0" src="longha8.jpg" width="622" height="426">
</P>
<P align="center">
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<P align="justify">
Steel wire prices, along with the majority of other commodities, had a strong run up in prices leading to a large collapse in 2008. Throughout the rapid increase and decline in commodity prices, we were able to maintain positive gross and net
margins. We believe steel wire prices have stabilized and we expect them to rise during 2010 as demand increases due to new and ongoing construction projects. </P>
<P align="justify">
<B>Our Growth Strategy</B> </P>
<P align="justify">
We believe that the market for high quality steel wire will continue to grow in the PRC. The PRC has placed a temporary moratorium on new steel wire plant construction in an effort to encourage consolidation
of facilities; therefore, our expansion plan is to
build capacity through the acquisition of facilities at attractive prices from competitors who lack our management experience, efficient labor force, and financial resources. We plan to continue to improve margins through increased efficiencies in
our production process. </P>
<P align="justify">
We intend to pursue the following strategies to achieve our goal:</P>
<UL>
<LI>
<p style="margin-bottom: 12">
<I>Identify and acquire modern, high quality producers at low valuations</I>: In light of the moratorium on building new wire making facilities in China, we plan to expand our business and operations through the acquisition of steel
wire producers with
production facilities in the vicinity of our current facilities. We expect to limit our acquisition targets to producers with facilities that have had a major overhaul or modernization of production machinery in the last 2-3 years, as we expect such
facilities to achieve better production efficiency, lower maintenance costs and increased output, as compared to less modern facilities, and will help us to more rapidly achieve higher margins and increase our market share.</LI>
<LI>
<I>Expansion to create economies of scale</I>: We expect that our acquisition of modernized facilities will result in increased wire-making capacity, resulting in greater bargaining power with supplier and customer pricing and otherwise enable us to
capitalize on economies of scale to produce at higher margins.</LI>
</UL>
<P align="justify">
<B>Our Products</B> </P>
<P align="justify">
Our products are steel wires ranging in diameter from 6.5mm to 10mm. All our wires are manufactured in accordance to ISO9001-2000 quality management system standards. Our 6.5mm diameter wires also meet PRC national GB/700-88 standards,
the PRC national standard for carbon structural steel. We ensure a low quantity
of oxide in our wire to provide our downstream customers with the highest
quality products for further processing. Our end customers process the wire into a variety of end
products vital to construction and infrastructure, including but not limited to nails, screws, wire mesh, and fencing. </P>
<P align="center">
<IMG src="revisedx35x1.jpg" border=0 width="509" height="192">
<I><br>
Longhai Steel Wire Products coming off production line and loading onto transport trucks</I>
</P>
<P align="justify">
We sell 100% of our products in China, with approximately 80%  being sold in Hebei province, our largest market. The industrial area in and around the nearby city of Hengshui contains one of the largest collective wire processing
capacities in the world. Much of our wire is distributed in this area for further processing.</P>
<P align="justify">
Domestic economic growth and the accompanying fixed asset investment in construction and infrastructure projects is the major macroeconomic driver of our growth. </P>
<P align="center">
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<P align=justify><B>Our Customers </B></P>
<P align=justify>We sell our products to a number of distribution companies that
transport our wire to nearby wire processors. Our products are manufactured on
an on-demand basis, and we usually collect payment in advance. Sales prices are
set at the market price for wire on a daily basis. Our customers generally
prepay for their orders, and the final price may be adjusted to the market price
on the day of pick up. This allows us to maintain a low inventory of both wire
and billet and largely protects us from exposure to commodity price
volatility.</P>
<P align=justify>In order to increase sales and be competitive in the market, we
occasionally offer discounted wholesale prices to newer or larger customers at
our discretion. Our sales efforts are directed toward developing long term
relationships with customers who we expect are or will be able to purchase in
large quantities. During the year ended December 31, 2009, our top five
distributers accounted for 38.8% of our revenues as follows: <B></B></P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap style="border-style:solid; border-width:1; " >
    <p style="margin-left: 5; margin-right: 5">&nbsp; <B>Rank</B> </TD>
    <TD noWrap width="48%" style="border-style:solid; border-width:1; ">
    <p style="margin-left: 5; margin-right: 5">&nbsp;<B>Customer</B> </TD>
    <TD noWrap align=center width="48%" style="border-style:solid; border-width:1; ">
    <p style="margin-left: 5; margin-right: 5"><B>Percentage of Total Revenues
    in 2009</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap
    bgColor=#e6efff >
    <p style="margin-left: 5; margin-right: 5">1. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap width="48%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">Beixin Jiancai Group Co., Ltd. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap align=right width="48%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">16.1% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
    >
    <p style="margin-left: 5; margin-right: 5">2. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
      width="48%">
    <p style="margin-left: 5; margin-right: 5">Hebei Huatong Wire and Cable Co. Ltd. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right
      width="48%">
    <p style="margin-left: 5; margin-right: 5">8.3% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
    bgColor=#e6efff >
    <p style="margin-left: 5; margin-right: 5">3. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap width="48%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">Beijing Jingtie Metal Materials Company </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right width="48%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">5.3% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
    >
    <p style="margin-left: 5; margin-right: 5">4. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
      width="48%">
    <p style="margin-left: 5; margin-right: 5">Guangxi Lianhang Investment Co., Ltd. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right
      width="48%">
    <p style="margin-left: 5; margin-right: 5">5.1% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
    bgColor=#e6efff >
    <p style="margin-left: 5; margin-right: 5">5. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap width="48%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">Guangxi Huazhan Investment Co., Ltd </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right width="48%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">3.9% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
      >
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
      width="48%">
    <p style="margin-left: 5; margin-right: 5"><B>Total</B></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right
      width="48%">
    <p style="margin-left: 5; margin-right: 5"><B>38.8%</B> </TD></TR></TABLE>
<P align=justify>We pride ourselves on our ability to meet our customers&#146; demand
for high quality products, fast turnaround and timely delivery, and customer
support. We believe that our ability to consistently meet or exceed these
standards is critical to our success and market share. Our sales department
currently has 20 full time employees. </P>
<P align=justify><B>Our Major Supplier of Raw Materials</B> </P>
<P align=justify>The principal raw material used in our products is steel
billet. In 2009, steel billet accounted for more than 95% of our production
costs. We generally purchase billet only after a customer has made a wire order
and therefore avoid a large inventory of billet. This insulates us from
commodity price fluctuation risk associated with holding large quantities of raw
materials. We are generally able to pass higher costs due to fluctuations in raw
material costs directly through to our customers. </P>
<P align=justify>Prior to 2009, we purchased our steel billet at a slight
discount from the Longhai Steel Group, an entity owned and controlled by our
CEO, Chaojun Wang. However, since 2009, we have purchased our steel billet at
prevailing market prices from third party trading companies who source their
steel billet from local steel manufacturers, including the Longhai Steel Group.
Our purchasing team monitors and tracks movements in steel billet prices daily
and provides regular guidance to management to respond quickly to market
conditions and aid in long term business planning.</P>
<P align=justify>The table below lists our top five suppliers as of December 31,
2009, showing the cumulative dollar amount of raw materials purchased from them
during the fiscal year ended December 31, 2009 and the percentage of raw
materials purchased from each supplier as compared to procurement of all raw
materials.</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1" >
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD noWrap align=left width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD noWrap align=center width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>Cumulative</B> </TD>
    <TD noWrap align=center width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>Percentage of</B> </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1" >
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD noWrap align=left width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD noWrap align=center width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>Amount Purchased</B> </TD>
    <TD noWrap align=center width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>Total Purchases</B> </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1" >
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD noWrap align=left width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD noWrap align=center width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>During Fiscal Year</B> </TD>
    <TD noWrap align=center width="32%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>During Fiscal</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    >
    <p style="margin-left: 5; margin-right: 5"><B>Rank</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
      width="32%">
    <p style="margin-left: 5; margin-right: 5" align="left"><B>Supplier&#146;s name</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
      width="32%">
    <p style="margin-left: 5; margin-right: 5"><B>2009 <I>(US$)</I></B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
      width="32%">
    <p style="margin-left: 5; margin-right: 5"><B>Year 2009</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    bgColor=#e6efff >
    <p style="margin-left: 5; margin-right: 5">1 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left width="32%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">Hebei Huaneng Industrial Development Co., Ltd. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right width="32%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">209,632,751 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right width="32%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">62% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    >
    <p style="margin-left: 5; margin-right: 5">2 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
      width="32%">
    <p style="margin-left: 5; margin-right: 5">Beixin Jiancai Group Co., Ltd. </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right
      width="32%">
    <p style="margin-left: 5; margin-right: 5">46,374,186 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right
      width="32%">
    <p style="margin-left: 5; margin-right: 5">14% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    bgColor=#e6efff >
    <p style="margin-left: 5; margin-right: 5">3 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left width="32%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">Beijing Jingtie Metal Materials Company </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right width="32%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">68,736,793 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right width="32%"
    bgColor=#e6efff>
    <p style="margin-left: 5; margin-right: 5">20% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    >
    <p style="margin-left: 5; margin-right: 5">4 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
      width="32%">
    <p style="margin-left: 5; margin-right: 5">Others </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right
      width="32%">
    <p style="margin-left: 5; margin-right: 5">14,040,003 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=right
      width="32%">
    <p style="margin-left: 5; margin-right: 5">4% </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff >
    <p style="margin-left: 5; margin-right: 5">&nbsp; </TD>
    <TD noWrap align=left width="32%" bgColor=#e6efff style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-bottom-style: solid; border-bottom-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>Total Purchasing
      Volume</B> </TD>
    <TD noWrap align=right width="32%" bgColor=#e6efff style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-bottom-style: solid; border-bottom-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>338,783,733</B> </TD>
    <TD noWrap align=right width="32%" bgColor=#e6efff style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-bottom-style: solid; border-bottom-width: 1">
    <p style="margin-left: 5; margin-right: 5"><B>100%</B>
  </TD></TR></TABLE>
<P align=center>- 32 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<P align=justify><B>Our Competition</B></P>
<P align=justify>Competition within the steel industry in the PRC is intense.
There is an estimated capacity of 660MMT of steel capacity in China. Our
competitors range from small private enterprises to extremely large state-owned
enterprises. Our operating subsidiary, Longhai, is located in Xingtai, Hebei
Province. Hebei is the largest producer of steel by province in the PRC and we
are the largest non-state-owned steel wire manufacturer in Hebei.</P>
<P align=justify>The table below details our major competitors: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 8pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      ><B><U>Company</U></B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="20%"><B><U>Production Lines</U></B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="20%"><B><U>Est. Capacity</U></B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="20%"><B><U>Line Speed (m/s)</U></B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="20%"><B><U>Ownership</U></B> </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff >Xingtai Steel Company*
    </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>2 </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>2MMT </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>90 </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>State Owned </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left >Hebei Xinjin Company </TD>
    <TD noWrap align=center width="20%">1 </TD>
    <TD noWrap align=center width="20%">0.5MMT </TD>
    <TD noWrap align=center width="20%">90 </TD>
    <TD noWrap align=center width="20%">Private </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff >Wuan Minglao Steel
      Company </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>1 </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>0.5MMT </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>75 </TD>
    <TD noWrap align=center width="20%" bgColor=#e6efff>Private </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left >Yongnian Jianfa Company </TD>
    <TD noWrap align=center width="20%">1 </TD>
    <TD noWrap align=center width="20%">0.3MMT </TD>
    <TD noWrap align=center width="20%">49 </TD>
    <TD noWrap align=center width="20%">Private </TD></TR></TABLE>
<P align=justify>We operate two production lines with a combined yearly steel
wire capacity of 0.9MMT, a line speed of 90 meters per second and
the most advanced production equipment on the market. We expect to exceed Xingtai Steel&#146;s capacity when we acquire two additional processing lines with
the proceeds of the offering.</P>
<P align=justify>Private steel product manufacturers in China generally focus on
low-end products. Many of our competitors are significantly smaller than we are
and use outdated equipment and production techniques. Due to our high quality
equipment, economies of scale and management experience, we produce steel wire
at higher efficiencies and lower prices than these competitors. The larger state
owned enterprises with whom we compete often have oversized, unionized labor
forces and associated pension and healthcare liabilities and cannot match our
production efficiency. We believe that we distinguish ourselves in the market
based on our extremely fast turnaround, high quality and low prices. </P>
<P align=justify><B>Our Properties and Facilities</B> </P>
<P align=justify>We lease 107,000 square meters of space in Xingtai, Hebei
province, pursuant to a lease agreement, dated October 1, 2008, as amended,
between Longhai and the Longhai Steel Group. We are required to make an annual
lease payment of RMB 193,831.66 (approximately, $28,455), payable on a
semiannual basis, on or before the 15<SUP>th</SUP> day of each payment
month.</P>
<P align=justify>Our property is comprised of a five-story building for our
executive offices, accounting for 1% of our space, and another building which
houses our production facilities, occupying approximately 30% of our space, and
our warehouse and common areas, accounting for the remaining space. </P>
<P align=center>- 33 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<P align=center>
<IMG src="revisedx38x1.jpg" border=0 width="541" height="392"> </P>
<P align=justify>Our production facilities include a fifth generation Morgan
steel rolling mill. We utilize a double chamber heating furnace which feeds one
coarse and one intermediate rolling mill, and then splits into two wire
production lines arranged in a Y-shaped layout. We believe our rolling and
drawing facilities are among the most advanced in the world. We have a capacity
of approximately 900,000 MT of wire per year. </P>
<P align=justify><B>Our Employees </B></P>
<P align=justify>As of December 31, 2009, we had  458 full-time and
no part-time employees. The following table illustrates the allocation of these
employees among the various job functions conducted at our company.</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap
      align=left>
    <p style="margin-left: 10"><B>Department</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap align=center
      width="15%"><B>Staff</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="margin-left: 10">Management </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center width="15%"
    bgColor=#e6efff>10 </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
      align=left>
    <p style="margin-left: 10">Administrative </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
      width="15%">12 </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="margin-left: 10">Accounting </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center width="15%"
    bgColor=#e6efff>14 </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left>
    <p style="margin-left: 10">Sales </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
      width="15%">20 </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="margin-left: 10">Production </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center width="15%"
    bgColor=#e6efff>402 </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left>
    <p style="margin-left: 10"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
      width="15%"><B>458</B> </TD></TR></TABLE>
<P align=justify>We believe that we maintain a satisfactory working relationship
with our employees and we have not experienced any significant labor disputes or
any difficulties in recruiting staff for our operations.</P>
<P align=justify>Our employees in China participate in a state pension plan
organized by Chinese municipal and provincial governments to which we are
required to contribute 20% of monthly salaries of those employees who elected to
pay their plan contributions through us.&nbsp; Employees from the countryside
can opt to pay their contributions in their home village instead, where
contributions are lower - thus getting higher net pay in return for a lower
pension.&nbsp; The compensation expenses
related to the state pension plan were $76,700 and $5,100 for the fiscal years
2009 and 2008, respectively. In addition, we are required by Chinese law to
cover employees in China with various types of social insurance. We have
purchased social insurances for all of our employees.</P>
<P align=justify><B>Regulations </B></P>
<P align=justify>Because our principal operating subsidiary, Longhai, is located
in the PRC, our business is regulated by the national and local laws of the PRC.
We believe our conduct of business complies with existing PRC laws, rules and
regulations. </P>
<P align=center>- 34 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
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<A name="page_39"></A>

<P align="justify">
<B><I>General Regulation of Businesses</I></B> </P>
<P align="justify">
We believe we are in material compliance with all applicable labor and safety laws and regulations in the PRC, including the PRC Labor Contract Law, the PRC Production Safety Law, the PRC Regulation for Insurance for Labor Injury, the PRC
Unemployment Insurance Law, the PRC Provisional Insurance Measures for Maternity of Employees, PRC Interim Provisions on Registration of Social Insurance, PRC Interim Regulation on the Collection and Payment of Social Insurance Premiums and other
related regulations, rules and provisions issued by the relevant governmental authorities from time to time, for our operations in the PRC. </P>
<P align="justify">
According to the PRC Labor Contract Law, we are required to enter into labor contracts with our employees. We are required to pay no less than local minimum wages to our employees. We are also required to provide employees with labor safety and
sanitation conditions meeting PRC government laws and regulations and carry out regular health examinations of our employees engaged in hazardous occupations. </P>
<P align="justify">
<B><I>Foreign Currency Exchange</I></B> </P>
<P align="justify">
The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended (2008). Under these Rules, RMB is freely convertible for current account items, such as trade and service-related
foreign exchange transactions, but not for capital account items, such as direct investment, loan or investment in securities outside China unless the prior approval of, and/or registration with, SAFE or its local counterparts (as the case may be)
is obtained. </P>
<P align="justify">
Pursuant to the Foreign Currency Administration Rules, foreign invested enterprises, or FIEs, in China may purchase foreign currency without the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial
documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by SAFE) to satisfy foreign exchange liabilities or to pay dividends. In addition, if a foreign company acquires a company in China, the
acquired company will also become an FIE. However, the relevant PRC government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct
investment, loan and investment in securities outside China are still subject to limitations and require approvals from, and/or registration with, SAFE. </P>
<P align="justify">
<B><I>Regulation of Income Taxes</I></B> </P>
<P align="justify">
On March 16, 2007, the National People&#146;s Congress of China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Before the implementation of the New EIT Law,
FIEs established in the PRC, unless granted preferential tax treatments by the PRC government, were generally subject to an earned income tax, or EIT, rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income tax. The New EIT
Law and its implementing rules impose a unified EIT rate of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions.</P>
<P align="justify">
In addition to the changes to the current tax structure, under the New EIT Law, an enterprise established outside of China with &#147;de facto management bodies&#148; within China is considered a resident enterprise and will normally be subject to
an EIT of 25% on its global income. The implementing rules define the term &#147;de facto management bodies&#148; as &#147;an establishment that exercises, in substance, overall management and control over the production, business, personnel,
accounting, etc., of a Chinese enterprise.&#148; If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our organization&#146;s global income will be subject to PRC income tax of 25%. For
detailed discussion of PRC tax issues related to resident enterprise status, see &#147;Risk Factors &#150; Risks Related to Our Business &#150; Under the New EIT Law, we may be classified as a &#145;resident enterprise&#146; of China. Such
classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.&#148; </P>
<P align="justify">
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income and non-tax deductible expenses incurred. Our management carefully monitors these legal developments and will
timely adjust our effective income tax rate when necessary. </P>
<P align="justify">
<B><I>Dividend Distribution</I></B> </P>
<P align="justify">
Under applicable PRC regulations, FIEs in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a FIE in China is required to set aside at least
10.0%
of its distributed annual after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not distributable as cash
dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. </P>
<P align="center">
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<P align="justify">
The New EIT Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes unless the jurisdiction of incorporation of such
enterprises&#146; shareholder has a tax treaty with China that provides for a different withholding arrangement. Kalington Consulting is considered an FIE and is directly held by our subsidiary Kalington in Hong Kong. According to a 2006 tax treaty
between the Mainland and Hong Kong, dividends payable by an FIE in China to the company in Hong Kong who directly holds at least 25% of the equity interests in the FIE will be subject to a no more than 5% withholding tax. We expect that such 5%
withholding tax will apply to dividends paid to Kalington by Kalington Consulting, but this treatment will depend on our status as a non-resident enterprise. </P>
<P align="justify">
<B><I>Environmental Matters</I></B><I> </I></P>
<P align="justify">
Longhai&#146;s manufacturing facilities are subject to various pollution control regulations with respect to noise, water and air pollution and the disposal of waste and hazardous materials. We are also subject to periodic inspections by local
environmental protection authorities. Our operating controlled affiliate Longhai has received certifications from the relevant PRC government agencies in charge of environmental protection indicating that its business operations are in material
compliance with the relevant PRC environmental laws and regulations. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws. </P>
<P align="justify">
<B>Insurance</B> </P>
<P align="justify">
Insurance companies in China offer limited business insurance products. While business interruption insurance is available to a limited extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties
associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we could face liability from the interruption of our business as summarized under &#147;Risk Factors &#150;
Risks Related to Our Business &#150; We do not carry business interruption insurance so we could incur unrecoverable losses if our business is interrupted.&#148; </P>
<P align="justify">
<B>Legal Proceedings </B></P>
<P align="justify">
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise
from time to time that may 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. </P>
<P align="center">
- 36 - </P>

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<P align=center><B>MANAGEMENT </B></P>
<P align=justify><B>Directors and Executive Officers </B></P>
<P align=justify>The following sets forth information about our directors and
executive officers as of the date of this prospectus: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap align=left
      >
    <p style="margin-left: 10; margin-right: 10"><B>NAME</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap align=center>
    <p style="margin-left: 10; margin-right: 10"><B>AGE</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1" noWrap align=left>
    <p style="margin-left: 10; margin-right: 10"><B>POSITION</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff >
    <p style="margin-left: 10; margin-right: 10">Chaojun Wang </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">55 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Chairman and CEO </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
      >
    <p style="margin-left: 10; margin-right: 10">Dr. Eberhard Kornotzki </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center>
    <p style="margin-left: 10; margin-right: 10">47 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left>
    <p style="margin-left: 10; margin-right: 10">CFO and Director </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff >
    <p style="margin-left: 10; margin-right: 10">Basil Hwang </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">38 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Director (Independent) </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
      >
    <p style="margin-left: 10; margin-right: 10">Dr. Michael Cheng </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center>
    <p style="margin-left: 10; margin-right: 10">36 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left>
    <p style="margin-left: 10; margin-right: 10">Director (Independent) </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff >
    <p style="margin-left: 10; margin-right: 10">Drew Bernstein </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">53 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Director (Independent) </TD></TR></TABLE>
<P align=justify><B>Chaojun Wang: </B>Mr. Wang has served as our Chairman and
Chief Executive Officer since March 2010, and has served as the Chief Executive
Officer of our VIE, Longhai, since its inception in 2008, and as Chairman of the
Longhai Steel Group, our former parent company, since 1999. Mr. Wang is also a
member of the local parliament and holds a<B> </B>Bachelor&#146;s Degree in
enterprise management from the Shijiazhuang Railway College. </P>
<P align=justify><B>Dr. Eberhard Kornotzki: </B>Dr. Kornotzki has served as our
Chief Financial Officer since his appointment on April 1, 2010, and as our
director, since June 19, 2010. He has also served as the Chief Executive Officer
of Wealth Index Capital Group LLC, providers of corporate finance and management
consulting services, since May 2007. Dr. Kornotzki has 15 years of international
experience in the capital goods industry, working for German-owned manufacturing
companies such as Hermes, Weidm&#252;ller, and Bosch Group in Hong Kong, Singapore
and Beijing. Prior to joining us, Dr. Kornotzki served, from October 2007 to
December 2008, as a Non-Executive Director of Sunity PLC, a UK-based company
engaged in providing management services to Sunity (Beijing) Technology Co.,
Limited, a provider of integrated telecommunication software systems, radio
frequency identification systems and call centers; and from 2003 to 2006, as a
Managing Director of Tianjin Buderus Heating Technology Co. Ltd., a subsidiary
of Germany-based Bosch Group. From 2005 to 2006, Dr. Kornotzki also served as
Vice Chairman of the Trade and Distribution Working Group of the European
Chamber of Commerce in Beijing. He holds a PhD in Chinese studies from
Humboldt-Universit&#228;t zu Berlin (Germany) and a Master of Science in Business
Administration from the University of Illinois, Champaign-Urbana (USA). He is
fluent in English, German and Mandarin Chinese. Dr. Kornotzki dedicates
approximately 60% of his time to his role as the Company&#146;s Chief Financial
Officer. <B></B></P>
<P align=justify><B>Basil H. Hwang: </B>Mr. Hwang has been appointed to serve as
our director, effective as of the closing date of the Offering, and is the
Founder and Managing Partner of the Hong Kong office of Hwang &amp; Co in
association with Dechert LLP. Prior to this, Mr. Hwang was a partner with Paul,
Hastings, Janofsky &amp; Walker LLP and a counsel with O'Melveny &amp; Myers
LLP. Mr. Hwang is a member of the Executive Committee of the Singapore Chamber
of Commerce in Hong Kong. He has published Private Equity and Venture Capital
Investing in Asia and Renminbi (RMB) Denominated Funds &#150; An Emerging Platform
for Private Equity Investment in China, and has lectured on Asian Private Equity
Deal Terms. He is ranked as a leading lawyer by both Chambers Global and by the
Asia-Pacific Legal 500 directories. Mr. Hwang is fluent in English, Mandarin and
Cantonese and received his education in Singapore, Canada and England. He is a
graduate of the National University of Singapore and a postgraduate of the Board
of Legal Education. Mr. Hwang is admitted to practice law in Hong Kong,
Singapore, and England and Wales. </P>
<P align=justify><B>Dr. Michael Cheng:</B> Dr. Cheng has been appointed to serve
as our director, effective as of the closing date of the Offering, and has
served as a Principal of STIC Investments (Asia Private Equity Fund), since
March 2008. Prior to joining STIC Investments, Dr. Cheng served, from August
2006 to March 2008, as a Senior Consultant with Booz Allen Hamilton&#146;s Greater
China office, and from May 2005 to August 2006, as an Agriculture Risk
Management Consultant with the World Bank. Dr. Cheng is fluent in Mandarin and
is a contributor and co-author of The Fusion of International Vision and Chinese
Situation published by Beijing Publishing Group in 2006. He holds a Bachelor of
International Trade from the Inner Mongolia Finance &amp; Economics College in
China, a Ph.D. in Economics from the University of Hawaii at Manoa and Master of
Public Administration, from Harvard University&#146;s, J.F. Kennedy School of
Government. </P>
<P align=justify><B>Drew Bernstein:</B> Mr. Bernstein has been appointed to
serve as our director, effective as of the closing date of the Offering, and has
served as a Principal and co-founder of Bernstein &amp; Pinchuk LLP, a fast
growing accounting firm headquartered in New York, since 1983. Mr. Bernstein
received his BS degree from the University of Maryland Business School. He is
qualified to perform accounting and auditing services for public companies and
has qualified as an expert witness and serves as a director of NeoStem,
Incorporated (NYSE Amex: NBS), a pharmaceutical research company, Oriental Paper
Company, Inc. (NYSE Amex: ONP), a PRC-based manufacturer and distributor of
paper products, and China Wind Systems, Inc. (NASDAQ: CWS), a PRC-based supplier of forged rolled rings and other forged
components. Mr. Bernstein is licensed in the state of New York and other states
and is a member of the AICPA, the NYSSCPA and the NSA.</P>
<P align=center>- 37 - </P>
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<P align=justify><B>Family Relationships</B> </P>
<P align=justify>There is no family relationship among any of our officers or
directors.<B> </B></P>
<P align=justify><B>Involvement in Certain Legal Proceedings</B> </P>
<P align=justify>To the best of our knowledge, none of our directors or
executive officers has been convicted in a criminal proceeding, excluding
traffic violations or similar misdemeanors, or has been a party to any judicial
or administrative proceeding during the past ten years that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws. Except as set
forth in our discussion below in &#147;Certain Relationships and Related
Transactions, and Director Independence &#150; Transactions with Related Persons,&#148;
none of our directors, director nominees or executive officers has been involved
in any transactions with us or any of our directors, executive officers,
affiliates or associates which are required to be disclosed pursuant to the
rules and regulations of the SEC.</P>
<P align=justify>There are no agreements or understandings for any of our
executive officers or directors to resign at the request of another person and
no officer or director is acting on behalf of nor will any of them act at the
direction of any other person. To the best of our knowledge and belief, there
are no arrangements or understandings with any of our principal stockholders,
customers, suppliers, or any other person, pursuant to which any of our
directors or executive officers were appointed.</P>
<P align=justify>Directors are elected until their successors are duly elected
and qualified.</P>
<P align=justify><B>Significant Employees </B></P>
<P align=justify>The following sets forth the name and position of each of our
current significant employees.</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left><B>NAME</B>
    </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center><B>AGE</B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left><B>POSITION</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    bgColor=#e6efff>Dongmei Pan </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
    bgColor=#e6efff>48 </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    bgColor=#e6efff>CTO </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left>Chaohong
      Wang </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center>44 </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left>Sales Manager </TD></TR></TABLE>
<P align=justify><B>Dongmei Pan:</B> Ms. Pan has served as Longhai&#146;s Chief
Technology Officer since its inception in October 2008 and our Chief Technology
Officer since March 26, 2010. Ms. Pan graduated from Hebei Polytechnic
University with a bachelor&#146;s degree in metal processing. Previous work
experience includes CTO of Xingtai Steel Co Ltd from 1983 to 1995, CTO of Henan
Luoherenhe Steel Wire Co Ltd from 1995 to 1998 and vice-manager and CTO of our
predecessor company, Longhai Steel Group from 2003 to 2008. She published
articles about the steel market and is a certified steel rolling and wire
production engineer. </P>
<P align=justify><B>Chaohong Wang: </B>Mr. Wang has served as Longhai&#146;s Sales
Manager since October 2008 and our Sales Manager since March 26, 2010. Prior to
becoming Sales Manager at Longhai, Mr. Wang worked as Supply Manager at the
Longhai Steel Group since 2003. </P>
<P align=justify><B>Governance Structure</B> </P>
<P align=justify>Our company is governed by a Board of Directors that will
consist of five members, effective as of the closing of the Offering, Chaojun
Wang, Eberhard Kornotzki, Basil H. Hwang, Michael Cheng and Drew Bernstein, with
Chaojun Wang serving as Board Chairman, and Messrs. Hwang, Cheng and Bernstein
serving as our &#147;independent&#148; directors, as that term is defined by the NASDAQ
Stock Market Rules.</P>
<P align=justify>The Board believes the interests of all stockholders are best
served at the present time through a leadership model with a combined
Chairman/CEO position. However, the Board retains authority to amend the By-Laws
to separate the positions of Chairman and CEO at any time. The current CEO
possesses an in-depth knowledge of our company, its integrated operations in
China, and the array of challenges to be faced, gained through over 30 years of
successful experience. The Board believes that these experiences and other
insights put the CEO in the best position to provide broad leadership for the
Board as it considers strategy and as it exercises its fiduciary
responsibilities to its stockholders. </P>
<P align=justify>Further, the Board has demonstrated its commitment and ability
to provide independent oversight of management. A majority of the Board will be
comprised of independent directors, and 100% of the Audit, Compensation, and
Corporate Governance committees will be independent. Each independent director
has access to the CEO and other Company executives on request,
may call meetings of the independent directors, and may request agenda topics to be added or dealt with in more detail at meetings of the full Board or an appropriate Board committee.<B> </B> </P>
<P align=center>- 38 - </P>
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<P align="justify">
<B>The Board&#146;s Role in Risk Oversight</B></P>
<P align="justify">
The Board oversees that the assets of the Company are properly safeguarded, that the appropriate financial and other controls are maintained, and that the Company&#146;s business is conducted wisely and in compliance with applicable laws and
regulations and proper governance. Included in these responsibilities is the Board of Directors&#146; oversight of the various risks facing the Company. In this regard, the Board seeks to understand and oversee critical business risks. The Board
does not view risk in isolation. Risks are considered in virtually every business decision and as part of the Company&#146;s business strategy. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful
and appropriate risk-taking is essential for the Company to be competitive on a global basis and to achieve its objectives.</P>
<P align="justify">
While the Board oversees risk management, Company management is charged with managing risk. The Company has robust internal processes and a strong internal control environment to identify and manage risks and to communicate with the Board. The Board
and the new Audit Committee monitor and evaluate the effectiveness of the internal controls and the risk management program at least annually. Management communicates routinely with the Board, Board Committees and individual Directors on the
significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management.</P>
<P align="justify">
The Board has implemented its risk oversight function both as a whole and through new Board Committees, which will meet regularly and report back to the full Board. All Committees will play significant roles in carrying out the risk oversight
function. In particular:</P>
<UL>
<LI>
<p style="margin-bottom: 12">The Audit Committee will oversee risks related to the Company&#146;s financial statements, the financial reporting process, accounting and legal matters. The Audit Committee will also oversee the internal audit function and the Company&#146;s ethics
programs, including the Codes of Business Conduct. The Audit Committee members will meet separately with representatives of the independent auditing firm.</LI>
<LI>
The Compensation Committee will evaluate the risks and rewards associated with the Company&#146;s compensation philosophy and programs. The Compensation Committee will also review and approve compensation programs with features that mitigate risk
without diminishing the incentive nature of the compensation. Management will discuss with the Compensation Committee the procedures that have been put in place to identify and mitigate potential risks in compensation.</LI>
</UL>
<P align="justify">
<B>Independent Directors; Committees and Meetings</B> </P>
<P align="justify">
Prior to June 19, 2010, our Board did not have any standing committees, however, on June
19, 2010, our Board established three standing committees which, pursuant to delegated authority, will perform various duties on behalf of and report to the
Board: (i) Audit Committee, (ii) Compensation Committee and (iii) Corporate Governance and Nominating Committee. Each of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee are comprised entirely of
independent directors. From time to time, the Board may establish other committees. </P>
<P align="justify">
Copies of the charters for each of our three standing committees are filed as Exhibits 99.1, 99.2 and 99.3 to our current report on Form 8-K filed with the SEC on
or about
July 20, 2010.</P>
<P align="justify">
<B><I>Audit Committee and Audit Committee Financial Expert</I></B> </P>
<P align="justify">
Each of Basil H. Hwang, Michael Cheng and Drew Bernstein, whom our Board determined to be &#147;independent&#148; as that term is defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules, have been appointed to serve as members of the
Company&#146;s Audit Committee, effective as of the closing date of the Offering. Mr. Bernstein serves as Chair of the audit committee.</P>
<P align="justify">
Our audit committee will oversee our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is responsible for, among other things:</P>
<UL>
<LI>
<p style="margin-bottom: 12">selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;</LI>
<LI>
<p style="margin-bottom: 12">reviewing with our independent auditors any audit problems or difficulties and management&#146;s response;</LI>
<LI>
<p style="margin-bottom: 12">reviewing and approving all proposed related-party transactions;</LI>
<LI>
discussing the annual audited financial statements with management and our independent auditors;</LI>
</UL>
<P align="center">
- 39 - </P>

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<A name="page_44"></A>

<UL>
<LI>
<p style="margin-bottom: 12">reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control deficiencies;</LI>
<LI>
<p style="margin-bottom: 12">annually reviewing and reassessing the adequacy of our audit committee charter;</LI>
<LI>
<p style="margin-bottom: 12">meeting separately and periodically with management and our internal and independent auditors;</LI>
<LI>
<p style="margin-bottom: 12">reporting regularly to the full Board of Directors; and</LI>
<LI>
such other matters that are specifically delegated to our audit committee by our Board of Directors from time to time.</LI>
</UL>
<P align="justify">
Our Board of Directors has determined that Mr. Bernstein possesses the accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the NASDAQ Marketplace Rules and
that he is an &#147;audit committee financial expert&#148; as defined by the rules and regulations of the SEC. </P>
<P align="justify">
<B><I>Compensation Committee</I></B> </P>
<P align="justify">
Our compensation committee will consist of Basil H. Hwang, Michael Cheng and Drew Bernstein, effective as of the closing date of the Offering, each of whom are &#147;independent&#148; as that term is defined by Rule 4200(a)(15) of the NASDAQ
Marketplace Rules. Our compensation committee will assist the Board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive
officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. Mr. Hwang will serve as Chair of the compensation committee. </P>
<P align="justify">
The compensation committee will be responsible for, among other things:</P>
<UL>
<LI>
<p style="margin-bottom: 12">approving and overseeing the compensation package for our executive officers;</LI>
<LI>
<p style="margin-bottom: 12">reviewing and making recommendations to the Board with respect to the compensation of our directors;</LI>
<LI>
<p style="margin-bottom: 12">reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level
of our chief executive officer based on this evaluation; and</LI>
<LI>
reviewing periodically and making recommendations to the Board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.</LI>
</UL>
<P align="justify">
The Compensation Committee will have the sole authority to retain and terminate outside counsel, compensation consultants retained to assist the Compensation Committee in determining the compensation of the Chief Executive Officer or senior
executive officers, or other experts or consultants, as it deems appropriate, including sole authority to approve the firms' fees and other retention terms. The Compensation Committee may also form and delegate authority to subcommittees and may
delegate authority to one or more designated members of the Compensation Committee. The Compensation Committee may from time to time seek recommendations from the executive officers of the Company regarding matters under the purview of the
Compensation Committee, though the authority to act on such recommendations rests solely with the Compensation Committee. </P>
<P align="justify">
<B><I>Corporate Governance and Nominating Committee</I></B> </P>
<P align="justify">
Our corporate governance and nominating committee will consist of Basil H. Hwang, Michael Cheng and Drew Bernstein, effective as of the closing date of the Offering, each of whom is &#147;independent&#148; as that term is defined by Rule 4200(a)(15)
of the NASDAQ Marketplace Rules. The corporate governance and nominating committee will assist the Board of Directors in identifying individuals qualified to become our directors and in determining the composition of the Board and its committees.
Dr. Cheng will serve as Chair of the corporate governance and nominating committee. </P>
<P align="justify">
The corporate governance and nominating committee is responsible for, among other things: </P>
<UL>
<LI>
<p style="margin-bottom: 12">identifying and recommending to the Board nominees for election or re-election to the board, or for appointment to fill any vacancy;</LI>
<LI>
<p style="margin-bottom: 12">reviewing annually with the Board the current composition of the Board in light of the characteristics of independence, age, skills, experience and availability of service to us;</LI>
<LI>
<p style="margin-bottom: 12">identifying and recommending to the Board the directors to serve as members of the Board&#146;s committees; and</LI>
<LI>
monitoring compliance with our code of business conduct and ethics.</LI>
</UL>
<P align="center">
- 40 - </P>

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<P align="justify">
In identifying and recommending nominees for election or re-election to the board, or for appointment to fill any vacancy, the corporate governance and nominating committee is also committed to engendering Board strength and effectiveness by seeking
candidates with a diverse set of business, academic and life experiences and backgrounds who also possess knowledge and skills in areas of importance to the Company. The Committee will not use quotas but will consider diversity when evaluating
potential new directors.</P>
<P align="justify">
The Committee will identify director candidates primarily through recommendations made by the non-employee directors. These recommendations will be developed based on the directors&#146; own knowledge and experience in a variety of fields.
Additionally the Committee will consider recommendations made by the employee directors, stockholders, and others. All recommendations, regardless of the source, will be evaluated on the same basis. </P>
<P align="justify">
Stockholders may send recommendations for director candidates to the Company&#146;s Corporate Secretary, at the Company&#146;s most recent address with the SEC. A submission recommending a candidate should include: </P>
<UL>
<LI>
<p style="margin-bottom: 12">Sufficient biographical information to allow the Committee to evaluate the candidate;</LI>
<LI>
<p style="margin-bottom: 12">Information concerning any relationship between the candidate and the stockholder recommending the candidate; and</LI>
<LI>
Material indicating the willingness of the candidate to serve if nominated and elected.</LI>
</UL>
<P align="justify">
<B>Director Qualifications</B></P>
<P align="justify">
Directors are responsible for overseeing the Company&#146;s business consistent with their fiduciary duty to stockholders. This significant responsibility requires highly-skilled individuals with various qualities, attributes and professional
experience. The Board believes that there are general requirements for service on the Company&#146;s Board of Directors that are applicable to all Directors and that there are other skills and experience that should be represented on the Board as a
whole but not necessarily by each Director. The Board considers the qualifications of Directors and Director candidates individually and in the broader context of the Board&#146;s overall composition and the Company&#146;s current and future
needs.</P>
<P align="justify">
<B><I>Qualifications for All Directors</I></B></P>
<P align="justify">
In its assessment of each potential candidate, including those recommended by stockholders, the Board considers the nominee&#146;s judgment, integrity, experience, independence, understanding of the Company&#146;s business or other related
industries and such other factors the Board determines are pertinent in light of the current needs of the Board. The Board also takes into account the ability of a Director to devote the time and effort necessary to fulfill his or her
responsibilities to the Company.</P>
<P align="justify">
The Board requires that each Director be a recognized person of high integrity with a proven record of success in his or her field. Each Director must demonstrate innovative thinking, familiarity with and respect for corporate governance
requirements and practices, an appreciation of multiple cultures and a commitment to sustainability and to dealing responsibly with social issues. In addition to the qualifications required of all Directors, the Board assesses intangible qualities
including the individual&#146;s ability to ask difficult questions and, simultaneously, to work collegially.</P>
<P align="justify">
The Board does not have a specific diversity policy, but considers diversity of race, ethnicity, age, cultural background and professional experiences and opinions in evaluating candidates for Board membership. Diversity is important because a
variety of points of view contribute to a more effective decision-making process.</P>
<P align="justify">
<B><I>Qualifications, Attributes, Skills and Experience to be Represented on the Board as a Whole</I></B></P>
<P align="justify">
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of our current needs and business priorities. The Board believes that a diversity of
professional experiences in the steel industry, specific knowledge of key geographic growth areas, and knowledge of U.S. capital markets and of U.S. accounting and financial reporting standards are important attributes on the Board.</P>
<P align="justify">
Set forth below is a tabular disclosure summarizing some of the specific qualifications, attributes, skills and experiences of our directors.</P>
<P align="center">
- 41 - </P>

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<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=center style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">
    <p style="margin-left: 10; margin-right: 10"><B>Director</B> </TD>
    <TD noWrap align=left width="20%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">
    <p style="margin-left: 10; margin-right: 10">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;
      &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<B>Titles</B> </TD>
    <TD noWrap align=center width="60%" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1">
    <p style="margin-left: 10; margin-right: 10"><B>Material Qualifications</B> </TD></TR>
  <TR>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1">
    <p style="margin-left: 10; margin-right: 10">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" width="20%">
    <p style="margin-left: 10; margin-right: 10">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" width="60%">
    <p style="margin-left: 10; margin-right: 10">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left
      bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Chaojun Wang </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="20%"
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Chairman </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="60%"
    bgColor=#e6efff>
      <P align=justify style="margin-left: 10; margin-right: 10">Not only is Mr. Wang Chaojun the founder of the company,
      but he is also a pillar of the community and is widely respected by
      employees, business partners and government officials alike. He has many
      years of experience in the industry, is a member of local parliament and a
      charismatic and benevolent leader. Integrity and modesty are Mr. Wang's
      personal values that have facilitated his leadership success and will
      continue to do so. </P></TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left>
    <p style="margin-left: 10; margin-right: 10">Eberhard Kornotzki
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="20%">
    <p style="margin-left: 10; margin-right: 10">Chief
      Financial Officer and Director </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="60%">
      <P align=justify style="margin-left: 10; margin-right: 10">Dr. Kornotzki's deep understanding of Chinese language
      and culture, combined with his top level academic achievements enable him
      to facilitate effective and unfiltered cross-cultural communication. His
      many years of international top management experience enable him to get
      things done with punctuality, reliability and precision. Having been
      involved in the capital goods industry (such as machine tools and
      electrical components), Dr. Kornotzki's profound knowledge of business
      processes at large companies and of client behavior will add significant
      value to the board. </P></TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left
      bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Basil Hwang </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="20%"
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Director (Independent) </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="60%"
    bgColor=#e6efff>
      <P align=justify style="margin-left: 10; margin-right: 10">As managing partner and the founder of a premier
      international law firm's Hong Kong and China operation, Mr. Hwang has been
      involved in numerous securities and financing transactions. Mr. Hwang
      circulates widely within the Mainland Chinese and Hong Kong business and
      financial community and provides counsel to business leaders in the
      region. He is recognized by clients for his business insight and the
      quality of his advice, his familiarity with regulations and business
      practices in China and Hong Kong, and his ability to reliably and
      successfully execute transactions. His counsel and experience in both the
      Chinese and international capital markets will provide guidance and
      direction to our future growth. </P></TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left>
    <p style="margin-left: 10; margin-right: 10">Michael Cheng </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left
      width="20%">
    <p style="margin-left: 10; margin-right: 10">Director (Independent) </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="60%">
      <P align=justify style="margin-left: 10; margin-right: 10">Dr. Cheng has extensive capital markets experience and
      proven track record advising international and domestic companies in their
      formation of successful business strategies in China. He also has strong,
      long-term relationships with PRC central and local governments, financial
      institutions, industry experts and accounting professionals. We believe
      that Dr. Cheng&#146;s unique perspective and experience both in China and
      overseas will be a great benefit to the Company. </P></TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left
      bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Drew Bernstein </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="20%"
    bgColor=#e6efff>
    <p style="margin-left: 10; margin-right: 10">Director and Audit Committee Financial Expert </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left width="60%"
    bgColor=#e6efff>
      <P align=justify style="margin-left: 10; margin-right: 10">Mr. Bernstein serves as an accountant and advisor to
      numerous entities across the U.S., China and Europe in diverse industries,
      including in retail, manufacturing, hospitality and professional
      practices. He also provides business advisory and specialized auditing
      services to clients throughout Europe including the Czech Republic,
      France, Germany and Switzerland, and in Israel. He is a frequent speaker
      at industry, investment banking and university conferences, and has been
      responsible for more than 200 real estate transactions with an aggregate
      value in excess of US$3 billion. We believe that Mr. Bernstein&#146;s
      experience as an accountant and advisor is invaluable to the Company.
    </P></TD></TR></TABLE>
<P align=justify><B><I>Code of Ethics </I></B></P>
<P align=justify>On June 19, 2010, our board of directors adopted a code of
ethics, which applies to all of our directors, officers and employees, including
our principal executive officer, principal financial officer, and principal
accounting officer. The code of ethics is designed to deter wrongdoing and to
promote honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;
full, fair, accurate, timely and understandable disclosure in reports and
documents that we file with, or submit to, the SEC, and in other public
communications that we made; compliance with applicable government laws, rules and
regulations; the prompt internal reporting of violations of the code to the
appropriate person or persons; and accountability for adherence to the code of
ethics.</P>
<P align=center>- 42 - </P>
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<P align=justify>The code of ethics requires the highest standard of ethical
conduct and fair dealing of its senior financial officers, or SFO, defined as
the Chief Executive Officer and Chief Financial Officer. While this policy is
intended to only cover the actions of the SFO, we expect our other officers,
directors and employees will also review our code and abide by its provisions.
We believe that our reputation is a valuable asset and must continually be
guarded by all associated with us so as to earn the trust, confidence and
respect of our suppliers, customers and stockholders. A copy of the code of
ethics has been filed as Exhibit 14 of our current report on Form 8-K, filed on
July 20, 2010. </P>
<P align=justify><B><I>FCPA Policy </I></B></P>
<P align=justify>The Foreign Corrupt Practices Act, or the FCPA, prohibits
companies and individuals subject to FCPA jurisdiction from providing to foreign
officials any &#147;corrupt payments&#148; (<I>i.e</I>., bribes, kickbacks, and similar
benefits) in order to obtain any unfair advantage with respect to government
contracts, regulatory approvals, licenses, and other government actions for the
purpose of obtaining or retaining business. The FCPA applies to: 1) &#147;issuers&#148; &#150;
U.S. and foreign companies subject to SEC jurisdiction; 2) &#147;domestic concerns&#148; &#150;
individuals who are citizens, nationals or residents of the United States and
companies with a principal place of business in the United States or organized
under U.S. law; and 3) &#147;other persons&#148; &#150; foreign companies or persons who act in
the United States to further a corrupt payment. The term &#147;other persons&#148; has
been interpreted broadly to include foreign entities that send an email in
furtherance of a corrupt act to a U.S. recipient, or that clear a corrupt
payment through a U.S. bank. The FCPA requires issuers to maintain accurate
books and records that do not misrepresent their payments or expenses. Issuers
are also liable for the accuracy of their majority-owned subsidiaries&#146; books and
records, and are required to act in good faith to encourage their minority-owned
subsidiaries to adopt reasonable internal accounting controls intended to avoid
corrupt payments. Issuers, domestic concerns and other persons may be liable for
the actions of their foreign subsidiaries and agents if they know or should know
that a subsidiary or agent is likely to make a corrupt payment to a foreign
official.</P>
<P align=justify>Issuers, domestic concerns and other persons subject to the
FCPA are subject to severe criminal and civil penalties for violations of the
FCPA. Entities that make corrupt payments may be fined as much as $2 million per
violation, or twice the amount of the benefit sought in return for the payment.
Individuals may be fined up to $100,000 and/or imprisoned for up to five years.
Issuers who violate the FCPA&#146;s books and records requirements are subject to
fines up to $25 million, and individuals can be fined up to $5 million and/or
imprisoned for up to 20 years. Companies may not indemnify their officers or
employees for FCPA violations.</P>
<P align=justify>On July 17, 2010, our board of directors adopted a Foreign
Corrupt Practices Act Policy which applies to all of our directors, officers,
employees, agents and representatives, including our principal executive
officer, principal financial officer, and principal accounting officer. Our FCPA
Policy requires of our directors, officers, employees, agents and
representatives to adhere to strict anti-corruption policies and practices. The
policy also requires that prospective agents and representatives of the Company
be familiarized with and agree to adopt our anti-corruption standards and
expectations for ethical conduct, prior to entering into any engagement with any
of them, and that we perform due diligence, from time to time, to ensure such
compliance.</P>
<P align=center><B>EXECUTIVE COMPENSATION </B></P>
<P align=justify><B>Summary Compensation Table &#150; 2009 and 2008 </B></P>
<P align=justify>The following table sets forth information concerning all cash
and non-cash compensation awarded to, earned by or paid to the named persons for
services rendered in all capacities during the noted periods. No other executive
officers received total annual salary and bonus compensation in excess of
$100,000. </P>
<P align=center>- 43 - </P>
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<TABLE
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  <TR vAlign=top>
    <TD noWrap align=left>&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Non-</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Non-</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Equity</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>qualified</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="17%" colSpan=4><B>Incentive Plan
      Deferred</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Stock</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Option</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Compensation</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Compensation</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>All Other</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Name and</B> </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="7%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Salary</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Bonus</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Awards</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Awards</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Earnings</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Earnings</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Compensation</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Total</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Principal</B> </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>Year</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%"><B>($)</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap
      align=left><B>Position</B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%">&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF">Chaojun Wang, </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">2009 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">CEO <SUP>(1)</SUP>&nbsp;&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">2008 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">0 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left style="border-top-style: solid; border-top-width: 1">
    Joseph Meuse, </TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    2009 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=left width="1%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD>
    <TD noWrap align=right width="7%" style="border-top-style: solid; border-top-width: 1">
    0 </TD>
    <TD noWrap align=left width="2%" style="border-top-style: solid; border-top-width: 1">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>former </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">2008 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="7%">0 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left>CEO
      <SUP>(1)</SUP>&nbsp;&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
    width="2%">&nbsp;</TD></TR>
  </TABLE><BR>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD vAlign=top width="5%" style="border-top-style: solid; border-top-width: 1">(1) </TD>
    <TD>On March 26, 2010, we acquired Kalington in a reverse acquisition
      transaction that was structured as a share exchange and in connection with
      that transaction, Mr. Chaojun Wang became our Chief Executive Officer.
      Prior to the effective date of the reverse acquisition, Mr. Joseph Meuse
      served as our President. Prior to June 2010, Mr. Wang did not receive any
      annual, long term and other compensation from the Company or any of its
      subsidiaries or affiliates. </TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  </TABLE>
<P align=justify><B>Summary of Employment Agreements and Material Terms </B></P>
<P align=justify>Prior to our reverse acquisition of Kalington, our operating
subsidiary was a private limited company organized under the laws of the PRC,
and in accordance with PRC regulations, the salary of our executives was
determined by our shareholders. In addition, each employee is required to enter
into an employment agreement. Accordingly, all our employees, including
management, have executed our employment agreement.</P>
<P align=justify>Our employment agreements with our executives provide the
amount of each executive officer&#146;s salary and establish their eligibility to
receive a bonus. Mr. Chaojun Wang&#146;s employment agreement provides for an annual
salary of RMB 120,000 (approximately $17,700), commencing June 1, 2010. Dr.
Kornotzki&#146;s employment agreement with the Company, dated April 1, 2010, provides
for a salary of $2,000 per month and a five-year option to purchase up to
200,000 shares of the Company&#146;s Common Stock on a cash exercise basis at an
exercise price of $6.00 per share, with 50% immediately vested and the remaining
50% to vest in two equal portions on March 31, 2011 and on March 31, 2012,
respectively. Dr. Kornotzki&#146;s cash compensation will be doubled to $4,000 per
month going forward, if the Company obtains its first financing and completes
the listing of its Common Stock for trading on NASDAQ. Other than the salary and
necessary social benefits required by the government, which are defined in the
employment agreements, we currently do not provide other benefits to our
officers at this time. Dr. Kornotzki&#146;s employment agreement is scheduled to
expire on March 31, 2012, but may be terminated by the Company or without cause
with 30 days&#146; prior written notice. In the event that the Company desires to
terminate Dr. Kornotzki without cause, any unvested portion of his stock options
will automatically vest and be exercisable on the termination date and will
remain exercisable until the options expire. </P>
<P align=justify><B>Outstanding Equity Awards at Fiscal Year End</B> </P>
<P align=justify>For the year ended December 31, 2009, no director or executive
officer received compensation from us pursuant to any compensatory or benefit
plan.</P>
<P align=center>- 44 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_49></A>
<P align=justify><B>Compensation of Directors</B> </P>
<P align=justify>No member of our board of directors received any compensation
for his services as a director during the year ended December 31, 2009, however,
our new independent directors will each enter into our form of independent
director agreement, effective as of the closing of the Offering, pursuant to
which they will receive as compensation 5,000 restricted shares per annum,
vesting semi-annually, commencing on the 6-month anniversary of our NASDAQ
Listing, except that Mr. Bernstein, who serves as our Audit Committee Chair will
receive 7,500 restricted shares. Our executive directors, Mr. Wang and Dr.
Kornotzki will receive compensation only in their capacities as officers. </P>
<P align=center><B>TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN
CONTROL PERSONS; CORPORATE GOVERNANCE </B></P>
<P align=justify><B>Transactions with Related Persons </B></P>
<P align=justify>The following includes a summary of transactions since the
beginning of the 2008 fiscal year, or any currently proposed transaction, in
which we were or are to be a participant and the amount involved that exceeded
or exceeds the lesser of $120,000 or one percent of the average of our total
assets at year-end for the last two completed fiscal years, and in which any
related person had or will have a direct or indirect material interest (other
than compensation described under &#147;Executive Compensation&#148;). We believe the
terms obtained or consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to terms
available or the amounts that would be paid or received, as applicable, in
arm&#146;s-length transactions.</P>
<UL>
  <LI>
  <p style="margin-bottom: 12" align="justify">Our VIE, Longhai, was established in August 2008, as a result of the
  separation of Longhai from the Longhai Steel Group at that time. Prior to its
  establishment as a stand-alone company, Longhai was a division within the
  Longhai Steel Group. The Longhai Steel Group was founded in 2003. Chaojun
  Wang, Chief Executive Officer and controlling stockholder serves as the
  Chairman of the Board of Directors and General Manager of Longhai and
  beneficially owns 80% of the capital stock in Longhai. Chaojun Wang also owns
  80% of the capital stock of and is the chief executive officer of the Longhai
  Steel Group.
  <LI>
  <p style="margin-bottom: 12" align="justify">Longhai leases a five-story office space and the building which houses our
  production facilities from the Longhai Steel Group. The rent expense for such
  facilities for the years ended December 31, 2009 and 2008 was $28,334 and
  $128,604, respectively.
  <LI>
  <p style="margin-bottom: 12" align="justify">Steel billet is the principal raw material used in our production of steel
  wire and in 2009, steel billet accounted for more than 95% of our production
  costs. Prior to 2009, we purchased our steel billet at a small per ton volume
  discount, from the Longhai Steel Group, an entity owned and controlled by our
  CEO, Chaojun Wang, with $488,908,517 in steel billet purchased in 2008.
  However, since 2009, we have purchased our steel billet at prevailing market
  prices from third party trading companies who source their steel billet from
  local steel manufacturers, including the Longhai Steel Group.
  <LI>
  <p style="margin-bottom: 12" align="justify">In 2009 and 2008, Longhai purchased production utilities from the Longhai
  Steel Group in the amounts of $11,661,547 and $9,111,397, respectively.
  <LI>
  <p style="margin-bottom: 12" align="justify">In addition, during 2009 and 2008, Longhai sold to the Longhai Steel Group
  steel scrape in the amounts of $3,688,573 and $5,159,081, and steel wire in
  the amounts of $71,595 and $1,604,785, respectively.
  <LI>
  <p style="margin-bottom: 12" align="justify">In 2009, prior to the consummation of our reverse acquisition transaction,
  Longhai provided cash advances to the Longhai Steel Group and earned finance
  income amounting to $8,360,120, which is included in the Company&#146;s revenue for
  the period. The financing was effected through Longhai&#146;s offering of sales
  discounts to third party customers in return for large customer deposits,
  which Longhai would then advance to the Longhai Steel Group for use of such
  funds in the production of steel billet. This amount was repaid in full by
  Longhai Steel Group at the closing of the reverse merger transaction.
  <LI>
  <p style="margin-bottom: 12" align="justify">Prior to our reverse acquisition of Kalington, as at December 31, 2009
  Longhai had loaned $42,047,673 to the Longhai Steel Group. However, as of the
  date of this filing, all balances have been repaid and no loans to the Longhai
  Steel Group are outstanding.
  <LI>
  <p align="justify">On March 19, 2010, prior to the reverse acquisition transaction, Kalington
  Consulting and Longhai entered into a series of agreements known as variable
  interest agreements (the &#147;VIE Agreements&#148;) pursuant to which Longhai became
  Kalington Consulting&#146;s contractually controlled affiliate. The use of VIE
  agreements is a common structure
used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements included: </LI></UL>
<P align=center>- 45 - </P>
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<P align="justify">
&nbsp;</P>
<UL type="circle">
<LI>
<p style="margin-left: 5%; margin-bottom: 12" align="justify">A Consulting Services Agreement through which Kalington Consulting has the right to advise, consult, manage and operate Longhai and collect and own all of the net profits of Longhai;</LI>
<LI>
<p style="margin-left: 5%; margin-bottom: 12" align="justify">an Operating Agreement through which Kalington Consulting has the right to recommend director candidates and appoint the senior executives of Longhai, approve any transactions that may materially affect the assets, liabilities, rights or operations
of Longhai, and guarantee the e contractual performance by Longhai of any agreements with third parties, in exchange for a pledge by Longhai of its accounts receivable and assets;</LI>
<LI>
<p style="margin-left: 5%; margin-bottom: 12" align="justify">a Proxy Agreement under which the three owners of Longhai have vested their collective voting control over Longhai to Kalington Consulting and will only transfer their respective equity interests in Longhai to Kalington Consulting or its
designee(s);</LI>
<LI>
<p style="margin-left: 5%; margin-bottom: 12" align="justify">an Option Agreement under which the owners of Longhai have granted to Kalington Consulting the irrevocable right and option to acquire all of their equity interests in Longhai; and</LI>
<LI>
<p style="margin-left: 5%">an Equity Pledge Agreement under which the owners of Longhai have pledged all of their rights, titles and interests in Longhai to Kalington Consulting to guarantee Longhai&#146;s performance of its obligations under the Consulting Services
Agreement.</LI>
</UL>
<P align="justify" style="margin-left: 5%">
For details regarding the foregoing agreements, see our Current Report on Form 8-K filed on March 26, 2010 and the exhibits thereto. Mr. Chaojun Wang, our Chief Executive Officer and controlling stockholder, is a director of Kalington, Kalington
Consulting and Longhai and a controlling shareholder of Longhai. </P>
<P align="justify">
Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.</P>
<P align="justify">
<B>Insider Transactions Policies and Procedures</B> </P>
<P align="justify">
Prior to June 19, 2010, we did not have an insider transaction policy, but on June
19, 2010, we adopted a new Code of Ethics which, along with our Bylaws, govern written policies and procedures for review, approval or ratification of relationships
or transactions with related persons. </P>
<P align="justify">
Our Bylaws requires that our Board of Directors monitor and manage potential conflicts of interest of management and the Board and assume other responsibilities as may be required from time to time. As permitted under the Company&#146;s Bylaws, the
Board has delegated some of these responsibilities to the Board&#146;s Audit Committee and Nominating and Corporate Governance Committee. Our Audit Committee Charter provides that the Audit Committee is responsible for establishing procedures for
the approval of and approve the entry of the Company into any and all related party transactions between the Company and any executive officer or director that would potentially require disclosure pursuant to Item 404 of SEC Regulation S-K. The
Audit Committee Charter also mandates that the Audit Committee must approve the entry of the Company into any such related party transaction. Our Nominating and Corporate Governance Committee Charter provides that the Nominating and Corporate
Governance Committee is responsible for reviewing and assessing the adequacy of the Company&#146;s Code of Business Ethics and Conduct and other internal policies and guidelines and monitor whether the principles described therein are being
incorporated into the Company&#146;s culture and business practices. </P>
<P align="justify">
Our Code of Business Ethics and Conduct provides a number of specific procedures, requirements, and prohibitions relating to related party transactions. It prohibits directors, officers and employees from accepting simultaneous employment with a
Company supplier, customer, developer, or competitor, or from taking part in any activity that enhances or supports a competitor&#146;s position. All directors, officers and employees must disclose to the Company any interest that may conflict with
the Company. A director, officer and employee may accept a position as a director of another company only if he or she obtains approval from the Board of Directors; the other company does not compete with the Company; and any compensation received
in this capacity is commensurate with its responsibilities. </P>
<P align="justify">
Our Code of Business Ethics and Conduct generally requires directors, officers, and employees of the Company to avoid conducting Company business with a relative or significant other, or with a business in which a relative or significant other is
associated in any significant manner. Where a Company director, officer or employee believes that such a transaction is unavoidable, he or she must fully disclose it to the Company&#146;s Chief Executive Officer. If the Chief Executive Officer deems
it material to the Company, the Nominating and Corporate Governance Committee must review and provide advance written approval for such transactions. The Board subsequently
reassigned part of this responsibility to the Audit Committee pursuant to the
Audit Committee Charter. The most significant related party transactions,
especially those involving the Company&#146;s directors or executive officers, must
be reviewed and approved in writing in advance by the Company&#146;s Board of
Directors. The Board also delegated part of this function to the Audit Committee
under the Audit Committee Charter, as explained above. The Company must report
all such material related party transactions under applicable accounting rules,
federal securities laws, SEC rules and regulations, and securities market rules.
Any dealings with a related party must be conducted in such a way that no
preferential treatment is given. </P>
<P align="center">
- 46 - </P>

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<P align=justify>In addition, our Code of Business Ethics and Conduct
discourages the employment of relatives and significant others in positions or
assignments within the same department and prohibits the employment of such
persons in positions that have influence (e.g., an auditing or control
relationship, or a supervisor/subordinate relationship). Our Human Resources
department is primarily responsible for administering this aspect of our related
party transactions policy. If any covered relationship develops or exists
between two employees, the senior employee must advise his or her supervisor.
The Company may separate the employees either by reassignment or termination, if
necessary. </P>
<P align=justify>Our Code of Business Ethics and Conduct permits waivers of the
above policies and procedures as to directors or executive officers only if they
are approved in writing by the Board of Directors and promptly disclosed. Any
waiver with respect to any employee, agent or contractor must be approved in
writing by the Company. Under its Charter, our Nominating and Corporate
Governance Committee is also responsible for reviewing requests for any waivers
and recommending to the Board whether a particular request should be granted.
</P>
<P align=justify>Any type of related party transaction not expressly covered by
the above policies and procedures is subject to the review and approval of our
Board of Directors. </P>
<P align=justify><B>Promoters and Certain Control Persons </B></P>
<P align=justify>We did not have any promoters at any time during the past five
fiscal years.<B> </B></P>
<P align=center><B>CHANGE IN ACCOUNTANTS </B></P>
<P align=justify>On March 26, 2010, we reported a change of independent
auditors, effective immediately, from Robison Hill &amp; Company, or Robison, to
MaloneBailey, LLP, or MaloneBailey. </P>
<P align=justify>Robinson audited the financial statements of the Company, for
the years ended December 31, 2009 and 2008 prior to the Company&#146;s reverse
acquisition of Kalington. Robinson&#146;s reports on the Company&#146;s financial
statements as of and for the years ended December 31, 2009 and 2008 did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles, except that
its report for the year ended December 31, 2009 contained a going concern
qualification as to the Company&#146;s ability to continue as a going concern. During
the years ended December 31, 2009 and 2008 and through Robinson&#146;s dismissal on
March 26, 2010, there were (1) no disagreements with Robinson on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Robinson, would have caused Robinson to make reference to the subject matter of
the disagreements in connection with its reports, and (2) no events of the type
listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K.</P>
<P align=justify>During the last two fiscal years ended December 31, 2009 and
December 31, 2008, MaloneBailey did not conduct any audits or complete any audit
reports on our Company&#146;s financial statements. However, MaloneBailey did conduct
an audit and completed an audit report on the balance sheets of Kalington
Limited, the Company&#146;s subsidiary, as of December 31, 2009 and 2008, and the
related statements of operations and comprehensive income, changes in
shareholders&#146; equity and cash flows of Kalington Limited, for the years ended
December 31, 2009, 2008 and 2007, which reports did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with the audits
of the financial statements of Kalington Limited for the fiscal years ended
December 31, 2009 and 2008, there were: (i) no disagreements between our Company
and MaloneBailey on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of MaloneBailey, would have caused MaloneBailey
to make reference to the subject matter of the disagreement in their reports on
the Company&#146;s financial statements for such years, and (ii) no reportable events
within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.</P>
<P align=center>- 47 - </P>
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<P align=center><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT </B></P>
<P align=justify>The following table sets forth information regarding beneficial
ownership of our common stock after giving effect to our reverse split on June
30, 2010 (i) by each person who is known by us to beneficially own more than 5%
of our common stock; (ii) by each of our officers and directors; and (iii) by
all of our officers and directors as a group. Unless otherwise specified, the
address of each of the persons set forth below is in care of Longhai Steel,
Inc., No. 1 Jingguang Road, Neiqiu County, Xingtai City, Hebei Province,
People&#146;s Republic of China, 054000. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">
    <p style="margin-left: 5">&nbsp; </TD>
    <TD noWrap align=left width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1" valign="bottom"><B>Amount and</B> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" style="border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1" valign="bottom">
    <p style="margin-left: 5">&nbsp; </TD>
    <TD noWrap align=left width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom"><B>Nature of</B> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom"><B>Percent of</B> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1" valign="bottom">
    <p style="margin-left: 5"><B>Name &amp; Address of Beneficial</B> </TD>
    <TD noWrap align=left width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom"><B>Beneficial</B> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="1%" style="border-left-style: solid; border-left-width: 1" valign="bottom">&nbsp;</TD>
    <TD noWrap align=center width="10%" valign="bottom"><B>Common</B> </TD>
    <TD noWrap align=center width="2%" style="border-right-style: solid; border-right-width: 1" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap
      align=left valign="bottom">
    <p style="margin-left: 5"><B>Owner</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom"><B>Office, If Any</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom"><B>Title of Class</B> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom"><B>Ownership<SUP>(1)</SUP></B></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
      width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom"><B>Stock<SUP>(2)</SUP></B></TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
      width="2%" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center
    bgColor=#e6efff colSpan=13 valign="bottom"><B>Officers and Directors</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left valign="bottom">
    <p style="margin-left: 5">Chaojun
    Wang</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">Chairman and Chief<BR>Executive Officer </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">Common Stock&nbsp; </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">5,100,330<SUP>(3)</SUP> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
      width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">51.0%</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff valign="bottom">
    <p style="margin-left: 5">Eberhard Kornotzki<SUP>(4)</SUP> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">Chief Financial <BR>Officer and Director </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">Common Stock</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">524,535 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">5.2% </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left valign="bottom">
    <p style="margin-left: 5">Basil
      Hwang<SUP>(5)</SUP> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">Director </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">Common Stock </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">0 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">0 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff valign="bottom">
    <p style="margin-left: 5">Michael Cheng<SUP>(5)</SUP> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">Director </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">Common Stock </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">0 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">0 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left valign="bottom">
    <p style="margin-left: 5">Drew
      Bernstein<SUP>(5)</SUP> </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">Director </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">Common Stock </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">0 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%" valign="bottom">0 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center
    width="2%" valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=left
    bgColor=#e6efff valign="bottom">
    <p style="margin-left: 5">All officers and directors as a group <BR>(2 persons named
      above) </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=left width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">Common Stock </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">5,624,865 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" noWrap align=center width="1%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="10%"
    bgColor=#e6efff valign="bottom">56.2% </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" noWrap align=center width="2%"
    bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" noWrap align=center colSpan=13 valign="bottom"><B>5% Security Holders</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left
      bgColor=#E6EFFF valign="bottom">
    <p style="margin-left: 5">Merry Success Limited <SUP>(3)</SUP> <BR>P.O Box 957
      <BR>Offshore Incorporation Centre, <BR>Road Town, Tortola </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=left width="1%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#E6EFFF valign="bottom">-- </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#E6EFFF valign="bottom">Common Stock </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#E6EFFF valign="bottom">5,100,330 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center width="1%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%"
    bgColor=#E6EFFF valign="bottom">51.0% </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center width="2%"
    bgColor=#E6EFFF valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1" align=left valign="bottom">
    <p style="margin-left: 5">Xingfang Zhang
      <SUP>(6)</SUP> <BR>Zheng No.15, No.33 North <BR>Xinhua Road, <BR>Qiaodong
      District, Xingtai, <BR>Hebei Province, China </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=left
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%" valign="bottom">--
</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center
      width="10%" valign="bottom">Common Stock </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center
      width="10%" valign="bottom">2,900,825 </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-left-style:solid; border-left-width:1" align=center
    width="1%" valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=center width="10%" valign="bottom">29.0%
    </TD>
    <TD style="BORDER-BOTTOM: 1px solid #000000; ; border-right-style:solid; border-right-width:1" align=center
    width="2%" valign="bottom">&nbsp;</TD></TR></TABLE>
<P align=justify style="margin-top: 0">________<br>
*Less than 1% </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD vAlign=top width="5%">(1) </TD>
    <TD>Beneficial Ownership is determined in accordance with the rules of the
      SEC and generally includes voting or investment power with respect to
      securities. Each of the beneficial owners listed above has direct
      ownership of and sole voting power and investment power with respect to
      the shares of our common stock. </TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD vAlign=top width="5%">(2) </TD>
    <TD>As of June 30, 2010, a total of 10,000,000 shares of our common stock
      will be considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For
      each Beneficial Owner above, any options exercisable within 60 days have
      been included in the denominator. </TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD vAlign=top width="5%">(3) </TD>
    <TD>Based on an option to purchase all of the shares of Merry Success
      Limited, a British Virgin Islands limited company, which owns 5,178 shares
      of Series A Convertible Preferred. Merry Success Limited is owned and
      controlled by Jinhai Guo, but Chaojun Wang serves as Chief Executive
      Officer and Director of, and exercises dispositive control over the shares
      owned by Merry Success Limited. </TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD vAlign=top width="5%">(4) </TD>
    <TD>Represents an option to purchase 100,000 shares of our Common Stock at
      an exercise price of $6.00 per share, which vested on April 1, 2010,
      pursuant to Dr. Kornotzki&#146;s employment agreement, as well as 219,655
      shares held by Wealth Index Capital Group LLC, in which Dr. Kornotzki
      holds a controlling interest, and 204,880 shares held by K International
      Consulting Ltd., which is owned and controlled by him. </TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD vAlign=top width="5%">(5) </TD>
    <TD>On June 19, 2010, each of Michael Cheng, Basil Hwang and Drew
      Bernstein were appointed as to serve as our directors, effective as of the
      closing of the Offering. </TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
  <TR>
    <TD vAlign=top width="5%">(6) </TD>
    <TD>Xingfang Zhang is the nephew of Chaojun Wang, our Chief Executive
      Officer and beneficially controlling shareholder. </TD></TR></TABLE>
<P align=center>- 48 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_53></A>
<P align=center><B>DESCRIPTION OF SECURITIES TO BE REGISTERED </B></P>
<P align=justify>In this offering, we are registering shares of our common
stock, par value $0.001 per share, underlying units, each consisting of two
shares of common stock and one warrant to purchase one share of common
stock.</P>
<P align=justify><B>Common Stock </B></P>
<P align=justify>We are currently authorized to issue 100,000,000 shares of
common stock, par value $0.001 per share, of which 10,000,000 shares were issued
and outstanding after giving effect to our reverse stock split on June 30, 2010.
Each common share entitles the holder to one vote on all matters submitted to a
vote of our stockholders.</P>
<P align=justify>The holders of shares of our common stock are entitled to
dividends out of funds legally available when and as declared by our board of
directors. Our board of directors has never declared a dividend and does not
anticipate declaring a dividend in the foreseeable future. Should we decide in
the future to pay dividends, as a holding company, our ability to do so and meet
other obligations depends upon the receipt of dividends or other payments from
our operating subsidiary and other holdings and investments. In addition, our
operating subsidiary in the PRC, from time to time, may be subject to
restrictions on their ability to make distributions to us, including as a result
of restrictive covenants in loan agreements, restrictions on the conversion of
local currency into U.S. dollars or other hard currency and other regulatory
restrictions. In the event of our liquidation, dissolution or winding up,
holders of our common stock are entitled to receive, ratably, the net assets
available to shareholders after payment of all creditors. </P>
<P align=justify>All of the issued and outstanding shares of our common stock
are duly authorized, validly issued, fully paid and non-assessable. To the
extent that additional shares of our common stock are issued, the relative
interests of existing stockholders will be diluted. </P>
<P align=justify><B>Preferred Stock</B> </P>
<P align=justify>We are authorized to issue up to 10,000,000 shares of preferred
stock, par value $0.001 per share, in one or more series as may be determined by
our board of directors, who may establish, from time to time, the number of
shares to be included in each series, may fix the designation, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof. Any preferred stock so issued by the board
of directors may rank senior to the common stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding up of us, or both.
Moreover, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, under certain circumstances, the
issuance of preferred stock or the existence of the unissued preferred stock
might tend to discourage or render more difficult a merger or other change of
control. </P>
<P align=justify>Following the reverse acquisition as of March 26, 2010, we had
10,000 shares of Series A Preferred Stock outstanding. The holders of our Series
A Preferred Stock are entitled to vote on all matters together with all other
classes of stock. Holders of Series A Preferred Stock vote with the holders of
common stock on all matters on an as-converted to common stock basis, based on
an assumed post 1-for-125 reverse split (to retroactively take into account the
Reverse Split). For example, assuming 100 shares of Series A Preferred Stock are
issued and outstanding on the record date for any stockholder vote, such shares,
voting in aggregate, would vote a total of 12,312,500 voting shares. Holders of
Series A Preferred Stock have protective class voting veto rights on certain
matters, such as increasing the authorized shares of Series A Preferred Stock
and modifying the rights of Series A Preferred Stock. </P>
<P align=justify>Our Board of Directors authorized the issuance of up to 10,000
shares of our Series A Preferred Stock in connection with the reverse
acquisition and the related Certificate of Designation was filed on March 25,
2010. After giving effect to the 1-for-125 reverse split of our outstanding
common stock which was effected on June 30, 2010, the 10,000 outstanding shares
of our Series A Preferred Stock automatically converted into 9,850,000 shares of
common stock, on the basis of 1 share of Series A Preferred Stock for 985 shares
of common stock. </P>
<P align=justify><B>Warrants Included in the Units</B></P>
<P align=justify><B><I>Number of Warrants; Warrant Agent; Duration of Warrants</I></B></P>
<P align=justify>After consummation of the offering, two shares of common stock
and one warrant to purchase one share of common stock will be outstanding for
each unit issued in the offering. Each warrant entitles the holder to purchase
one share of common stock at an exercise price per share equal to 62.5% of the
public offering price per unit <font FACE="Times New Roman" SIZE="2">(or 125% of
the proportionate price per share of common stock underlying the units)</font>, during the
five-year period commencing on the date of this prospectus. The warrants are being issued pursuant
to a Warrant Agreement entered into between us and Interwest Transfer Company,
Inc., as warrant agent. The warrants will be issued separately from the common
stock included in the units offered hereby and may be transferred separately
immediately thereafter. The warrants may be in certificated form or represented
by one or more book-entry certificates.</P>
<P align=center>- 49 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<A name=page_54></A>
<P align=justify><B><I>Exercise and Expiration of Warrants</I></B></P>
<P align=justify>Warrants may be exercised by delivering, not later than 5:00
P.M., New York time, on any business day during the exercise period to the
warrant agent the certificate representing the warrant or, in the case of
book-entry warrants, the warrants being exercised free on the records of the
Depositary Trust Company (DTC) to an account of the warrant agent at DTC along
with a completed election to purchase and the payment of the exercise price for
each warrant to be exercised by certified or official bank check or by bank wire
transfer in immediately available funds. </P>
<P align=justify>If we are unable to issue the shares of common stock upon
exercise of the warrants because the registration statement covering the shares
is subject to a stop order or has had its effectiveness suspended or withdrawn
or if we are otherwise unable to issue the shares, and no exemption from
registration is available by virtue of a cashless exercise as described below or
otherwise, the warrants will not be exercisable. In such event, the warrants
will not expire until five days after the date we are first able to issue the
shares of common stock. In no event may the warrants be net cash settled.</P>
<P align=justify><B><I>Cashless Exercise</I></B></P>
<P align=justify>If a registration statement, or an exemption from registration,
is not available for the resale of the shares underlying the warrants, the
warrants may also be exercised on a cashless basis pursuant to which the holder
will receive a net number of shares of common stock determined according to the
following formula:</P>
<P align=justify>Net number of shares = <U>(A x B) &#150; (A x
C)&nbsp;</U><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
B </P>
<P align=justify>where:</P>
<P align=justify>A = the total number of shares with respect to which the
warrant is then being exercised;</P>
<P align=justify>B = the arithmetic average of the closing sale prices of the
shares of common stock for the five consecutive trading days ending on the date
immediately preceding the date of exercise; and</P>
<P align=justify>C = the exercise price then in effect.</P>
<P align=justify><B><I>Delivery of Shares upon Exercise</I></B></P>
<P align=justify>Shares of common stock issuable upon exercise of the warrants
will be issued to the holder no later than 5:00 P.M., New York time, on the
third business day after the proper exercise of the warrants. In lieu of
delivering physical certificates representing shares of common stock issuable
upon the exercise of warrants, if our transfer agent is participating in DTC&#146;s
Fast Automated Securities Transfer program, we will use our reasonable best
efforts to cause the transfer agent to electronically transmit the shares by
crediting the account of the registered holder&#146;s prime broker with DTC or of a
participant through DTC&#146;s Deposit Withdrawal Agent Commission system.</P>
<P align=justify><B><I>Certain Adjustments</I></B></P>
<P align=justify>The exercise price and number of shares of common stock
issuable on exercise of the warrants is subject to adjustment in the event of
any stock split, reverse stock split, stock dividend, recapitalization,
reorganization or similar transaction. However, the warrants will not be
adjusted for issuances of shares of common stock at a price below their
respective exercise prices. In the event of a fundamental transaction involving
our consolidation or merger with or into another entity where we are not the
surviving entity, the sale or all or substantially all of our properties or
assets or the reorganization, recapitalization or reclassification of our common
stock, it is a condition to such fundamental transaction that any successor to
us whose common stock is traded on an eligible market assume or remain bound by
the warrants to deliver in exchange for the warrants a written instrument
substantially similar to the warrants entitling the holder to acquire the
successor&#146;s capital stock at an exercise price that reflects the terms of the
transaction. In the event that the successor does not have common stock traded
on an eligible market, a holder of warrants will be entitled to receive an
instrument substantially similar to the warrants exercisable for the
consideration that would have been issuable in the fundamental transaction had
the warrants been exercised immediately prior thereto.</P>
<P align=center>- 50 - </P>
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<P align="justify">
<B><I>Limitations on Exercise</I></B></P>
<P align="justify">
The number of shares of common stock that may be acquired by the registered holder upon any exercise of warrants shall be limited to the extent necessary to insure that, following such exercise, the total number of shares of common stock then
beneficially owned by such holder and its affiliates any other persons whose beneficial ownership of common stock would be aggregated with the holder&#146;s for purposes of Section 13(d) of the Securities Exchange Act of 1934, does not exceed 9.999%
of the total number of issued and outstanding shares of common stock (including for such purpose the shares of common stock issuable upon such exercise). This restriction may not be waived.</P>
<P align="justify">
<B><I>No Rights as Shareholders</I></B></P>
<P align="justify">
Warrant holders do not have the rights or privileges of holders of common stock, including voting rights, until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the
warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.</P>
<P align="justify">
<B><I>Amendments</I></B></P>
<P align="justify">
The warrants provide that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity, to cure, correct or supplement any defective provision, or to add or change any other provisions that do not adversely affect
the interest of the warrant holders. All other changes require the written consent of the underwriter and the holders of a majority of the then outstanding warrants.</P>
<P align="justify">
<B><I>Fractional Shares</I></B></P>
<P align="justify">
No fractional shares will be issued upon exercise of the warrants. If a holder exercises warrants and would be entitled to receive a fractional interest of a share, we will round up or down the number of common stock to be issued to the warrant
holder to the nearest whole number of shares.</P>
<P align="justify">
<B><I>Transfer Taxes</I></B></P>
<P align="justify">
We will not pay any stamp or other tax or governmental charge required to be paid in connection with any transfer involved in the issue of shares of common stock issuable upon the exercise of warrants. In the event of any such transfer, we will not
issue or deliver any shares until such tax or other charge shall have been paid or it has been established to our satisfaction that no such tax or other charge is due.</P>
<P align="justify">
You should review a copy of the warrant agreement, which will be filed as an exhibit to this registration statement, for a complete description of the terms and conditions of the warrants.</P>
<P align="justify">
<B>Anti-takeover Effects of Our Articles of Incorporation and By-laws</B> </P>
<P align="justify">
Our Articles of Incorporation and Bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of the Company or changing its board of directors and
management. According to our Bylaws and Articles of Incorporation, neither the holders of our common stock nor the holders of our preferred stock have cumulative voting rights in the election of our directors. The combination of the present
ownership by a few stockholders of a significant portion of our issued and outstanding common stock and lack of cumulative voting makes it more difficult for other stockholders to replace our board of directors or for a third party to obtain control
of our company by replacing its board of directors. </P>
<P align="justify">
<B>Anti-takeover Effects of Nevada Law</B> </P>
<P align="justify">
<B><I>Business Combinations</I></B> </P>
<P align="justify">
The &#147;business combination&#148; provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, prohibit a Nevada corporation with at least 200 stockholders from engaging in various &#147;combination&#148;
transactions with any interested stockholder: </P>
<UL>
<LI>
for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status;
or</LI>
</UL>
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<UL>
<LI>
<p style="margin-bottom: 12">after the expiration of the three-year period, unless:</LI>
<LI>
<p style="margin-bottom: 12">the transaction is approved by the board of directors or a majority of the voting power held by disinterested stockholders, or</LI>
<LI>
if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the
combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the
shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.</LI>
</UL>
<P align="justify">
A &#147;combination&#148; is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an &#147;interested stockholder&#148;
having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation,
or (c) 10% or more of the earning power or net income of the corporation. </P>
<P align="justify">
In general, an &#147;interested stockholder&#148; is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation&#146;s voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price. </P>
<P align="justify">
The &#147;control share&#148; provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, which apply only to Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which
conduct business directly or indirectly in Nevada, prohibit an acquirer, under certain circumstances, from voting its shares of a target corporation&#146;s stock after crossing certain ownership threshold percentages, unless the acquirer obtains
approval of the target corporation&#146;s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power.
Once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become &#147;control shares&#148; and such control shares are deprived of the right to vote until disinterested
stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of
authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters&#146; rights. Although we are not currently subject to these
&#147;control share&#148; provisions since we do not conduct business directly or indirectly in Nevada and have less than 100 stockholders of record who are Nevada residents, there can be no assurance that in the future such provisions will not
apply to us. </P>
<P align="center">
<B>UNDERWRITING </B></P>
<P align="justify">
In accordance with the terms and conditions contained in the underwriting agreement, we have engaged Ladenburg Thalmann &amp; Co. Inc. (the &#147;Underwriters&#146; Representative&#148;) to conduct this offering on a best efforts basis. The offering
is being made without a firm commitment by the Underwriters&#146; Representative, which has no obligation or commitment to purchase any of the units. </P>
<P align="justify">
A copy of the underwriting agreement will be filed as an exhibit to the registration statement of which this prospectus forms a part. </P>
<P align="justify">
Unless sooner withdrawn or canceled by either us or the Underwriter&#146;s Representative, the offering will continue until the earlier of (i)
a date mutually acceptable to us and our Underwriter&#146;s Representative or (ii)
October 18, 2010 (the &#147;Offering Termination Date&#148;). The Underwriter&#146;s
Representative has agreed in accordance with the provisions of SEC Rule 15c2-4
to cause all funds received by the Underwriter&#146;s Representative for the sale of
the units to be deposited by noon of the next business day in an escrow account
maintained by Signature Bank (the &#147;Escrow Agent&#148;) as escrow agent for the
investors in the offering. The Escrow Agent will exercise signature control on
the escrow account and will act based on joint instructions from our company and
the Underwriter&#146;s Representative. On the closing date for the offering, net
proceeds in the escrow account maintained by the Escrow Agent will be delivered
to our company. We will not be able to use such proceeds in China, however,
until we complete certain remittance procedures in China, which may take as long
as six months in the ordinary course. If we do not complete this offering before
the Offering Termination Date, all amounts will be promptly returned as
described below. If we complete this offering, then on the closing date, we will
issue warrants and shares of common stock to investors and warrants to our
Underwriter&#146;s Representative exercisable at a rate of one warrant per share to
purchase up to 4% of the aggregate number of
<font FACE="Times New Roman" SIZE="2">shares of common stock underlying the
</font>units sold in this offering <font FACE="Times New Roman" SIZE="2">not
including any shares of common stock issuable upon exercise of the warrants
underlying the units</font>. In the event of any dispute between our company and
the Underwriter&#146;s Representative, including about whether and how funds are to
be reimbursed, the escrow agent is entitled to petition a court of competent
jurisdiction to resolve any such dispute. </P>
<P align="center">
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<P align="justify">
Investors must pay in full for all units at the time of investment. Payment for the units may be made (i) by check, bank draft or money order made payable to &#147;Signature Bank&#148; and delivered to the Underwriter&#146;s Representative no less
than four business days before the date of closing, or (ii) by authorization of withdrawal from securities accounts maintained with the Underwriter&#146;s Representative. If payment is made by authorization of withdrawal from securities accounts,
the funds authorized to be withdrawn from a securities account will continue to accrue interest, if any interest is to accrue on such amounts, at the contractual rates until closing or termination of the offering, but a hold will be placed on such
funds, thereby making them unavailable to the investor until closing or termination of the offering. If an investor authorizes the Underwriter&#146;s Representative to withdraw the amount of the purchase price from a securities account, such
Underwriter&#146;s Representative will do so as of the date of closing. The Underwriter&#146;s Representatives will inform prospective investors of the anticipated date of closing. If payment is made by check, investors should make all checks
payable to the Escrow Agent.</P>
<P align="justify">
Proceeds deposited in escrow with the Escrow Agent may not be withdrawn by investors prior the Offering Termination Date. If the offering is withdrawn or
canceled and proceeds therefrom are not received by us on or prior to the Offering Termination
Date, all proceeds will be promptly returned by the Escrow Agent without interest or deduction to the persons from whom they were received (within one business day) in accordance with applicable securities laws. All such proceeds will be placed in a
non-interest bearing account pending such time.</P>
<P align="justify">
Pursuant to the placement agreement between the Underwriter&#146;s Representative and us, the obligations of the Underwriter&#146;s Representative to solicit offers to purchase units and of investors solicited by the Underwriter&#146;s
Representative to purchase our units are subject to approval of certain legal matters by counsel to the Underwriter&#146;s Representative. The Underwriter&#146;s Representative&#146;s ability to complete this best efforts transaction is dependent
upon the existence of stable U.S. trading markets. As such, the Underwriter&#146;s Representative&#146;s obligations under the placement agreement are also subject to various conditions which are customary in transactions of this type, including
that, as of the closing of the offering, there shall not have occurred (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on the NASDAQ Stock Exchange; (ii) a general moratorium on commercial
banking activities in the State of New York or China; (iii) the engagement by the United States or China in hostilities which have resulted in the declaration of a national emergency or war if any such event would have a material adverse effect, in
the Underwriter&#146;s Representative&#146;s reasonable judgment, as to make it impracticable or inadvisable to proceed with the solicitation of offers to consummate the offering with respect to investors solicited by the Underwriter&#146;s
Representative on the terms and conditions contemplated herein.</P>
<font FACE="Times New Roman" SIZE="2">
<p align="justify">The Underwriter&#146;s Representative is offering the units,
subject to prior sale, when, as and if issued to and accepted by it, subject to
conditions contained in the placement agreement, such as the receipt by the
Underwriter&#146;s Representative of officers&#146; certificates and legal opinions. In
addition to the above market-related conditions, the Underwriter&#146;s
Representative reserves the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part in the event (i) our
representations or warranties are incorrect or misleading or we fail to fulfill
our agreements with the Underwriter&#146;s Representative; (ii) a material adverse
change occurs affecting our business, management, property, assets, results of
operations, condition or prospects; or (iii) any laws, regulations, court or
administrative order or other governmental or agency act causes the
Underwriter&#146;s Representative to believe that our business or the U.S. securities
markets will be materially adversely affected. The Underwriter&#146;s
Representative&#146;s discretion in this regard is broad.</font></p>
<p align="justify"><font FACE="Times New Roman" SIZE="2">We have agreed to
indemnify the Underwriter&#146;s Representative against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the Underwriter&#146;s Representative may be required to make in respect of
those liabilities. </font></p>
<p align="justify"><font FACE="Times New Roman" SIZE="2">The Underwriter&#146;s
Representative intends to offer our units to its retail customers only in states
in which we are permitted to offer our units. We have relied on an exemption to
the blue sky registration requirements afforded to &quot;covered securities&quot;.
Securities listed on the NASDAQ Global Market are &quot;covered securities.&quot; If we
were unable to meet the NASDAQ Global Market&#146;s listing standards, then we would
be unable to rely on the covered securities exemption to blue sky registration
requirements and we would need to register the offering in each state in which
we planned to sell units. Consequently, we will not complete this offering
unless we meet the NASDAQ Global Market&#146;s listing requirements and are notified
that we will be listed on the NASDAQ Global Market upon closing of the offering.
</font></p>
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<P align=justify>No action has been taken by us or the Underwriter&#146;s
Representative that would permit a public offering of the shares of our common
stock included in this offering in any jurisdiction where action for that
purpose is required. None of our securities included in this offering may be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sales of
any of the units be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering of units by us and the distribution of this prospectus. This
prospectus is neither an offer to sell nor a solicitation of any offer to buy
any of the units included in this offering in any jurisdiction where that would
not be permitted or legal. </P>
<P align=justify>We have been advised by the Underwriters&#146; Representative that
it proposes to offer units directly to the public at the public offering price
set forth on the cover page of this prospectus. Any units sold by the
Underwriter&#146;s Representative to securities dealers will be sold at the public
offering price less a selling concession not in excess of $[_____] per share.
The Underwriter&#146;s Representative may allow, and these selected dealers may
re-allow, a concession of not more than $[____] per share to other brokers and
dealers. </P>
<P align=justify>In connection with this offering, the Underwriter&#146;s
Representative or certain of the securities dealers may distribute prospectuses
electronically. No forms of prospectus other than printed prospectuses and
electronically distributed prospectuses that are printable in Adobe PDF format
will be used in connection with this offering.</P>
<P align=justify>The Underwriter&#146;s Representative has advised us that they do
not intend to confirm sales to any accounts over which they exercise
discretionary authority. </P>
<P align=justify><B>Underwriting discount and expenses</B> </P>
<P align=justify>The Underwriter&#146;s Representative has advised us that it
proposes to offer the units to the public at the public offering price on the
cover page of this prospectus. The following table shows the public offering
price and Underwriter&#146;s Representative fee to be paid by us to the Underwriter&#146;s
Representative and the proceeds, before expenses, to us.</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>Per Unit</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>Maximum Offering</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Assumed public offering price </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"
      bgColor=#e6efff>&nbsp;&nbsp;$</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Placement discount </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;&nbsp;$</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Proceeds to us, before expenses </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"
      bgColor=#e6efff>&nbsp;&nbsp;$</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=justify>We expect our total cash expenses for this offering to be
approximately $[______], exclusive of the above commissions. In addition, we
will pay the Underwriter&#146;s Representative a non-accountable expense allowance of
1.5% of the amount of the offering. The Underwriter&#146;s Representative is required
to use only its best efforts to sell the securities offered.</P>
<P align=justify>We have also agreed to deliver to the Underwriters&#146;
Representative, in connection with the offering, warrants to purchase the number
of units that is equivalent to 4% of <font FACE="Times New Roman" SIZE="2">the
aggregate number of shares of common stock underlying the units sold in this
offering, not including any shares of common stock issuable upon exercise of the
warrants underlying the units</font>.
The warrants will be exercisable at any time, in whole or in part, during the
five-year period commencing on the date of consummation of this offering at an
exercise price equal to 62.5% of the public offering price per unit in this
offering, <font FACE="Times New Roman" SIZE="2">or 125% of the proportionate
price per share of common stock underlying the units. </font>Under FINRA Rule 5110(g)(1), the warrants being issued to the
Underwriters&#146; Representative (and the shares of common stock issuable upon
exercise of the warrants) shall not be sold during the offering, or sold,
transferred, assigned, pledged, or hypothecated, or be the subject of any
hedging, short sale, derivative, put, or call transaction that would result in
the effective economic disposition of the securities by any person for a period
of 180 days immediately following the date of commencement of sales in the
offering, except certain limited transfers, such as transfers to any underwriter
and selected dealer participating in this offering and any of their bona fide
officers or partners (but not directors).</P>
<P align=center>- 54 - </P>
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<P align=justify>For the life of the Underwriter&#146;s Representative&#146;s warrants,
the holders thereof are given, at nominal costs, the opportunity to profit from
a rise in the market price of our common shares with a resulting dilution in the
interest of other shareholders. Further, the holders may be expected to exercise
the Underwriter&#146;s Representative&#146;s warrants at a time when we would, in all
likelihood, be able to obtain equity capital on terms more favorable than those
provided in the Underwriter&#146;s Representative&#146;s warrants.</P>
<P align=justify>We are required for the life of the Underwriter&#146;s
Representative&#146;s warrants to reserve sufficient common shares to deliver upon
exercise of the warrants and to take all necessary actions to ensure that we may
validly and legally issue fully paid and non-assessable shares on exercise of
the warrants.</P>

<P align="justify">
The Underwriter&#146;s Representative has a right to demand registration of the shares issuable upon exercise of the warrants in the event registered shares are not available at the time of exercise and an exemption from such registration is not
otherwise available. If this happens, we will be required to file the registration statement within ninety (90) days after demand and to pay the costs associated with the registration other than the Underwriter&#146;s Representative&#146;s counsel
fees and any underwriting or selling commissions. We are required to seek the listing of these shares on the same exchange on which our shares trade, if any.</P>
<P align="justify">
To the extent we are unable to register the shares, the Underwriter&#146;s Representative may exercise the warrant with a cashless exercise, which is designed to give the Underwriter&#146;s Representative the economic benefit of exercising the
Underwriter&#146;s Representative&#146;s warrants. A cashless exercise, however, would not result in the payment of any exercise price to us.</P>
<P align="justify">
The Underwriter&#146;s Representative&#146;s warrants also contain anti-dilution provisions, consistent with applicable FINRA rules, to adjust the terms of the Underwriter&#146;s Representative&#146;s warrants as necessary to protect against
dilution in the event we reorganize, consolidate, merge or subdivide our shares.</P>
<P align=justify><B>Indemnification </B></P>
<P align=justify>We have agreed to indemnify the Underwriter&#146;s Representative
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the Underwriter&#146;s Representative may be
required to make with respect to any of these liabilities. </P>
<P align="center">
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<P align=center><B>CORPORATE STRUCTURE AND HISTORY </B></P>
<P align=justify><B>Our Corporate Structure </B></P>
<P align=justify>All of our business operations are conducted through our Hong
Kong and Chinese subsidiaries and our VIE. On June 30, 2010, we amended our
Articles of Incorporation to change our name to &#147;Longhai Steel Inc.&#148; to reflect
our current business and operations. The following chart reflects our corporate
organizational structure (after giving effect to the name change): </P>
<p align="center">
<img border="0" src="longha2.jpg" width="783" height="425"> <BR>
</p>
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<P align="justify">
<B>Our Corporate History </B></P>
<P align="justify">
We were originally incorporated under the laws of the State of Georgia on December 4, 1995. On March 14, 2008, the Georgia corporation was merged with and into a newly formed Nevada corporation also named Action Industries, Inc., and all of the
outstanding shares of the Georgia corporation were exchanged for shares in the surviving Nevada corporation. Prior to our reverse acquisition of Kalington Limited, or &#147;Kalington&#148;, we were primarily in the business of providing prepaid long
distance calling cards and other telecommunication products and had not commenced planned principal operations. As a result of our reverse acquisition of Kalington we are no longer a shell company and active business operations were revived.</P>
<P align="justify">
On June 30, 2010, we amended our Articles of Incorporation to change our name to &#147;Longhai Steel Inc.&#148; to reflect the current business of our company. </P>
<P align="justify">
<B><I>Acquisition of Kalington Limited</I></B> </P>
<P align="justify">
On March 26, 2010, we completed a reverse acquisition transaction through a share exchange with Kalington and its shareholders, whereby we acquired 100% of the issued and outstanding capital stock of Kalington in exchange for 10,000 shares of our
Series A Preferred Stock which constituted 98.5% of our issued and outstanding capital stock on a as-converted basis as of and immediately after the consummation of the reverse acquisition. As a result of the reverse acquisition, Kalington became
our wholly-owned subsidiary and the former shareholders of Kalington became our controlling stockholders. The share exchange transaction with Kalington was treated as a reverse acquisition, with Kalington as the acquirer and Longhai Steel, Inc. as
the acquired party. Unless the context suggests otherwise, when we refer in this prospectus to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial
information of Kalington and its consolidated subsidiaries. </P>
<P align="justify">
Immediately prior to the reverse acquisition, the common stock of Kalington was owned by the following persons in the indicated percentages: William Hugh Luckman (3.51%); Wealth Index Capital Group LLC (a US company) (7.3%); K International
Consulting Ltd. (a BVI company) (2.08%); Merrill King International Investment Consulting Ltd. (a BVI company) (0.31%); Shanchun Huang (3.12%); Xiucheng Yang (1.53%); Jianxin Wang (0.92%); Xingfang Zhang (29.45%); and Merry Success Limited (a BVI
company) (51.78%). Our Chief Financial Officer and Director, Eberhard Kornotzki, directly controls the shares held by K International Consulting Ltd. and has a beneficial interest in Wealth Index Capital Group LLC, and Chaojun Wang, our Chief
Executive Officer, serves as a director of Merry Success Limited, our principal stockholder after the reverse acquisition, along with Jinhai Guo, its sole shareholder. Immediately following closing of the reverse acquisition of Kalington, certain
Shareholders transferred 625 of the shares of Series A Convertible Preferred Stock issued to them under the Share Exchange to certain persons who provided services to Kalington&#146;s subsidiary and/or controlled affiliate. </P>
<P align="justify">
Upon the closing of the reverse acquisition, Inna Sheveleva, our sole director and officer, submitted a resignation letter pursuant to which she resigned from all offices that she held effective immediately and from her position as our director that
will become effective on the tenth day following the mailing by us of an information statement, or the Information Statement, to our stockholders that complies with the requirements of Section 14f-1 of the Exchange Act. In addition, our board of
directors on March 25, 2010 increased the size of our board of directors to three directors and appointed Chaojun Wang, Jing Shen and Chaoshui Wang to fill the vacancies created by such increase, which appointments will become effective upon the
effectiveness of the resignation of Inna Sheveleva on the tenth day following the mailing by us of the Information Statement to our stockholders, which was completed on or about March 26, 2010<B>. </B>In addition, our executive officers were
replaced by Longhai&#146;s executive officers upon the closing of the reverse acquisition as indicated in more detail below. As a result of our acquisition of Kalington, we now own all of the issued and outstanding capital stock of Kalington, which
in turn owns all of the issued and outstanding capital stock of Kalington Consulting. In addition, we effectively and substantially control Longhai through the VIE agreements discussed below. </P>
<P align="justify">
Kalington was established on November 5, 2009 in Hong Kong to serve as an intermediate holding company. Chaojun Wang and William Luckman currently serve as the directors of Kalington. Kalington Consulting was established in the PRC on March 18,
2010, and is 100% owned by Kalington. On March 5, 2010, the local government of the PRC issued a certificate of approval regarding the foreign ownership of Kalington Consulting. Chaojun Wang serves as the executive director of Kalington Consulting.
Longhai, our operating VIE, was established in the PRC on August 26, 2008, as a result of the division of the Longhai Steel Group, for the purpose of engaging in the production of steel wire. Chaojun Wang serves as the Chairman of the Board of
Directors and General Manager of Longhai and owns 80% of the capital stock in Longhai. Longhai&#146;s additional shareholders are Wealth Index International (Beijing) Investment Co., Ltd. (15% owner), an entity owned and controlled by Eberhard Kornotzki, our Chief Financial Officer, and Wenyi Chen
(5% owner). Chaojun Wang also owns 80% of the capital stock of and is the chief
executive officer of the Longhai Steel Group. </P>
<P align="center">
- 57 - </P>

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<P align=justify>On March 19, 2010, prior to the reverse acquisition
transaction, Kalington Consulting and Longhai entered into a series of
agreements, the VIE Agreements, pursuant to which Longhai became Kalington
Consulting&#146;s variable interest entity. The use of VIE agreements is a common
structure used to acquire PRC corporations, particularly in certain industries
in which foreign investment is restricted or forbidden by the PRC government.
The VIE Agreements include: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12">A Consulting Services Agreement through which Kalington Consulting has the
  right to advise, consult, manage and operate Longhai and collect and own all
  of the net profits of Longhai;
  <LI>
  <p style="margin-bottom: 12">an Operating Agreement through which Kalington Consulting has the right to
  recommend director candidates and appoint the senior executives of Longhai,
  approve any transactions that may materially affect the assets, liabilities,
  rights or operations of Longhai, and guarantee the contractual performance by
  Longhai of any agreements with third parties, in exchange for a pledge by
  Longhai of its accounts receivable and assets;
  <LI>
  <p style="margin-bottom: 12">a Proxy Agreement under which the three owners of Longhai have vested
  their collective voting control over Longhai to Kalington Consulting and will
  only transfer their respective equity interests in Longhai to Kalington
  Consulting or its designee(s);
  <LI>
  <p style="margin-bottom: 12">an Option Agreement under which the owners of Longhai have granted to
  Kalington Consulting the irrevocable right and option to acquire all of their
  equity interests in Longhai; and
  <LI>an Equity Pledge Agreement under which the owners of Longhai have pledged
  all of their rights, titles and interests in Longhai to Kalinton Consulting to
  guarantee Longhai&#146;s performance of its obligations under the Consulting
  Services Agreement. </LI></UL>
<P align=justify>The foregoing description of the terms of the Consulting
Services Agreement, the Operating Agreement, the Proxy Agreement, the Option
Agreement and the Equity Pledge Agreement is qualified in its entirety by
reference to the provisions of the agreements filed as Exhibit 10.4, 10.5, 10.6,
10.7 and 10.8, respectively, to our Current Report on Form 8-K filed on March
26, 2010, which are incorporated by reference herein. </P>
<P align=justify>On March 18, 2010, prior to the reverse acquisition
transaction, Mr. Wang entered into a call option agreement, the Merry Success
Option Agreement, with Jinhai Guo, the sole shareholder of Merry Success
Limited, pursuant to which, Mr. Wang has the right to acquire up to 100% or the
shares of Merry Success Limited for fixed consideration within the next three
years. The Merry Success Option Agreement also provides that Mr. Guo shall not
dispose any of the shares of Merry Success Limited without Mr. Wang&#146;s consent.
As a result of the Merry Success Option Agreement, Chaojun Wang, our Chief
Executive Officer, beneficially owns a majority of our capital stock and voting
power, as well as of Longhai and the Longhai Steel Group. </P>
<P align=justify>Because of the common control between Kalington, Kalington
Consulting and Longhai, for accounting purposes, the acquisition of these
entities has been treated as a recapitalization with no adjustment to the
historical basis of their assets and liabilities. The restructuring has been
accounted for using the &#147;as if&#148; pooling method of accounting and the operations
were consolidated as if the restructuring had occurred as of the beginning of
the earliest period presented in our consolidated financial statements and the
current corporate structure had been in existence throughout the periods covered
by our consolidated financial statements. </P>
<P align=center><B>LEGAL MATTERS </B></P>
<P align=justify>The validity of the securities offered by this prospectus will
be passed upon for us by the Krone Law Group, San Francisco, California. </P>
<P align=center><B>EXPERTS </B></P>
<P align=justify>Our audited consolidated financial statements as of December
31, 2009<B> </B>and 2008 and for each of the two years in the period ended
December 31, 2009 included in this prospectus and elsewhere and in the
registration statement have been so included in reliance upon the report of
MaloneBailey LLP, independent auditors, appearing in this registration
statement, and their authority as experts in accounting and auditing.
<B></B></P>
<P align=center>- 58 - </P>
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<P align=center><B>INTERESTS OF NAMED EXPERTS AND COUNSEL </B></P>
<P align=justify>No expert or counsel named in this prospectus as having
prepared or certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other legal matters
in connection with the registration or offering of the common stock was employed
on a contingency basis, or had, or is to receive, in connection with the
offering, a substantial interest, direct or indirect, in the Company or any of
its parents or subsidiaries. Nor was any such person connected with the Company
or any of its parents or subsidiaries as a promoter, managing or principal
underwriter, voting trustee, director, officer or employee. However, Crone Law
Group, which has been retained by us, received 50,000 shares as compensation for
legal services provided to us relating to preparation and filing of documents.
</P>
<P align=center><B>DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
</B><B>FOR SECURITIES ACT LIABILITIES </B></P>
<P align=justify>Our Bylaws provide for the indemnification of our directors and
officers, past, present and future, under certain circumstances, against
attorneys&#146; fees, judgments, fines and other expenses incurred by them in any
litigation to which they become a party arising from their association with or
activities on behalf of us. We will also bear expenses of such litigation for
any of our directors, officers, employees or agents upon such persons promise to
repay us therefore if it is ultimately determined that any such person shall not
have been entitled to indemnification. This indemnification policy could result
in substantial expenditure by us, which we may be unable to recoup. </P>
<P align=justify>Insofar as indemnification by us for liabilities arising under
the Securities Exchange Act of 1934 may be permitted to our directors, officers
and controlling persons pursuant to provisions of the Articles of Incorporation
and Bylaws, or otherwise, we have been advised that in the opinion of the SEC,
such indemnification is against public policy and is, therefore, unenforceable.
In the event that a claim for indemnification by such director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue. </P>
<P align=justify>At the present time, there is no pending litigation or
proceeding involving a director, officer, employee or other agent of ours in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification. </P>
<P align=center><B>WHERE YOU CAN FIND MORE INFORMATION </B></P>
<P align=justify>We have filed with the SEC, a registration statement on Form
S-1 under the Securities Act with respect to the common stock offered in this
offering. This prospectus does not contain all of the information set forth in
the registration statement. For further information with respect to us and the
common stock offered in this offering, we refer you to the registration
statement and to the attached exhibits. With respect to each such document filed
as an exhibit to the registration statement, we refer you to the exhibit for a
more complete description of the matters involved. </P>
<P align=justify>You may inspect our registration statement and the attached
exhibits and schedules without charge at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may
obtain copies of all or any part of our registration statement from the SEC upon
payment of prescribed fees. You may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. </P>
<P align=justify>Our SEC filings, including the registration statement and the
exhibits filed with the registration statement, are also available from the
SEC&#146;s website at www.sec.gov, which contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. </P>
<P align=center>- 59 - </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
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<table border="1" cellpadding="0" cellspacing="0" style="border-collapse: collapse; font-size: 10pt" bordercolor="#111111" width="100%">
  <tr>
    <td width="50%" style="border-bottom-style: none; border-bottom-width: medium">
    <p style="margin-left: 15; margin-right: 15">&nbsp;</td>
    <td width="50%" style="border-bottom-style: none; border-bottom-width: medium">
    <p style="margin-left: 15; margin-right: 15">&nbsp;</td>
  </tr>
  <tr>
    <td width="50%" style="border-top-style: none; border-top-width: medium">
<P align=justify style="margin-left: 15; margin-right: 15">We have not authorized any dealer, salesperson or other person
to provide any information or make any representations about Longhai Steel, Inc.
except the information or representations contained in this prospectus. You
should not rely on any additional information or representations if made. </P>
<P align=justify style="margin-left: 15; margin-right: 15">This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy any securities: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15">except the securities offered by this prospectus;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15">in any jurisdiction in which the offer or solicitation is not authorized;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15">in any jurisdiction where the dealer or other salesperson is not qualified
  to make the offer or solicitation;
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15">to any person to whom it is unlawful to make the offer or solicitation; or

  <LI>
  <p style="margin-left: 15; margin-right: 15">to any person who is not a United States resident or who is outside the
  jurisdiction of the United States. </LI></UL>
<P align=justify style="margin-left: 15; margin-right: 15">The delivery of this prospectus or any accompanying sale does
not imply that:<B> </B></P>
<UL>
  <LI>
  <p style="margin-bottom: 12; margin-left:15; margin-right:15">there have been no changes in the affairs of Longhai Steel, Inc. after the
  date of this prospectus; or
  <LI>
  <p style="margin-left: 15; margin-right: 15">the information contained in this prospectus is correct after the date of
  this prospectus. </LI></UL>
    <font FACE="Times New Roman" SIZE="2">
    <p ALIGN="JUSTIFY" style="margin-left: 15; margin-right: 15">Until _______
    ___, 2010 (25 days after the date of this prospectus), all dealers effecting
    transactions in the registered securities, whether or not participating in
    this distribution, may be required to deliver a prospectus. This is in
    addition to the obligation of dealers to deliver a prospectus when acting as
    underwriters.</p>
    <p ALIGN="JUSTIFY" style="margin-left: 15; margin-right: 15">&nbsp;</font></td>
    <td width="50%" style="border-top-style: none; border-top-width: medium">
<p align="center" style="margin-left: 15; margin-right: 15">
<IMG src="revisedx64x1.jpg" border=0 width="329" height="103"> <BR>
</p>
<P align=center style="margin-left: 15; margin-right: 15"><B>[___] Units <BR>Each Unit Consisting of <BR>Two
Shares of Common Stock <BR>One Warrant to Purchase One <BR>Share of Common Stock</B></P>
<P align=center style="margin-left: 15; margin-right: 15"><B>PROSPECTUS </B></P>
<P align=center style="margin-left: 15; margin-right: 15"><B>_______ , 2010 </B></P>
<P align=justify style="margin-left: 15; margin-right: 15">&nbsp;</P>

<P align=justify style="margin-left: 15; margin-right: 15">&nbsp;</P>

<P align=justify style="margin-left: 15; margin-right: 15">&nbsp;</P>

<P align="center" style="margin-left: 15; margin-right: 15">
________________<B><font size="4"><br>
<br>
Ladenburg</font></B><font size="4"><B> Thalmann &amp; Co. Inc.</B> <br>
<br>
</font> ________________</P>

    </td>
  </tr>
</table>


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<A name="page_65"></A>

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<P align=center><B>PART II </B></P>
<P align=center><B>INFORMATION NOT REQUIRED IN THE PROSPECTUS</B> </P>
<P align=justify><B>Item 13. Other Expenses of Issuance and Distribution
</B></P>
<P align=justify>The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by us in connection with
the sale of common stock being registered. All amounts, other than the SEC
registration FINRA and NASDAQ fee, are estimates. We will pay all these
expenses. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">
    <p align="center"><B><U>Amount to be Paid</U></B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>SEC Registration Fee </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;1,490 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>FINRA </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">2,580</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>NASDAQ Listing Fees </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>125,000 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Printing Fees and Expenses </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">25,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Legal Fees and Expenses </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>50,000 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Accounting Fees and Expenses </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">50,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Blue Sky Fees and Expenses </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>5,000 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Transfer Agent and Registrar Fees </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">2,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Miscellaneous </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>1,500 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Total </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="12%">261,080</TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR></TABLE>
<P align=justify><B>Item 14. Indemnification of Directors and Officers </B></P>
<P align=justify>Under Sections 78.751 and 78.752 of the Nevada Revised
Statutes, the registrant has broad powers to indemnify and insure its directors
and officers against liabilities they may incur in their capacities as such. The
registrant&#146;s Amended and Restated Bylaws implement the indemnification and
insurance provisions permitted by Chapter 78 of the Nevada Revised Statutes by
providing that:</P>
<UL>
  <LI>
  <p style="margin-bottom: 12">The registrant must indemnify its directors to the fullest extent
  permitted by Chapter 78 of the Nevada Revised Statutes and may, if and to the
  extent authorized by the registrant&#146;s board of directors, so indemnify its
  officers and any other person whom it has power to indemnify against
  liability, reasonable expense or other matter whatsoever.
  <LI>The registrant may at the discretion of its board of director purchase and
  maintain insurance on behalf of the registrant and any person whom it has
  power to indemnify pursuant to law, its articles of incorporation, its bylaws
  or otherwise. </LI></UL>
<P align=justify>These indemnification provisions may be sufficiently broad to
permit indemnification of the registrant&#146;s directors and officers for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.</P>
<P align=justify>The registrant has also undertaken to provide its directors and
officers with indemnity insurance pursuant to which directors and officers are
indemnified or insured against liability or loss under certain circumstances
which may include liability, or related loss under the Securities Act and the
Exchange Act.</P>
<P align=justify>Insofar as indemnification by us for liabilities arising under
the Exchange Act may be permitted to our directors, officers and controlling
persons pursuant to provisions of the Articles of Incorporation and Bylaws, or
otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Exchange Act and will be
governed by the final adjudication of such issue. </P>
<P align=justify>At the present time, there is no pending litigation or
proceeding involving a director, officer, employee or other agent of ours in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification. </P>
<P align=justify><B>Item 15. Recent Sales of Unregistered Securities</B> </P>
<P align=justify>On March 26, 2010, we issued 10,000 shares of our Series A
Preferred Stock to the shareholders of Kalington in exchange for 10,000 ordinary
shares of Kalington, which is all the issued and outstanding capital stock of
Kalington. The number of our shares issued to the shareholders of Kalington was
determined based on arms-length negotiations with the Kalington shareholders.
All 10,000 outstanding shares of our Series A Preferred Stock have automatically
converted into 9,850,000 shares of common stock, constituting 98.5% of our outstanding common
stock, after giving effect to a 1-for-125 reverse split that was effected on June
22, 2010, on the basis of one share of Series A Preferred Stock for 985 shares
of common stock. The issuance of our shares to the shareholders of Kalington was
made in reliance on the exemption provided by Section 4(2) of the Securities Act
for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder. </P>
<P align=center>II-1 </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_67></A>
<P align=justify>On March 26, 2010, we issued 7,450,000 shares of our Common
Stock to Goodwin Ventures, Inc. (equivalent to 59,600 shares of common stock on
a post split basis)&nbsp; in consideration for Goodwin Ventures, Inc.
paying off approximately $90,000 in liabilities of the Company immediately prior
to the reverse acquisition. The issuance of our shares to Goodwin Ventures, Inc.
was made in reliance on the exemption provided by Section 4(2) of the Securities
Act for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder. </P>
<P align=justify>We issued securities in reliance upon Rule 506 of Regulation D
of the Securities Act. These shareholders who received the securities in such
instances made representations that (a) the shareholder is acquiring the
securities for his, her or its own account for investment and not for the
account of any other person and not with a view to or for distribution,
assignment or resale in connection with any distribution within the meaning of
the Securities Act, (b) the shareholder agrees not to sell or otherwise transfer
the purchased shares unless they are registered under the Securities Act and any
applicable state securities laws, or an exemption or exemptions from such
registration are available, (c) the shareholder has knowledge and experience in
financial and business matters such that he, she or it is capable of evaluating
the merits and risks of an investment in us, (d) the shareholder had access to
all of our documents, records, and books pertaining to the investment and was
provided the opportunity ask questions and receive answers regarding the terms
and conditions of the offering and to obtain any additional information which we
possessed or were able to acquire without unreasonable effort and expense, and
(e) the shareholder has no need for the liquidity in its investment in us and
could afford the complete loss of such investment. Management made the
determination that the investors in instances where we relied on Regulation D
are accredited investors (as defined in Regulation D) based upon management&#146;s
inquiry into their sophistication and net worth. In addition, there was no
general solicitation or advertising for securities issued in reliance upon
Regulation D. </P>
<P align=justify>In instances described above where we indicate that we relied
upon Section 4(2) of the Securities Act in issuing securities, our reliance was
based upon the following factors: (a) the issuance of the securities was an
isolated private transaction by us which did not involve a public offering; (b)
there were only a limited number of offerees; (c) there were no subsequent or
contemporaneous public offerings of the securities by us; (d) the securities
were not broken down into smaller denominations; and (e) the negotiations for
the sale of the stock took place directly between the offeree and us. </P>
<P align=justify><B>Item 16. Exhibits and Financial Statement Schedules </B></P>
<P align=justify>The following exhibits are included as part of this Form
S-1:</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 height="645">

  <TR vAlign=top>
    <TD noWrap align=left width="10%" height="15" ><B>Exhibit</B> </TD>
    <TD align=left height="15"><B>Description</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="10%" height="16"
      ><B>No.</B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=left height="16">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" height="15" >1.1** </TD>
    <TD align=justify bgColor=#e6efff height="15">Form of Underwriting
      Agreement </TD></TR>
  <TR vAlign=top>
    <TD align=left width="10%" height="45" >2.1 </TD>
    <TD align=justify height="45">Share Exchange Agreement, dated as of March 26,
      2010, among Action Industries, Inc., Kalington Limited, the shareholders
      of Kalington Limited, Goodwin Ventures, Inc. and Xingtai Longhai Wire Co.,
      Ltd.&nbsp; [incorporated by reference to Exhibit 2.1 of the Form 8-K filed
    by the Company March 26, 2010] </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" height="15" >3.1</TD>
    <TD align=justify bgColor=#e6efff height="15">Articles of Incorporation
    [incorporated by reference to Exhibit 3.1 of the Form SB-2 filed by the
    Company on February 8, 2007]</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" height="30" >3.2</TD>
    <TD align=justify height="30">Amended and Restated Certificate of Incorporation
    [[incorporated by reference to Exhibit 3.2 of the Form SB-2 filed by the
    Company on February 8, 2007]</TD></TR>
  <TR vAlign=top>
    <TD align=left bgColor=#e6efff width="10%" height="15" ><a href="exhibit3-3.htm">3.3*</a></TD>
    <TD align=justify bgColor=#e6efff height="15"><a href="exhibit3-3.htm">Certificate of Amendment
    </a>
  </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" height="30" >3.4</TD>
    <TD align=justify height="30">Bylaws, as amended [incorporated by reference to
    Exhibit 3.2 of the Form SB-2 filed by the Company on February 8, 2007, as
    amended by Exhibit 3.2 to the current report on Form 8-K filed by the
    Company on March 25, 2010]</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" height="30" >3.5</TD>
    <TD align=justify height="30">Certificate of Designation of Series A Convertible
    Preferred Stock, as filed with the Nevada Secretary of State on March 25,
    2010 [incorporated by reference to Exhibit 3.3 of the Current Report on Form
    8-K, as filed by the Company March 26, 2010]</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" height="15" >4.5** </TD>
    <TD align=justify height="15">Form of Underwriter&#146;s unit purchase
      warrant </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" height="15" >4.6** </TD>
    <TD align=justify bgColor=#e6efff height="15">Specimen common stock
      certificate </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" height="15" >4.7** </TD>
    <TD align=justify height="15">Warrant Agreement with attached form of
      warrant </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" height="15" >5.1** </TD>
    <TD align=justify bgColor=#e6efff height="15">Opinion of Counsel
</TD></TR>
  <TR vAlign=top>
    <TD align=left width="10%" height="30" >10.1 </TD>
    <TD align=justify height="30">Purchase Agreement for Steel Billet by and
      between Xingtai Longhai Steel Wire Ltd. and Xingtai Longhai Steel Group
      Ltd., dated October 1, 2008 [incorporated by reference to Exhibit 10.1 of
      the Current Report on Form 8-K, as filed by the Company March 26, 2010]
  </TD></TR>
  <tr>
    <TD align=left bgColor=#e6efff width="10%" valign="top" height="30">10.2 </TD>
    <TD align=justify bgColor=#e6efff height="30">
      <P align=justify>Lease Agreement, as amended, between Xingtai Longhai
      Steel Wire Co. Ltd and Xingtai Longhai Steel Group Co. Ltd., dated October
      1, 2008, as amended [incorporated by reference to Exhibit 10.2 of the
      Current Report on Form 8-K, as filed by the Company March 26, 2010]
  </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%" valign="top" height="30">10.3 </TD>
    <TD align=justify height="30">
      <P align=justify>Form of Wire Purchase and Sales Contract [incorporated by
      reference to Exhibit 10.3 of the Current Report on Form 8-K, as filed by
      the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left bgColor=#e6efff width="10%" valign="top" height="30">10.4 </TD>
    <TD align=justify bgColor=#e6efff height="30">
      <P align=justify>Consulting Services Agreement dated March 19, 2010
      between Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai
      Wire Co., Ltd. [incorporated by reference to Exhibit 10.4 of the Current
      Report on Form 8-K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%" valign="top" height="30">10.5 </TD>
    <TD align=justify height="30">
      <P align=justify>Operating Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.5 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left bgColor=#e6efff width="10%" valign="top" height="30">10.6 </TD>
    <TD align=justify bgColor=#e6efff height="30">
      <P align=justify>Proxy Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.6 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%" valign="top" height="30">10.7 </TD>
    <TD align=justify height="30">
      <P align=justify>Option Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.7 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left bgColor=#e6efff width="10%" valign="top" height="30">10.8 </TD>
    <TD align=justify bgColor=#e6efff height="30">
      <P align=justify>Equity Pledge Agreement dated March 19, 2010 between
      Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire
      Co., Ltd. [incorporated by reference to Exhibit 10.8 of the Current Report
      on Form 8-K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%" valign="top" height="15">
    <a href="exhibit10-9.htm">10.9*</a> </TD>
    <TD align=justify height="15">
      <P align=justify><a href="exhibit10-9.htm">Employment Agreement, between
      Longhai Steel, Inc. (formerly, Action Industries, Inc.) and Dr. Eberhard
      Kornotzki </a> </P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%" valign="top" height="15" bgcolor="#E6EFFF">
    <a href="exhibit10-10.htm">10.10*</a></TD>
    <TD align=justify height="15" bgcolor="#E6EFFF">
      <P align=justify><a href="exhibit10-10.htm">Form of Independent Director Agreement
      </a> </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%" valign="top" height="29">14 </TD>
    <TD align=justify height="29">
      <P align=justify>Code of Ethics, adopted on July 19, 2010 [incorporated by
      reference to Exhibit 14 of the current report on Form 8-K filed by the
      Company on July 20, 2010]. </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%" valign="top" height="30" bgcolor="#E6EFFF">21 </TD>
    <TD align=justify height="30" bgcolor="#E6EFFF">
      <P align=justify>Subsidiaries of the Company [incorporated by reference to
      Exhibit 21 of the Current Report on Form 8-K, as filed by the Company
      March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%" valign="top" height="15"><a href="exhibit23-1.htm">23.1*
    </a> </TD>
    <TD align=justify height="15">
      <P align=justify><a href="exhibit23-1.htm">Consent of MaloneBailey LLP </a> </P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%" valign="top" height="15" bgcolor="#E6EFFF">
    23.2 </TD>
    <TD align=justify height="15" bgcolor="#E6EFFF">
      <P align=justify>Consent of Counsel, included in Exhibit 5
</P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%" valign="top" height="15">24 </TD>
    <TD align=justify height="15">
      <P align=justify>Power of Attorney (included on the signature page of this
      registration statement) </P></TD>
  </tr>
</TABLE>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD vAlign=top width="5%">_____________________</TD>
    <TD>&nbsp;</TD></TR>

  <TR>
    <TD vAlign=top width="5%" colspan="2">* Filed herewith </TD>
    </TR>
  <TR>
    <TD vAlign=top width="5%" colspan="2">** To be filed by amendment </TD>
    </TR></TABLE>
<P align=center>II-2 </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_68></A><BR>
<P align=justify><B>Item 17. Undertakings</B></P>
<P align=justify>The undersigned registrant hereby undertakes: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD vAlign=top width="5%">1. </TD>
    <TD>
      <P align=justify>To file, during any period in which offers or sales are
      being made, a post-effective amendment to this Registration Statement:
    </P></TD></TR></TABLE><BR>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD width="5%" >&nbsp;</TD>
    <TD vAlign=top width="5%">(a) </TD>
    <TD>
      <P align=justify>To include any Prospectus required by Section 10(a)(3) of
      the Securities Act of 1933, as amended (the &#147;Securities Act&#148;); </P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD vAlign=top width="5%">(b) </TD>
    <TD>
      <P align=justify>To reflect in the Prospectus any facts or events arising
      after the effective date of this Registration Statement, or most recent
      post-effective amendment, which, individually or in the aggregate,
      represent a fundamental change in the information set forth in this
      Registration Statement; and notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
      the total dollar value of securities offered would not exceed that which
      was registered) and any deviation from the low or high end of the
      estimated maximum offering range may be reflected in the form of prospects
      filed with the SEC pursuant to Rule 424(b) under the Securities Act if, in
      the aggregate, the changes in the volume and price represent no more than
      a 20% change in the maximum aggregate offering price set forth in the
      &#147;Calculation of Registration Fee&#148; table in the effective registration
      statement; and
  </P></TD></TR>
  <tr>
    <TD width="5%" >&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD>
  </tr>
  <tr>
    <TD width="5%" >&nbsp;</TD>
    <TD vAlign=top width="5%">(c) </TD>
    <TD>
      <P align=justify>To include any material information with respect to the
      plan of distribution not previously disclosed in this Registration
      Statement or any material change to such information in the registration
      statement. </P></TD>
  </tr>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD vAlign=top width="5%">&nbsp;</TD>
    <TD>
      &nbsp;</TD></TR></TABLE>
<P align=center>II-3 </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_69></A><BR>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD vAlign=top width="5%">2. </TD>
    <TD>
      <P align=justify>That, for the purpose of determining any liability under
      the Securities Act , each such post-effective amendment shall be deemed to
      be a new registration statement relating to the securities offered herein,
      and the offering of such securities at that time shall be deemed to be the
      initial bona fide offering thereof. </P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD vAlign=top width="5%">3. </TD>
    <TD>
      <P align=justify>To remove from registration by means of a post-effective
      amendment any of the securities being registered hereby which remain
      unsold at the termination of the offering. </P></TD></TR>
  <TR>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD vAlign=top width="5%">4. </TD>
    <TD>
      <P align=justify>For determining liability of the undersigned small
      business issuer under the Securities Act to any purchaser in the initial
      distribution of the securities, the undersigned small business issuer
      undertakes that in a primary offering of securities of the undersigned
      small business issuer pursuant to this Registration Statement, regardless
      of the underwriting method used to sell the securities to the purchaser,
      if the securities are offered or sold to such purchaser by means of any of
      the following communications, the undersigned small business issuer will
      be a seller to the purchaser and will be considered to offer or sell such
      securities to such purchaser: </P></TD></TR></TABLE><BR>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0 BCLLIST>

  <TR>
    <TD width="5%"  >&nbsp;</TD>
    <TD vAlign=top width="5%">(a) </TD>
    <TD>
      <P align=justify>Any preliminary Prospectus or Prospectus of the
      undersigned small business issuer relating to the offering required to be
      filed pursuant to Rule 424 of the Securities Act; </P></TD></TR>
  <TR>
    <TD width="5%" >&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD width="5%" >&nbsp;</TD>
    <TD vAlign=top width="5%">(b) </TD>
    <TD>
      <P align=justify>Any free writing Prospectus relating to the offering
      prepared by or on behalf of the undersigned small business issuer or used
      or referred to by the undersigned small business issuer; </P></TD></TR>
  <TR>
    <TD width="5%" >&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD width="5%" >&nbsp;</TD>
    <TD vAlign=top width="5%">(c) </TD>
    <TD>
      <P align=justify>The portion of any other free writing Prospectus relating
      to the offering containing material information about the undersigned
      small business issuer or its securities provided by or on behalf of the
      undersigned small business issuer; and </P></TD></TR>
  <TR>
    <TD width="5%" >&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD>
      <P align=justify>&nbsp;</P></TD></TR>
  <TR>
    <TD width="5%" >&nbsp;</TD>
    <TD vAlign=top width="5%">(d) </TD>
    <TD>
      <P align=justify>Any other communication that is an offer in the offering
      made by the undersigned small business issuer to the purchaser.
  </P></TD></TR></TABLE>
<P align=justify>Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions above, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by one of our directors, officers, or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by one of our directors, officers, or controlling persons in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
is against public policy as expressed in the Securities Act, and we will be
governed by the final adjudication of such issue. </P>
<P align=justify>Each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B of the Securities Act or other than prospectuses
filed in reliance on Rule 430A of the Securities Act, shall be deemed to be part
of and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use. </P>
<P align=center>II-4 </P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_71></A>
<P align=center><B>SIGNATURES</B> </P>
<P align=justify style="text-indent: 5%">Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Xingtai City, Hebei
Province, China, on the 20<SUP>th</SUP> day of July, 2010. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left></TD>
    <TD noWrap align=left width="50%" >LONGHAI STEEL,
    INC.&nbsp;&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="50%">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=right>By:&nbsp; &nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="50%">/s/ Chaojun Wang </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="50%">Chaojun Wang </TD></TR>
  <TR vAlign=bottom>
    <TD align=center>&nbsp;</TD>
    <TD align=left width="50%" >Chief Executive Officer
      (Principal Executive Officer)&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="50%">&nbsp; </TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="50%">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=right>By:&nbsp; &nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="50%">/s/ Dr. Eberhard Kornotzki </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="50%">Dr. Eberhard Kornotzki </TD></TR>
  <TR vAlign=top>
    <TD align=left></TD>
    <TD align=left width="50%">Chief Financial Officer (Principal Financial
      and Accounting Officer) </TD></TR></TABLE>
<P align=center><B>POWER OF ATTORNEY</B> </P>
<P align=justify>Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
constitutes and appoints Chaojun Wang and Eberhard Kornotzki, and each of them
individually, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left>Signature
    </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="33%">Title </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="33%">Date </TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="33%">&nbsp; </TD>
    <TD width="33%">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><U>/s/ Chaojun Wang</U> </TD>
    <TD noWrap align=left width="33%">Chairman and Chief Executive Officer </TD>
    <TD noWrap align=center width="33%">July 20, 2010 </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Chaojun Wang </TD>
    <TD noWrap align=left width="33%">(Principal Executive Officer) </TD>
    <TD noWrap align=left width="33%">&nbsp; </TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="33%">&nbsp; </TD>
    <TD width="33%">&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><U>/s/ Dr. Eberhard Kornotzki</U> </TD>
    <TD noWrap align=left width="33%">Chief Financial Officer </TD>
    <TD noWrap align=center width="33%">July 20, 2010 </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Dr. Eberhard Kornotzki </TD>
    <TD noWrap align=left width="33%">(Principal Financial and Accounting
      Officer) </TD>
    <TD noWrap align=left width="33%">&nbsp; </TD></TR></TABLE><BR>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>


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<A name="page_72"></A>

<font FACE="Times New Roman" SIZE="2"><b>
<p align="center">INDEX TO FINANCIAL STATEMENTS</b> </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" DIR="ltr" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0">
  <tr>
    <td WIDTH="1410" valign="bottom" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="231" align="center" valign="bottom" style="border-bottom-style: solid; border-bottom-width: 1">
    <font SIZE="2"><b>Page</b></font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom" style="border-top-style: solid; border-top-width: 1" bgcolor="#E6EFFF">
    <font SIZE="2"><b>CONSOLIDATED FINANCIAL STATEMENTS OF LONGHAI STEEL, INC.
    AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009</b></font></td>
    <td WIDTH="231" align="center" valign="bottom" style="border-top-style: solid; border-top-width: 1" bgcolor="#E6EFFF">
    <font SIZE="2">F-1</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom"><font SIZE="2">Consolidated Balance Sheets
    as of March 31, 2010 (unaudited) and December 31, 2009</font></td>
    <td WIDTH="231" align="center" valign="bottom"><font SIZE="2">F-2</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom" bgcolor="#E6EFFF"><font SIZE="2">
    Consolidated Statements of Income and Other Comprehensive Income for the
    three months ended March 31, 2010 and 2009 (unaudited)</font></td>
    <td WIDTH="231" align="center" valign="bottom" bgcolor="#E6EFFF">
    <font SIZE="2">F-3</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom"><font SIZE="2">Consolidated Statements of
    Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)</font></td>
    <td WIDTH="231" align="center" valign="bottom"><font SIZE="2">F-4</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom" bgcolor="#E6EFFF"><font SIZE="2">Notes to
    the Consolidated Financial Statements (unaudited)</font></td>
    <td WIDTH="231" align="center" valign="bottom" bgcolor="#E6EFFF">
    <font SIZE="2">F-5</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom"><font SIZE="2"><b>AUDITED FINANCIAL
    STATEMENTS OF ACTION INDUSTRIES, INC AS OF DECEMBER 31, 2009 AND 2008</b></font></td>
    <td WIDTH="231" align="center" valign="bottom"><font SIZE="2">F-11</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom" bgcolor="#E6EFFF"><font SIZE="2">Report of
    Independent Registered Public Accounting Firm</font></td>
    <td WIDTH="231" align="center" valign="bottom" bgcolor="#E6EFFF">
    <font SIZE="2">F-12</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom"><font SIZE="2">Consolidated Balance Sheets</font></td>
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  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom" bgcolor="#E6EFFF"><font SIZE="2">
    Consolidated Statements of Operations</font></td>
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    <font SIZE="2">F-14</font></td>
  </tr>
  <tr>
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  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom" bgcolor="#E6EFFF"><font SIZE="2">
    Consolidated Statements of Cash Flows</font></td>
    <td WIDTH="231" align="center" valign="bottom" bgcolor="#E6EFFF">
    <font SIZE="2">F-16</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom"><font SIZE="2">Notes to Consolidated
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    <td WIDTH="231" align="center" valign="bottom"><font SIZE="2">F-17</font></td>
  </tr>
  <tr>
    <td WIDTH="1410" valign="bottom">&nbsp;</td>
    <td WIDTH="231" align="center" valign="bottom">&nbsp;</td>
  </tr>
</table>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>




    <p align="center"><b>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
    <br>
    CONSOLIDATED FINANCIAL STATEMENTS<br>
    FOR THE THREE MONHTS ENDED MARCH 31, 2010 AND 2009<br>
    (UNAUDITED)</b></p>
<p align="center">&nbsp;</p>
<p align="center">
            <font style="font-family: Times New Roman">F-1</font></p>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>




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              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">
                <font FACE="Times New Roman" SIZE="2"><b>LONGHAI STEEL, INC.
                (Formerly Action Industries, Inc.)</b> </font></div>
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            <td valign="middle" width="79%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">CONSOLIDATED
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          <tr>
            <td valign="middle" width="79%">
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                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
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                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Other
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">8,351,773</font></td>
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">15,663,763</font></td>
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                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
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      net</font></div>
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">14,380,945</font></td>
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2,393,159</font></td>
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                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">VAT
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,579,933</font></td>
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                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">150,337</font></td>
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Due
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">42,290,438</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 2%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Total
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">62,064,611</font></td>
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                  <tr bgcolor="white">
                    <td valign="bottom" width="68%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
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                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 2%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Property,
      plant and equipment, net</font></div>
                    </td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">25,983,643</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">26,680,244</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="white">
                    <td valign="bottom" width="68%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
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                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-BOTTOM: 4px">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">TOTAL
      ASSETS</font></div>
                    </td>
                    <td align="left" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                    <td align="right" valign="bottom" width="13%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">95,813,207</font></td>
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                    <td align="left" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                    <td align="right" valign="bottom" width="13%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">88,744,855</font></td>
                    <td align="left" nowrap valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="white">
                    <td valign="bottom" width="68%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
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                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">LIABILITIES
      AND STOCKHOLDERS&#8217; EQUITY</font></div>
                    </td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 2%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Current
      liabilities</font></div>
                    </td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Accounts
      payable</font></div>
                    </td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">7,647,490</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">15,536,226</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Advance
      from customers</font></div>
                    </td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">41,431,780</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">33,245,360</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Income
      tax payable</font></div>
                    </td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2,325,984</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">VAT
      payable</font></div>
                    </td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,142,355</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Current
      deferred tax liabilities</font></div>
                    </td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,214,814</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,172,181</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Accrued
      expenses and other payables</font></div>
                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">5,143,374</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">5,169,708</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Due
      to related parties</font></div>
                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
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                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 2%">
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                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 2%">
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                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">190,351</font></td>
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                  <tr bgcolor="#E6EFFF">
                    <td valign="bottom" width="68%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
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                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">TOTAL
      LIABILITIES</font></div>
                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">61,853,897</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">57,639,810</font></td>
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                  <tr bgcolor="#E6EFFF">
                    <td valign="bottom" width="68%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
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                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">STOCKHOLDERS&#8217;
      EQUITY</font></div>
                    </td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left">
                        <font size="2">
                        <font style="font-family: times new roman">Preferred</font></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">
                        Stock, .001 par value, 10,000,000 shares authorized,
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                    </td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%">
                    <font size="2"><font style="font-family: times new roman">-</font></font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%">
                    <font size="2"><font style="font-family: times new roman">-</font></font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%" bgcolor="#FFFFFF">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Common
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                    </td>
                    <td valign="bottom" width="1%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%" bgcolor="#FFFFFF"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160;&#160;&#160;and
                        9,850,000
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                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%">
                    <font size="2"><font style="font-family: times new roman">
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                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%">
                    <font size="2"><font style="font-family: times new roman">
                    9,850</font></font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Additional
      paid-in capital</font></div>
                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2,624,390</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2,655,041</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Statutory
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                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">288,163</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Accumulated
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                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">811,795</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">806,818</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-LEFT: 4%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Retained
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                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">30,224,962</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">27,633,336</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td valign="bottom" width="68%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">TOTAL
      STOCKHOLDERS' EQUITY</font></div>
                    </td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">33,959,310</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">31,105,045</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="#E6EFFF">
                    <td valign="bottom" width="68%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="right" valign="bottom" width="13%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
                  <tr bgcolor="white">
                    <td align="left" valign="bottom" width="68%" style="PADDING-BOTTOM: 4px">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">TOTAL
      LIABILITIES AND STOCKHOLDERS&#8217; EQUITY</font></div>
                    </td>
                    <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                    <td align="right" valign="bottom" width="13%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">95,813,207</font></td>
                    <td align="left" nowrap valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                    <td align="right" valign="bottom" width="13%" style="BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">88,744,855</font></td>
                    <td align="left" nowrap valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                  </tr>
              </table>
            </div>
          </div>
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">&#160;</div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: times new roman">The
accompanying notes are an integral part of these consolidated financial
statements.</font></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>

        </div>
      </div>
    <p align="center">
            <font style="font-family: Times New Roman">F-2</font></p>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black noShade SIZE=5>
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">
          <tr>
            <td valign="middle" width="78%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">

                <font FACE="Times New Roman" SIZE="2"><b>LONGHAI STEEL, INC.
                (Formerly Action Industries, Inc.)</b> </font>

</div>
            </td>
          </tr>
          <tr>
            <td valign="middle" width="78%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">CONSOLIDATED
      STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME</font></div>
            </td>
          </tr>
          <tr>
            <td valign="middle" width="78%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">FOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009</font></div>
            </td>
          </tr>
          <tr>
            <td valign="middle" width="78%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(UNAUDITED)</font></div>
            </td>
          </tr>
      </table>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div>
      <div align="left">
        <div align="center">
          <div align="center">
            <div align="center">
              <div align="center">
                <div align="center">
                  <div align="center">
                    <table cellpadding="0" cellspacing="0" width="100%">
                        <tr>
                          <td valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td colspan="6" valign="bottom" style="BORDER-BOTTOM: black 2px solid">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Three
      Months Ended March 31</font></div>
                          </td>
                          <td align="left" nowrap valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr>
                          <td valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td colspan="2" valign="bottom" style="BORDER-BOTTOM: black 2px solid">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2010</font></div>
                          </td>
                          <td align="left" nowrap valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td colspan="2" valign="bottom" style="BORDER-BOTTOM: black 2px solid">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2009</font></div>
                          </td>
                          <td align="left" nowrap valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr>
                          <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td colspan="2" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td colspan="2" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Revenues</font></div>
                          </td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">105,976,651</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">89,061,713</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Cost
      of revenues</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(101,932,251</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(84,552,382</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Gross
      profit/(loss)</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,044,400</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,509,331</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">General
      and administrative expenses</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(151,281</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(76,303</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Operating
      income</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,893,119</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,433,028</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Other
      income (expense)</font></div>
                          </td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Interest
      income</font></div>
                          </td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">620</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">521</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Interest
      expense</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(52,331</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(9,436</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Other
      expenses</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(1,076</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom-style: solid; border-bottom-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(8,581</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-top-style: solid; border-top-width: 1"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Income
      before income tax</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,840,332</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,415,532</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Income
      tax expense</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(960,543</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(1,104,911</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Net
                              income</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2,879,789</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,310,621</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Other
      comprehensive income</font></div>
                          </td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,977</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">24,792</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Comprehensive
      income</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom: 3px double #000000"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom: 3px double #000000"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2,884,766</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%" style="border-bottom: 3px double #000000"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%" style="border-bottom: 3px double #000000"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,335,413</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Earnings
      per share &#8211; basic and diluted (assuming the completion of</font></div>
                          </td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160;&#160;the
      1 to 125 reverse stock split and the conversion of the Series
      A</font></div>
                          </td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="white">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160;&#160;Preferred
      Stock).&#160;&#160;See Footnote 8</font></div>
                          </td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">0.29</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">0.34</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Weighted
      average shares outstanding - basic and diluted (assuming</font></div>
                          </td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160;&#160;the
      completion of the 1 to 125 reverse stock split and the conversion
      of</font></div>
                          </td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                        <tr bgcolor="#E6EFFF">
                          <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160;&#160;the
      Series A Preferred Stock) . See Footnote 8</font></div>
                          </td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">9,860,000</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                          <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">9,850,000</font></td>
                          <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        </tr>
                    </table>
                  </div>
                </div>
              </div>
            </div>
          </div>
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: left" align="center">
        <p style="text-align: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: times new roman">The
accompanying notes are an integral part of these consolidated financial
statements.</font></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>

        </div>
      </div>
    <p align="center">
            <font style="font-family: Times New Roman">F-3</font></p>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black noShade SIZE=5>
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div>
      <div align="left">
        <div align="center">
          <div align="center">
            <div align="center">
              <div align="center">
                <div align="center">
                  <div align="center">
                    <table cellpadding="0" cellspacing="0" width="100%">
                        <tr>
                          <td valign="bottom">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">

                              <font FACE="Times New Roman" SIZE="2"><b>LONGHAI
                              STEEL, INC. (Formerly Action Industries, Inc.)</b>
                              </font>

</div>
                          </td>
                        </tr>
                        <tr>
                          <td valign="bottom">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">CONSOLIDATED
      STATEMENTS OF CASH FLOWS</font></div>
                          </td>
                        </tr>
                        <tr>
                          <td valign="bottom">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">THREE
      MONTHS ENDED MARCH 31, 2010 AND 2009</font></div>
                          </td>
                        </tr>
                        <tr>
                          <td valign="bottom">
                            <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(UNAUDITED)</font></div>
                          </td>
                        </tr>
                    </table>
                  </div>
                </div>
              </div>
            </div>
          </div>
        </div>
        <div>&#160;</div>
        <div align="center">
          <div align="center">
            <div align="center">
              <div align="center">
                <div align="center">
                  <table cellpadding="0" cellspacing="0" width="100%">
                      <tr>
                        <td colspan="8" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr>
                        <td valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                        <td valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td colspan="6" valign="bottom" style="BORDER-BOTTOM: black 2px solid">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Three
      Months Ended March 31</font></div>
                        </td>
                        <td align="left" nowrap valign="bottom" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr>
                        <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                        <td valign="bottom"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td colspan="2" valign="bottom">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2010</font></div>
                        </td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td colspan="2" valign="bottom">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2009</font></div>
                        </td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr>
                        <td align="left" valign="bottom">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Cash
      flows from operating activities:</font></div>
                        </td>
                        <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td colspan="2" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td colspan="2" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Net
      income</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2,879,789</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,310,621</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" colspan="4" valign="bottom">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Adjustments
      to reconcile net income to cash provided (used) by operating
      activities:</font></div>
                        </td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Depreciation
      expense</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">749,831</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">741,379</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Deferred
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                        </td>
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                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
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                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(1,104,141</font></td>
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                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
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                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(14,275,377</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(1,061,777</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
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      expenses and other current assets</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(8,348,974</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(65,086</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Accounts
      payable</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(7,902,762</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">7,613,623</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Advance
      from customers</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">8,181,070</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,708,354</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Accrued
      expenses and other current liabilities</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">3,091,327</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,440,799</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">VAT
      receivable</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,580,187</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%; PADDING-BOTTOM: 2px">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Income
      tax payable</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(2,476,695</font></td>
                        <td align="left" nowrap valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">893,607</font></td>
                        <td align="left" nowrap valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Cash
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                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(41,508,356</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">15,202,528</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Cash
      flows from investing activities:</font></div>
                        </td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Advance
      to others</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(737,262</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">
                        -&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
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                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Proceeds
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                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">42,387,269</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(10,073,990</font></td>
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                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Purchase
      of property and equipment and other long-term assets</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(46,761</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(18,111</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Net
      cash provided by (used in)&#160;&#160;investing activities</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">41,603,246</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(10,092,101</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
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                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Cash
      flows from financing activities:</font></div>
                        </td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">payments
      to related parties</font></div>
                        </td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">
                        -&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(4,220,053</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%; PADDING-BOTTOM: 2px">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Financing
      cost on fixed assets purchase</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                        <td align="left" nowrap valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">7,595</font></td>
                        <td align="left" nowrap valign="bottom" width="1%" style="PADDING-BOTTOM: 2px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Net
      cash used in financing activities</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">-</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(4,212,458</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Effect
      of exchange rate changes on cash</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(14</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">)</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">5,082</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Net
      increase in cash and cash equivalents</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">94,876</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">903,051</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Cash
      and cash equivalents, beginning balance</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">116,540</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">363,903</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td valign="bottom" width="72%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Cash
      and cash equivalents, ending balance</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">211,416</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,266,954</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left">
                            <font style="DISPLAY: inline; font-weight:bold; font-size:10pt; font-family:times new roman; text-decoration:underline">SUPPLEMENTARY DISCLOSURE:</font></div>
                        </td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="#E6EFFF">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Interest
      paid</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">51,053</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">9,436</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" valign="bottom" width="72%" style="PADDING-LEFT: 2%">
                          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Income
      tax paid</font></div>
                        </td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">401,113</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">$</font></td>
                        <td align="right" valign="bottom" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">617,295</font></td>
                        <td align="left" nowrap valign="bottom" width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                      <tr bgcolor="white">
                        <td align="left" colspan="4" valign="bottom">
                        </td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="right" valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                        <td align="left" nowrap valign="bottom"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                      </tr>
                  </table>
                </div>
              </div>
            </div>
          </div>
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: center" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: times new roman">The
accompanying notes are an integral part of these consolidated financial
statements.</font></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>

        </div>
      </div>
    <p align="center">
            <font style="font-family: Times New Roman">F-4</font></p>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
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          &nbsp;</div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          <p></p>
          <p></p>
          <p></p>
          <p>
          </div>
        </div>
      </div>
    </div>
<!--$$/page=--><A name=page_1></A>
<P align=center><B>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
<BR>NOTES TO FINANCIAL STATEMENTS</B></P>
<P align=justify><B><U>NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS</U></B></P>
<P align=justify>Longhai Steel, Inc (formerly Action Industries, Inc.) was
originally incorporated under the laws of the State of Georgia on December 4,
1995. On March 14, 2008, the Georgia corporation was merged with and into a
newly formed Nevada corporation also named Action Industries, Inc. and all of
the outstanding shares of the Georgia corporation were exchanged for shares in
the surviving Nevada corporation.</P>
<P align=left>On March 26, 2010, the Company completed a reverse acquisition
transaction through a share exchange with Kalington Limited (hereafter referred
to as &#147;Kalington&#148;), a Hong Kong entity established on November 5, 2009, and its
shareholders, whereby the Company acquired 100% of the issued and outstanding
capital stock of Kalington in exchange for 10,000 shares of our Series A
Preferred Stock which constituted 98.5% of the Company&#146;s issued and outstanding
capital stock on an as-converted basis as of and immediately after the
consummation of the reverse acquisition. On June 22, 2010, the Company effected
a 1-for-125 reverse stock split of our issued and outstanding Common Stock (the
&#147;Reverse Stock Split&#148;). Upon the date of the Reverse Stock Split all of the
issued and outstanding shares of Series A Preferred Stock automatically
converted into 9,850,000 shares of common stock. Following the effectiveness of
the Reverse Stock Split and conversion of Series A Preferred Stock into common
stock, there were approximately 10,000,000 shares of our common stock issued and
outstanding and no shares of preferred stock issued and outstanding. As a result
of the reverse acquisition, Kalington became the Company&#146;s wholly-owned
subsidiary and the former shareholders of Kalington became our controlling
stockholders. The share exchange transaction with Kalington and the
Shareholders, was treated as a reverse acquisition for accounting and financial
reporting purposes, with Kalington as the acquirer and the Company as the
acquired party. After the reverse acquisition, the Company changed its name to
Longhai Steel, Inc. <br>
<br>
As a result of our acquisition of Kalington, the Company now owns all of the
issued and outstanding capital stock of Kalington.<br>
<br>
By virtue of its ownership in Kalington, the Company also owns Kalington
Consulting, which is a wholly owned foreign subsidiary of Kalington and
effectively and substantially controls Longhai, a leading producer of steel wire
products in eastern China, through a series of captive agreements known as
variable interest agreements (the &#147;VIE Agreements&#148;) with Kalington Consulting.<br>
<br>
Prior to the reverse acquisition of Kalington, the Company was primarily in the
business of providing prepaid long distance calling cards and other
telecommunication products and was in the development stage and had not
commenced planned principal operations. As a result of our reverse acquisition
of Kalington, the Company is no longer a shell company and active business
operations were revived.<br>
<br>
All of the Company&#146;s business operations are now conducted through its Hong Kong
and Chinese subsidiaries, Kalington and Kalington Consulting, respectively, and
controlled affiliate, Longhai. The Company&#146;s principal business is the
production of steel wire ranging from 6mm to 10mm in diameter. The Company
operates two wire production lines which have a combined annual capacity of
approximately nine hundred thousand tons per year. The Company&#146;s products are
sold to a number of distributors who transport the wire to nearby wire
processing facilities. The Company&#146;s wire is then further processed by third
party wire refiners into a variety of products such as nails, screws, and wire
mesh for use in reinforced concrete and fencing. The Company&#146;s facilities and
head offices are located in the town of Xingtai in southern Hebei Province.<br>
<br>
Kalington was established in Hong Kong on November 5, 2009 to serve as an
intermediate holding company. Chaojun Wang and William Hugh Luckman currently
serve as the directors of Kalington. Kalington Consulting was established in the
PRC on March 18, 2010. <br>
<br>
Longhai was originally formed on August 26, 2008 as a carve-out from the Longhai
Steel Group. Chaojun Wang serves as the Chairman of the Board of Directors and
General Manager of Longhai and owns 80% of the capital stock in Longhai.
Longhai&#146;s additional shareholders are Wealth Index International (Beijing)
Investment Co., Ltd. (15% owner) and Wenyi Chen (5% owner). Chaojun Wang also
owns 80% of the capital stock of and is the chief executive officer of the
Longhai Steel Group.<br>
<br>
&nbsp;</P>
<P align=center>F-5</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
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<P align=justify>Longhai leases five stories of office space and the building
which houses our production facilities from the Longhai Steel Group. Until 2008,
Longhai purchased 100% of its steel billet from the Longhai Steel Group. Since
2009, Longhai has purchased steel billet from third party vendors. Steel billet
is the principal raw material used in our production of steel wire. Longhai also
purchases production utilities from the Longhai Steel Group. </P>
<P align=justify>Since there is common control between the Company and Longhai,
for accounting purposes, the acquisition of Longhai has been treated as a
recapitalization with no adjustment to the historical basis of the assets and
liabilities of the consolidated company. The restructuring has been accounted
for using the &#147;as if&#148; pooling method of accounting and the operations were
consolidated as if the restructuring had occurred as of the beginning of the
earliest period presented in our consolidated financial statements and the
current corporate structure had been in existence throughout the periods covered
by our consolidated financial statements. </P>
<P align=justify><B><U>NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES</U></B></P>
<P align=justify><B><U>Basis of Presentation</U></B></P>
<P align=justify>The accompanying unaudited interim consolidated financial
statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (&#147;US GAAP&#148;) and
the rules of the U.S. Securities and Exchange Commission (&#147;SEC&#148;), and should be
read in conjunction with the December 31, 2009 audited financial statements of
the Company and the notes thereto as set forth below. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for fair presentation of financial
position and results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes to
the consolidated financial statements, which would substantially duplicate the
disclosure required in the Company&#146;s December 31, 2009 annual financial
statements have been omitted. </P>
<P align=justify>All significant inter-company balances and transactions have
been eliminated in consolidation. Certain prior period numbers are reclassified
to conform to current period presentation. </P>
<P align=justify><B><U>Principles of Consolidation</U></B></P>
<P align=justify>The accompanying consolidated financial statements include the
accounts of the Company and its 100%-owned subsidiary Kalington for the period
from March 26 to 31, 2010, and its affiliate Longhai for the three
months ended March 31, 2010. All significant inter-company accounts and
transactions were eliminated in consolidation. </P>
<P align=justify><B><U>Basis of Presentation</U></B></P>
<P align=justify>The financial statements reflect the financial position,
results of operations and cash flows of the Company and all of its wholly owned
and majority owned subsidiaries as of March 31, 2010 and December 31, 2009 and
for the three months ended March 31, 2010 and 2009. All intercompany items are
eliminated during consolidation. </P>
<P align=justify><B><U>Use of Estimates</U></B></P>
<P align=justify>The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the consolidated financial
statements and the amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those results. </P>
<P align=justify><B><U>Accounts Receivable</U></B></P>
<P align=justify>The Company&#146;s policy is to maintain reserves for potential
credit losses on 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. Accounts are
written off against the allowance when it becomes evident collection will not
occur. As of March 31, 2010 and December 31, 2009, accounts receivable was
$16,056,171 and $19,009, respectively. </P>
<P align=center>F-6</P>
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<P align=justify><B><U>Foreign Currency Transactions</U></B></P>
<P align=justify>The reporting currency of the Company is the U.S. dollar. The
functional currency of our PRC subsidiaries is the Chinese Renminbi (&#147;RMB&#148;). The
financial statements of our PRC subsidiaries are translated to U.S. dollars
using year-end exchange rates as to assets and liabilities and average exchange
rates as to revenues, expenses and cash flows. Capital accounts are translated
at their historical exchange rates when the capital transaction occurred.
Translation adjustments resulting from this process are included in &#147;accumulated
other comprehensive income&#148; in the statement of shareholders&#146; 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. </P>
<P align=justify>The balance sheet amounts, with the exception of stockholders&#146;
equity at March 31, 2010, were translated using the exchange rate of 6.8361 RMB
to $1.00 as compared to 6.8376 RMB at December 31, 2009. The stockholders&#146;
equity accounts were stated at their historical exchange rate. The average
translation rates applied to the income and cash flow statement amounts for the
three months ended March 31, 2010 and 2009 were 6.83604 RMB and 6.84659 RMB to
$1.00, respectively. </P>
<P align=justify>Translation adjustments resulting from this process are
included in &#147;accumulated other comprehensive income&#148; in the consolidated
statement of stockholders&#146; equity and were $811,795 and $806,818  as of March 31,
2010 and December 31, 2009, respectively.</P>
<P align=justify><B><U>Earnings Per Share</U></B></P>
<P align=justify>The Company reports earnings per share in accordance with the
provisions of ASC 260 &#147;Earnings Per Share&#148;. ASC 260 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
is computed by dividing income available to common stockholders by the weighted
average common shares outstanding during the period, excluding shares issuable
pursuant to outstanding options, warrants and other contracts to issue common
stock. Diluted earnings per share takes into account the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised and converted into common stock using the treasury method. </P>
<P align=justify>Common stock equivalents represent the dilutive effect of the
assumed exercise of the outstanding options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or the
date of issuance, whichever is later, and only if the common stock equivalents
are considered dilutive based upon the Company&#146;s net income (loss) position at
the calculation dates. As of March 31, 2010 and 2009, the Company did not have
any dilutive securities.</P>
<P align=justify><B>NOTE 3 - INVENTORY</B></P>
<P align=justify>Inventory as of March 31, 2010 and December 31, 2009 were as
follows: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>March 31, </B>&nbsp; </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2010</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Raw material </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;110,935 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;27,292 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Finished goods </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">12,489,060 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">849,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Auxiliary inventory (spare parts)
</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>1,780,950 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>1,516,867 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Total inventory</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff><B>&nbsp;14,380,945</B> </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff><B>&nbsp;2,393,159</B> </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=center>F-7</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<P align=justify><B>NOTE 4 - ACCOUNTS PAYABLE, UNEARNED REVENUE AND ACCRUED
LIABILITIES</B></P>
<P align=justify>As of March 31, 2010 and December 31, 2009, accounts payable,
unearned revenue and accrued liabilities of the Company were summarized as
follows: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%">&nbsp; <B>March 31, </B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2010</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Accounts payable </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;7,647,490 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;15,536,226 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Unearned revenue </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>41,431,780 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>33,245,360 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Accrued liabilities and other
      payables: </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&#150; payroll payable </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">178,498 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">97,894 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>&#150; VAT payable </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>3,142,355 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>- </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&#150; customer deposits </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">4,853,282 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">2,923,634 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>&#150; payable for equipment purchased
</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>2,119,889 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&#150; other </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">111,594 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">28,291 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Subtotal of accrued expenses and
      other payables </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff>&nbsp;8,285,729 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff>&nbsp;5,169,708 </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=justify><B>NOTE 5 - RELATED PARTY BALANCE AND TRANSACTIONS</B></P>
<P align=justify><U>Due from related parties</U></P>
<P align=justify>As of March 31, 2010 and December 31, 2009, due from related
parties was summarized as follows: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%">&nbsp; <B>March 31, </B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2010</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Xingtai Longhai Steel Group Co.,
      Ltd. </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;42,047,673 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Xingtai Longhai Steel Group Metal Product Co., Ltd.
    </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">- </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">242,765 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Total </TD>
    <TD noWrap align=left width="1%" ><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>&nbsp;-</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>&nbsp;42,290,438</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR></TABLE>
<P align=justify><U>Due to related parties</U></P>
<P align=justify>As of March 31, 2010 and December 31, 2009, due to related
parties was summarized as follows: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%">
    <p align="center">&nbsp; <B>March 31,</B></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2010</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Xingtai Longhai Steel Group Co.,
      Ltd. </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;90,026 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;- </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=left>The Company loaned cash deposits received from third party
customers to Longhai Group, a related party. As of March 31, 2010 and December
31, 2009, the outstanding balance of this loan was Nil and $42,047,673,
respectively.<br>
<br>
The Company earned finance income for loaning prepayments received from trading
company for steel wire to Longhai Group from Longhai Group amounting to
$1,527,203 and $947,865 for the three months ended March 31, 2010 and March 31,
2009 respectively, which is included in the Company&#146;s revenue.<br>
<br>
The Company sells steel wire to Xingtai Longhai Steel Group Metal Product Co.,
Ltd. (&#147;Longhai Metal&#148;), a related party. As of March 31, 2010 and December 31,
2009, the balance due from Longhai Metal related to such sales was Nil and
$242,765 respectively.<br>
<br>
&nbsp;</P>
<P align=center>F-8</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_5></A>
<P align=justify><U>Related party transactions</U></P>
<P align=justify>For the three months ended March 31, 2010, the Company
purchased production utilities from the Longhai Group amounting to $2,573,640.
In addition, in the three months ended March 31, 2010, the Company received
$1,128,405 from the Longhai Group from sales of scrap metal. <br>
<br>
In the three months ended March 31, 2010, the Company also received $1,527,203
from the Longhai Group as interest for loaning prepayments received from trading
companies for steel wire to the Group.<br>
<br>
For the three months ended March 31, 2009, the Company purchased production
utilities from Longhai Group amounted to $2,202,917. In addition, the amount of
$958,828 scrape metal was sold to Longhai Group for the three months ended March
31, 2009. The Company provided financing service to Longhai Group amounted to
$947,865 for the three months ended March 31, 2009.<br>
<br>
In addition, Longhai Group rents office building and workshop to the Company.
The rent expense for the three months ended March 31, 2010 and 2009 was $7,089
and $7,078, respectively.<br>
<br>
The amount of steel wire sold to Longhai Steel Group Metal Products was Nil and
$3,563,149 for the three months ended March 31, 2010 and 2009 respectively.<b><br>
&nbsp;</b></P>
<P align=justify><b>NOTE 7 - INCOME TAX</b></P>
<P align=justify>Longhai is governed by the Income Tax Law of the PRC applied to
private-run enterprises, and is generally subject to tax at a statutory rate of
25% on income reported in its statutory financial statements filed with the PRC
regulatory authorities after appropriate tax adjustments.
</P>
<P align=justify>The following table summarizes the temporary differences which
result in deferred tax assets and liabilities as of March 31, 2010 and December
31, 2009: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%">
    <p align="center">&nbsp; <B>March 31, </B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%"
    >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2010</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="1%"
    >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Current deferred tax assets: </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Cost of un-invoiced goods delivery </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">2,209,290 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">161,673 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Expenses deductible in next year </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%"
     bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>72,523 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%"
     bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>31,547 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Total current deferred tax assets </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">2,281,813 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">193,220 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Total deferred tax assets</B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%"
    ><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%"><B>&nbsp;2,281,813</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%"
    ><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%"><B>&nbsp;193,220</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%">
    <p align="center">&nbsp; <B>March 31, </B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December 31,</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="12%"><B>
    2010</B> </TD>
    <TD noWrap align=center width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF">Current deferred tax liabilities: </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD noWrap align=left width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD noWrap align=left width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Sales of uninvoiced goods delivery
      (net of output VAT) </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%">6,496,627 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%">1,365,401 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR>
    <TD bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="2%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="2%" bgcolor="#E6EFFF" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Non-current deferred tax
      liabilities: </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF">Depreciation of fixed assets </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%" bgcolor="#E6EFFF"
    >$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" bgcolor="#E6EFFF">&nbsp;184,058 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%" bgcolor="#E6EFFF"
    >$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" bgcolor="#E6EFFF">&nbsp;190,351 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Total deferred tax
      liabilities</B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%"><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"><B>&nbsp;6,680,685</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="1%"><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"><B>&nbsp;1,555,752</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR>
    <TD bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="2%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="2%" bgcolor="#E6EFFF" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Net current deferred tax
      liabilities</B> </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">4,214,814 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">1,172,181 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF"><B>Net non-current deferred tax liabilities</B> </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF">184,058 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF" >&nbsp;</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF">190,351 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF" >&nbsp;</TD></TR></TABLE>
<P align=center>F-9</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_6></A>
<P align=justify>The following table reconciles the U.S. statutory rates to the
Company&#146;s effective tax rate for the three months ended March 31, 2010 and 2009:
</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2010</B> </TD>
    <TD noWrap align=center width="2%">&nbsp;</TD>
    <TD noWrap align=center width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>US statutory rates </TD>
    <TD noWrap align=left width="1%" bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>34.0% </TD>
    <TD noWrap align=left width="2%" bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%" bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>34.0% </TD>
    <TD noWrap align=left width="2%" bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Tax rate difference </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">(9.0%</TD>
    <TD noWrap align=left width="2%">) </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">(9.0%</TD>
    <TD noWrap align=left width="2%">) </TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%" bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%" bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%" bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%" bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Tax per financial statements</B> </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>25.0%</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>25.0%</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR></TABLE>
<P align=justify><B>NOTE 8 &#150; SHAREHOLDERS&#146; EQUITY</B></P>
<P align=justify><B>Series A Convertible Preferred Stock</B></P>
<P align=justify>The Company issued 10,000 shares of Series A Preferred Stock.
The Certificate of Designation was filed on March 25, 2010. </P>
<P align=justify>Shares of Series A Preferred Stock automatically converted
into shares of common stock on the basis of one share of Series A Preferred
Stock for 985 shares of common stock immediately subsequent to the effectiveness
of a 1-for-125 reverse split of our outstanding common stock, which
became effective on June 30, 2010 (the &#147;Reverse Stock Split&#148;). As a
result, the 10,000 outstanding shares of Series A Preferred Stock

automatically converted into 9,850,000 shares of common stock, which constitute
98.5% of our outstanding common stock.&nbsp; </P>
<P align=justify>Following the effectiveness of the Reverse Stock Split and
conversion of Series A Preferred Stock into common stock, there are
approximately 10,000,000 shares of our common stock issued and outstanding and
no shares of preferred stock issued and outstanding. </P>
<P align=justify>For accounting purposes, all shares are retroactively restated
to reflect the reverse stock split. </P>
<P align=center>F-10</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_7></A>
<P align=center><B>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
<BR>CONSOLIDATED FINANCIAL STATEMENTS <BR>YEARS ENDED DECEMBER 31,
2009 AND 2008 Index to Financial Statements </B></P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD
      align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    </TD>
    <TD align=left>&nbsp;&nbsp;&nbsp;<B><U>Page</U></B>
  </TD></TR>
  <TR vAlign=top>
    <TD align=left bgColor=#e6efff><B>CONSOLIDATED FINANCIAL STATEMENTS
      FOR THE YEARS ENDED DECEMBER 31, 2009</B> <STRONG>AND 2008</STRONG> </TD>
    <TD align=left bgColor=#e6efff>&nbsp; </TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD>&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD align=left bgColor=#e6efff>Report of Independent Registered
      Public Accounting Firm </TD>
    <TD align=right bgColor=#e6efff>F-13 </TD></TR>
  <TR vAlign=top>
    <TD align=left>Consolidated Balance Sheets as of December 31, 2009
      and 2008 </TD>
    <TD align=right>F-14 </TD></TR>
  <TR vAlign=top>
    <TD align=left bgColor=#e6efff>Consolidated Statements of Operations and
      Comprehensive Income for the Years Ended December 31, 2009, 2008 and 2007
    </TD>
    <TD align=right bgColor=#e6efff>F-15 </TD></TR>
  <TR vAlign=top>
    <TD align=left>Consolidated Statements of Stockholders&#146; Equity for
      the Years Ended December 31, 2009, 2008 and 2007 </TD>
    <TD align=right>F-16 </TD></TR>
  <TR vAlign=top>
    <TD align=left bgColor=#e6efff>Consolidated Statements of Cash
      Flows for the Years Ended December 31, 2009, 2008 and 2007 </TD>
    <TD align=right bgColor=#e6efff>F-16 </TD></TR>
  <TR vAlign=top>
    <TD align=left>Notes to Consolidated Financial Statements </TD>
    <TD align=right>F-17 </TD></TR></TABLE>
      <p align="center">F-11<BR>
      </p>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_8></A>
<P align=center><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM</B></P>
<P align=justify>To the Board of Directors and Stockholders of <BR>Longhai
Steel, Inc. </P>
<P align=justify>We have audited the accompanying balance sheets of Longhai
Steel, Inc. (the &#147;Company&#148;) as of December 31, 2009 and 2008, and the related
statements of operations and comprehensive income, changes in shareholders&#146;
equity and cash flows for the years ended December 31, 2009, 2008 and 2007.
These financial statements are the responsibility of the Company&#146;s management.
Our responsibility is to express an opinion on these financial statements based
on our audits. </P>
<P align=justify>We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company&#146;s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
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.</P>
<P align=justify>In our opinion, the financial statements of the Company
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2009 and 2008 and the results of its
operations and its cash flows for the years ended December 31, 2009, 2008 and
2007 in conformity with accounting principles generally accepted in the United
States of America. </P>
<P align=justify><I>/s/ MALONEBAILEY, LLP <BR></I>www.malone-bailey.com <BR>Houston, Texas
</P>
<P align=justify>March 26, 2010 </P>
<P align=center>F-12</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_9></A>
<P align=center><B>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
<BR>CONSOLIDATED BALANCE SHEETS<BR>AS OF DECEMBER 31, 2009 &amp;
2008</B></P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%" valign="bottom">2009 </TD>
    <TD noWrap align=center width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%" valign="bottom">2008 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><B>ASSETS</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Current assets </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="12%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="12%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Cash and cash equivalents </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">&nbsp;115,510 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">&nbsp;363,903 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Accounts receivable, net </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">19,009 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">- </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Inventory, net </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">2,393,159 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">2,107,701 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Advance to suppliers </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">15,663,763 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">23,873,721 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Tax receivable </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">1,579,933 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">- </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Other current assets </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">2,799 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">64,194 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Due from related parties </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">42,290,438 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">- </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Total current assets </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">62,064,611 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">26,409,519 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Property, plant and equipment, net </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">26,680,244 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">29,355,329 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Other assets </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">- </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">30,343 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><B>TOTAL ASSETS</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">&nbsp;88,744,855 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">&nbsp;55,795,191 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B> </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="12%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="12%" valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Current liabilities </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Accounts payable </TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD noWrap align=right width="12%" valign="bottom">&nbsp;15,536,226 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD noWrap align=right width="12%" valign="bottom">&nbsp;6,128,116 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Unearned revenue </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">33,245,360 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">17,913,926 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Income tax payable </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">2,325,984 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">656,972 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Accrued liabilities </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">5,169,708 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">7,245,557 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Current deferred tax liabilities </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">1,172,181 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">169,639 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Short-term debt - related party </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">4,214,758 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Total current liabilities </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">57,449,459 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">36,328,968 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Non-current deferred tax liabilities
    </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">190,351 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff valign="bottom">113,272 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><B>TOTAL LIABILITIES</B> </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">57,639,810 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">36,442,240 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="12%" valign="bottom">&nbsp; </TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><B>STOCKHOLDERS&#146; EQUITY</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Preferred stock, .001 par value, 10,000,000 shares
      authorized none issued and outstanding </TD>
    <TD align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD align=right width="12%" valign="bottom">- </TD>
    <TD align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD align=right width="12%" valign="bottom">- </TD>
    <TD align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Common Stock, .001 par value, 100,000,000
      shares authorized, 9,850,000 shares issued and outstanding, respectively
    </TD>
    <TD align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD align=right width="12%" bgColor=#e6efff valign="bottom">9,850 </TD>
    <TD align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD align=right width="12%" bgColor=#e6efff valign="bottom">9,850 </TD>
    <TD align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Additional paid-in capital </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">2,655,041 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="12%" valign="bottom">2,655,041 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Accumulated other comprehensive
      income </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">806,818 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff valign="bottom">752,334 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">Retained earnings </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">27,633,336 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">15,935,726 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><B>TOTAL STOCKHOLDERS&#146; EQUITY</B> </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">31,105,045 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" valign="bottom">19,352,951 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt">&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff valign="bottom">&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><B>TOTAL LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B>
</TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%" valign="bottom">&nbsp;88,744,855 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%" valign="bottom">&nbsp;55,795,191 </TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR></TABLE>
<P align=center>The accompanying notes are an integral part of these
consolidated financial statements </P>
<P align=center>F-13</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_10></A>
<P align=center><B>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
<BR>CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME<BR>FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 &amp; 2007</B></P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="36%" colSpan=7>The Year Ended December 31
    </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><B>2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><B>2008</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="10%"><B>2007</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Revenue</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;373,660,461 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;511,487,983 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;238,644,939 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Cost of revenue </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(356,833,041</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(492,792,919</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(234,180,486</TD>
    <TD noWrap align=left width="2%" >) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Gross profit</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>16,827,420 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>18,695,064 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>4,464,453 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Operating expenses: </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>General and administrative expenses
    </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(1,114,016</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(798,083</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(476,507</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Impairment loss on assets </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="10%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">- </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(20,632</TD>
    <TD noWrap align=left width="2%" >) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Income from operations</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>15,713,404 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>17,896,981 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>3,967,314 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Interest income </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">3,301 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">806 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">- </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Interest expense </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(85,422</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(84,199</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(121,417</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Other expenses </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(34,470</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(27,768</TD>
    <TD noWrap align=left width="2%" >) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">(22,456</TD>
    <TD noWrap align=left width="2%" >) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Total other income and expenses </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(116,591</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(111,161</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(143,873</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Income before income taxes</B> </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">15,596,813 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">17,785,820 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">3,823,441 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Income tax expense </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(3,899,203</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(4,446,455</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>(1,227,080</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Net income</B> </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">&nbsp;11,697,610 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">&nbsp;13,339,365 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="10%">&nbsp;2,596,361 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Net Income per share &#150; basic and
      diluted </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;1.19 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;1.35 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="10%" bgColor=#e6efff>&nbsp;0.26 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Weighted average shares outstanding &#150; basic and
      diluted </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">9,850,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">9,850,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="10%">9,850,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Comprehensive Income</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="10%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Net income </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="10%">&nbsp;11,697,610 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="10%">&nbsp;13,339,365 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD noWrap align=right width="10%">&nbsp;2,596,361 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Other comprehensive income </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>54,484 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>521,483 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="10%"
    bgColor=#e6efff>230,851 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Comprehensive income </TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="10%">&nbsp;11,752,094 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="10%">&nbsp;13,860,848 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="10%">&nbsp;2,827,212 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR></TABLE>
<P align=center>The accompanying notes are an integral part of these
consolidated financial statements. </P>
<P align=center>F-14</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_11></A>
<P align=center><B>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
<BR>CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY<BR>FOR THE YEARS
ENDED DECEMBER 31, 2009, 2008 &amp; 2007</B></P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 8pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2><B>Additional</B>
</FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2><B>Other</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2><B>Common</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2><B>Paid-in</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2><B>comprehensive</B>
    </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2><B>Retained</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="7%"><FONT size=2><B>Shares</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="7%"><FONT size=2><B>Stock</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="7%"><FONT size=2><B>Capital</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="7%"><FONT size=2><B>income</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="7%"><FONT size=2><B>earnings</B> </FONT></TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="7%"><FONT size=2><B>Total</B> </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><FONT size=2><B>Balance January 1,
      2007</B> </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT
      size=2>&nbsp;9,850,000 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>&nbsp;9,850
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>1,781,004
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>&nbsp;-
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>&nbsp;-
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT
      size=2>&nbsp;1,790,854 </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2>Foreign Currency Translation </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>230,851 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>230,851 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><FONT size=2>Net income </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>2,596,361 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>2,596,361 </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2><B>Balance December 31, 2007</B>
    </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;9,850,000 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;9,850 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;1,781,004 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;230,851 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;2,596,361 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;4,618,066 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><FONT size=2>Contributed capital
      </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>874,037
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>874,037
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2>Foreign Currency Translation </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>521,483 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="7%"><FONT size=2>521,483 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><FONT size=2>Net income </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>13,339,365 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>13,339,365 </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2><B>Balance December 31, 2008</B>
    </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;9,850,000 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;9,850 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;2,655,041 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;752,334 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;15,935,726 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="7%"><FONT size=2>&nbsp;19,352,951 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><FONT size=2>Foreign Currency
      Translation </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>54,484
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="7%" bgColor=#e6efff><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="7%" bgColor=#e6efff><FONT size=2>54,484
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><FONT size=2>Net income </FONT></TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left
      width="7%"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%"><FONT size=2>11,697,610 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="7%"><FONT size=2>11,697,610 </FONT></TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><FONT size=2><B>Balance December 31,
      2009</B> </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp;9,850,000 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp;9,850 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp;2,655,041 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp;806,818 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp;27,633,336 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="7%"
    bgColor=#e6efff><FONT size=2>&nbsp;31,105,045 </FONT></TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=center>The accompanying notes are an integral part of these
consolidated financial statements. </P>
<P align=center>F-15</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_12></A>
<P align=center><B>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
<BR>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>FOR THE YEARS ENDED DECEMBER
31, 2009, 2008 &amp; 2007</B></P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="11%" valign="bottom"><FONT size=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;
      &nbsp;<B>2009</B> </FONT></TD>
    <TD noWrap align=center width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="11%" valign="bottom"><FONT size=2>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;
      &nbsp;<B>2008</B> </FONT></TD>
    <TD noWrap align=center width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=center width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="11%" valign="bottom"><FONT size=2><B>2007</B> </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Cash flows from
      operating activities: </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Net income </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>&nbsp;11,697,610 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>&nbsp;13,339,365 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>&nbsp;2,596,361 </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Adjustments to reconcile net income to
      cash provided by operating activities: </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Depreciation and
      amortization </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>2,990,846
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>2,884,014
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>2,280,177
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Provision for inventory obsolescence
      </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>20,632 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Deferred tax assets /
      liabilities </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>1,078,918
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>162,556
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>112,787
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Changes in operating assets and
      liabilities: </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Accounts receivable
      </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(19,009</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>6,083,087
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(5,700,591</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Inventory </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>(280,217</FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >) </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>1,620,193 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>(3,493,489</FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Advance to suppliers
      </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>8,280,771
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(23,873,721 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">)&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>-
    </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Prepaid expenses and other assets
      </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>50,102 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>(64,194 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >)</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Due to / from related
      parties </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(17,194,469</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(12,811,436 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">)</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>948,571
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Accounts payable </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>9,392,873 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>4,229,366 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>1,779,359 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Accrued expenses and
      other current liabilities </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(2,175,127</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>2,184,788
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>1,359,937
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Advance from customers </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>15,286,893 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>9,439,401 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>7,941,659 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Income tax payable
      </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>1,667,379 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>(586,349 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">)&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>1,165,143 </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>CASH PROVIDED BY OPERATING ACTIVITIES
      </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>30,776,570 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>2,607,070 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>9,010,546 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2><B>Cash flows from investing
      activities:</B> </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Advances to affiliates
      </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(29,321,207</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>-
    </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>-
    </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Purchase of property and equipment and
      other long-term assets </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>(244,267</FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >) </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>CASH USED IN INVESTING
      ACTIVITIES </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>(29,565,474</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2><B>Cash flows from
      financing activities:</B> </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Contributed capital </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>874,037 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Repayments on
      borrowings from related parties </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(1,498,671</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>(2,535,072
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">)&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>(8,210,997</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Financing cost on fixed assets purchase
      </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>30,418 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>85,527 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>126,449 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Principal payments on
      long-term loan </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>(874,037 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">)</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>(1,107,452</FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">) </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>CASH USED IN FINANCING ACTIVITIES
      </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>(1,468,253</FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >) </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>(2,449,545 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >)&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>(9,192,000</FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >) </TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Effect of exchange rate changes on cash
      </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>8,764 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>206,378 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>181,454 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2><B>Net (decrease) increase in cash and
      cash equivalents</B> </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>(248,393</FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >) </TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>363,903 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2><B>Cash and cash equivalents, beginning
      balance</B> </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>363,903 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2><B>Cash and cash
      equivalents, ending balance</B> </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;115,510 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;363,903 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;- </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2><B>NON-CASH
      TRANSACTIONS</B> </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Fixed assets purchased
      on credit </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;-
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>&nbsp;1,550,886 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT
      size=2>&nbsp;7,566,360 </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Raw materials purchased on credit
      </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>4,214,758 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=right width="11%" valign="bottom"><FONT size=2>15,955,612 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Financing service and
      sales of products to related parties </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>12,969,231
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>-
    </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=right width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>-
    </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR>
    <TD valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD>
    <TD width="1%" valign="bottom" >&nbsp;</TD>
    <TD width="11%" valign="bottom"><FONT size=2>&nbsp; </FONT></TD>
    <TD width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2><B><U>SUPPLEMENTARY
      DISCLOSURE:</U></B> </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="11%" bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;
      </FONT></TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff valign="bottom">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Interest paid </FONT></TD>
    <TD noWrap align=left width="1%" valign="bottom" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>&nbsp;85,422 </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>&nbsp;- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD>
    <TD noWrap align=left width="1%" valign="bottom" ><FONT size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="11%" valign="bottom"><FONT size=2>&nbsp;- </FONT></TD>
    <TD noWrap align=left width="2%" valign="bottom" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff valign="bottom">
    <p style="text-indent: -10pt; margin-left: 10pt"><FONT size=2>Income tax paid
    </FONT></TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;1,154,400 </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;- </FONT></TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff valign="bottom">&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff valign="bottom"><FONT
      size=2>$</FONT></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="11%"
    bgColor=#e6efff valign="bottom"><FONT size=2>&nbsp;1,227,080 </FONT></TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff valign="bottom">&nbsp;</TD></TR></TABLE>
<P align=center>The accompanying notes are an integral part of these
consolidated financial statements. </P>
<P align=center>F-16</P>
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noShade SIZE=5>
<!--$$/page=--><A name=page_13></A>
<P align=center><B>LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
<BR>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B></P>
<P align=justify><B><U>NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS</U></B></P>
<P align=justify>Longhai Steel, Inc. (formerly Action Industries, Inc.) was
originally incorporated under the laws of the State of Georgia on December 4,
1995. On March 14, 2008, the Georgia corporation was merged with and into a
newly formed Nevada corporation also named Action Industries, Inc. and all of
the outstanding shares of the Georgia corporation were exchanged for shares in
the surviving Nevada corporation.</P>
<P align=justify>On March 26, 2010, the Company completed a reverse acquisition
transaction through a share exchange with Kalington Limited (hereafter referred
to as &#147;Kalington&#148;), a Hong Kong entity established on November 5, 2009, and its
shareholders, or the Shareholders, whereby the Company acquired 100% of the
issued and outstanding capital stock of Kalington in exchange for 10,000 shares
of our Series A Preferred Stock which constituted 98.5% of the Company&#146;s issued
and outstanding capital stock on a as-converted basis as of and immediately
after the consummation of the reverse acquisition. As a result of the reverse
acquisition, Kalington became the Company&#146;s wholly-owned subsidiary and the
former shareholders of Kalington became our controlling stockholders. The share
exchange transaction with Kalington and the Shareholders, or Share Exchange, was
treated as a reverse acquisition, with Kalington as the acquirer and the Company
as the acquired party for accounting and financial reporting purposes. After the
reverse acquisition, the Company changed its name to Longhai Steel, Inc.</P>
<P align=justify>As a result of our acquisition of Kalington, the Company now
owns all of the issued and outstanding capital stock of Kalington. </P>
<P align=justify>By virtue of its ownership in Kalington, the Company also owns
Kalington Consulting, which is a wholly owned foreign subsidiary of Kalington
and effectively and substantially controls Longhai, a leading producer of steel
wire products in eastern China, through a series of captive agreements known as
variable interest agreements (the &#147;VIE Agreements&#148;) with Kalington Consulting.
</P>
<P align=justify>Prior to the reverse acquisition of Kalington, the Company was
primarily in the business of providing prepaid long distance calling cards and
other telecommunication products and was in the development stage and had not
commenced planned principal operations. As a result of our reverse acquisition
of Kalington, the Company no longer a shell company and active business
operations were revived. </P>
<P align=justify>All of the Company&#146;s business operations are now conducted
through its Hong Kong and Chinese subsidiaries, Kalington and Kalington
Consulting, respectively, and controlled affiliate, Longhai. The Company&#146;s
principal business is the production of steel wire ranging from 6mm to 10mm in
diameter. The Company operates two wire production lines which have a combined
annual capacity of approximately nine hundred thousand tons per year. The
Company&#146;s products are sold to a number of distributors who transport the wire
to nearby wire processing facilities. The Company&#146;s wire is then further
processed by third party wire refiners into a variety of products such as nails,
screws, and wire mesh for use in reinforced concrete and fencing. The Company&#146;s
facilities and head offices are located in the town of Xingtai in southern
Hebei. </P>
<P align=justify>Kalington was established in Hong Kong on November 5, 2009 to
serve as an intermediate holding company. Chaojun Wang and William Hugh Luckman
currently serve as the directors of Kalington. Kalington Consulting was
established in the PRC on March 18, 2010.</P>
<P align=justify>Longhai was established in the PRC on August 26, 2008 as a
result of the division of the Longhai Steel Group for the purpose of engaging in
the production of steel wire. Chaojun Wang serves as the Chairman of the Board
of Directors and General Manager of Longhai and owns 80% of the capital stock in
Longhai. Longhai&#146;s additional shareholders are Wealth Index International
(Beijing) Investment Co., Ltd. (15% owner) and Wenyi Chen (5% owner). Chaojun
Wang also owns 80% of the capital stock of and is the chief executive officer of
the Longhai Steel Group. </P>
<P align=justify>Longhai leases a five-story office space and the building which
houses our production facilities from the Longhai Steel Group. Until 2008,
Longhai purchased 100% of its steel billet from the Longhai Steel Group. Since
2009, Longhai has purchased steel billet from third party vendors. Steel Billet
is the principal raw material used in our production of steel wire. Longhai also
purchases production utilities from the Longhai Steel Group. </P>
<P align=center>F-17</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_14></A>
<P align=justify>Since the common control between Action Industries, Inc. and
Longhai for accounting purposes, the acquisition of Longhai has been treated as
a recapitalization with no adjustment to the historical basis of their assets
and liabilities. The restructuring has been accounted for using the &#147;as if&#148;
pooling method of accounting and the operations were consolidated as if the
restructuring had occurred as of the beginning of the earliest period presented
in our consolidated financial statements and the current corporate structure had
been in existence throughout the periods covered by our consolidated financial
statements. </P>
<P align=justify><B><U>NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES</U></B></P>
<P align=justify><B><U>Basis of Presentation</U></B></P>
<P align=justify>The financial statements reflect the financial position,
results of operations and cash flows of the Company and all of its wholly owned
and majority owned subsidiaries as of December 31, 2009 and 2008 and for the
years ended December 31, 2009 and the period from August 26, 2008 to December
31, 2008, and of carve-out financial statements of Longhai as of December 31,
2007 and for the period from January 1, 2008 to August 25, 2008 and for the year
ended December 31, 2007. All intercompany items are eliminated during
consolidation. </P>
<P align=justify>The carve-out financial statements include the assets,
liabilities and results of operations of Longhai that were "carved-out" from
Xingtai Longhai Steel Group Co., Ltd. (the &#147;Group&#148;). The operating expenses
included in the &#147;carve-out&#148;) financial statements include proportional
allocations of various common costs of the Group because specific identification
of the expenses was not practicable. The common costs include expenses from the
Group related to various common costs, including executive, finance and
accounting, human resources, legal, marketing, and information technology. </P>
<P align=justify>The Company believes that the assumptions underlying the
carve-out financial statements are reasonable. The cost allocation methods
applied to certain common costs include the following: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12">Specific identification. Where the amounts were specifically identified to
  the Division, they were classified accordingly.
  <LI>Reasonable allocation. Where the amounts were not clearly or specifically
  identified, management determined if a reasonable allocation method could be
  applied. For example, proportionally allocated general and administrative
  expenses based on production costs. </LI></UL>
<P align=justify>The Consolidated Financial Statements are prepared in
accordance with generally accepted accounting principles in the United States of
America (&#147;US GAAP&#148;). The Company&#146;s functional currency is the Chinese Renminbi
(&#147;RMB&#148;); however the accompanying financial statements have been translated and
presented in United States Dollars (&#147;$&#148;). </P>
<P align=justify><B><U>Use of Estimates</U></B></P>
<P align=justify>The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the consolidated financial
statements and the amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those results. </P>
<P align=justify><B><U>Risks and Uncertainties</U></B></P>
<P align=justify>The Company is subject to substantial risks from, among other
things, intense competition associated with the industry in general, other risks
associated with financing, liquidity requirements, rapidly changing customer
requirements, limited operating history, foreign currency exchange rates and the
volatility of public markets. </P>
<P align=justify><B><U>Concentration of Risk</U></B></P>
<P align=justify>Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and trade and bills receivables. As of December 31, 2009 and 2008,
substantially all of the Company&#146;s cash and cash equivalents were held by major
financial institutions located in the PRC, which management believes are of high
credit quality. With respect to trade receivables, the Company extends credit
based on an evaluation of the customer&#146;s financial condition. The Company generally does not
require collateral for trade receivables and maintains an allowance for doubtful
accounts of trade receivables. </P>
<P align=center>F-18</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_15></A>
<P align=justify>The Company operates principally in the PRC and grants credit
to its customers in this geographic region. Although the PRC is economically
stable, it is always possible that unanticipated events in foreign countries
could disrupt the Company&#146;s operations. </P>
<P align=justify><B><U>Comprehensive Income</U></B></P>
<P align=justify>Comprehensive income consists of two components, net income and
other comprehensive income/(loss). Other comprehensive income refers to revenue,
expenses, gains and losses that under generally accepted accounting principles
are recorded as an element of stockholders&#146; equity but are excluded from net
income. During the periods presented, other comprehensive income (loss) includes
cumulative translation adjustment from foreign currency translation. </P>
<P align=justify><B><U>Foreign Currency Transactions</U></B></P>
<P align=justify>The reporting currency of the Company is the US dollar. The
functional currency of PRC subsidiaries is RMB. The financial statements of PRC
subsidiaries are translated to United States Dollars using year-end exchange
rates as to assets and liabilities and average exchange rates as to revenues,
expenses and cash flows. Capital accounts are translated at their historical
exchange rates when the capital transaction occurred. Translation adjustments
resulting from this process are included in accumulated other comprehensive
income in the statement of shareholders&#146; 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. </P>
<P align=justify>The balance sheet amounts with the exception of equity at
December 31, 2009 were translated 6.8376 RMB to $1.00 as compared to 6.8542 RMB
at December 31, 2008. The equity accounts were stated at their historical
exchange rate. The average translation rates applied to the income and cash flow
statement amounts for the years ended December 31, 2009, 2008 and 2007 was
6.84092 RMB, 6.96225 RMB and 7.6172 RMB to $1.00, respectively.. </P>
<P align=justify>Translations adjustments resulting from this process are
included in accumulated other comprehensive income in the consolidated statement
of stockholders&#146; equity and were $806,818 and $752,334 as of December 31, 2009
and 2008, respectively.</P>
<P align=justify><B><U>Cash and Cash Equivalents</U></B></P>
<P align=justify>For Statement of Cash Flows purposes, the Company considers all
cash on hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with original
maturity of three months or less, when purchased, to be cash and cash
equivalents. The Company maintains cash with various banks and trust companies
located in China. Cash accounts are not insured or otherwise protected. Should
any bank or trust company holding cash deposits become insolvent, or if the
Company is otherwise unable to withdraw funds, the Company would lose the cash
on deposit with that particular bank or trust company. </P>
<P align=justify><B><U>Accounts Receivable</U></B></P>
<P align=justify>The Company&#146;s policy is to maintain reserves for potential
credit losses on 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. Accounts are
written off against the allowance when it becomes evident collection will not
occur. As of December 31, 2009 and 2008, the accounts receivable was $19,009 and
Nil, respectively. </P>
<P align=justify><B><U>Inventory</U></B></P>
<P align=justify>Inventory is stated at the lower of cost or market. Cost is
determined on a weighted average basis and includes all expenditures incurred in
bringing the goods to the point of sale and putting them in a saleable
condition. In assessing the ultimate realization of inventories, the management
makes judgments as to future demand requirements compared to current or
committed inventory levels. The Company estimates the demand requirements
based on market conditions, forecasts prepared by its customers, sales contracts
and orders in hand. </P>
<P align=center>F-19</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_16></A>
<P align=justify>In addition, the Company estimates net realizable value based
on intended use, current market value and inventory ageing analyses. The Company
writes down inventories for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventories and their estimated
market value based upon assumptions about future demand and market conditions.
</P>
<P align=justify><B><U>Property, Plant and Equipment</U></B></P>
<P align=justify>Property, plant and equipment are recorded at cost. Gains or
losses on disposals are reflected as gain or loss in the year of disposal. All
ordinary repair and maintenance costs are expensed as incurred. Expenditures for
maintenance and repairs are expensed as incurred. Major renewals and betterments
are charged to the property accounts while replacements, maintenance and
repairs, which do not improve or extend the lives of the respective assets, are
expensed in the current period. </P>
<P align=justify>Depreciation for financial reporting purposes is provided using
the straight-line method over the estimated useful lives of assets as set out
below. </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="30%">Estimated Useful Life </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Plant and building </TD>
    <TD noWrap align=right width="30%" bgColor=#e6efff>20 years </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Machinery and equipment </TD>
    <TD noWrap align=right width="30%">10 years </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Office furniture and equipment </TD>
    <TD noWrap align=right width="30%" bgColor=#e6efff>5 years </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Transportation equipment </TD>
    <TD noWrap align=right width="30%">5 years </TD></TR></TABLE>
<P align=justify><B><U>Impairment of Long-Lived Assets</U></B></P>
<P align=justify>In accordance with ASC 360, &#147;Property, Plant and Equipment&#148;,
the Company reviews the carrying values of long-lived assets, including
property, plant and equipment, land use right and other intangible assets,
whenever facts and circumstances indicate the assets may be impaired.
Recoverability of assets to be held and used is measured by comparing the
carrying amount of an asset to future net undiscounted cash flows expected to be
generated by the asset. If an asset is considered impaired, the impairment is
measured by the amount by which the carrying amount the asset exceeds the fair
value. Assets to be disposed of are reported at the lower of the carrying amount
or fair value, less costs of disposal. </P>
<P align=justify>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 years ended
December 31, 2009, 2008 and 2007. </P>
<P align=justify><B><U>Revenue Recognition</U></B></P>
<P align=justify>The Company recognizes sales in accordance with United SEC
Staff Accounting Bulletin (&#147;SAB&#148;) No. 101, &#147;Revenue Recognition in Financial
Statements&#148; and SAB No. 104, &#147;Revenue Recognition.&#148; The Company recognizes
revenue when the following criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or services were rendered, (iii)
the price to the customer is fixed or determinable and (iv) collection of the
resulting receivable is reasonably assured. After the customers of the Company
taking the goods and signing on the shipping order, the Company considers the
signed shipping order as customer acceptance and the risk of goods is
transferred, as the price in invoice or sales contract with customers is fixed,
the Company recognize revenue accordingly. Revenue is not recognized until title
and risk of loss is transferred to the customer, which occurs upon delivery of
goods, and objective evidence exists that customer acceptance provisions have
were met. Provisions for discounts and returns are provided for at the time the
sale is recorded, and are recorded as a reduction of sales. The Company bases
its estimates on historical experience taking into consideration the type of
products sold, the type of customer, and the type of specific transaction in
each arrangement. Revenues represent the invoiced value of goods, net of value
added tax (&#147;VAT&#148;). </P>
<P align=center>F-20</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
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<P align=justify>The Company provides a product warranty to customers;
meanwhile, as an assembling company, all parts are purchased from related
suppliers, suppliers provide a same terms warranty to the Company as that the
Company provides to customers. In case customers claim problem products to the
Company, the Company will claim the related parts to suppliers accordingly.
Further more, the labor costs and overheads related to the problem products are
not material compared to the parts cost, so the company do not accrue any
warranty liabilities in financial statements. </P>
<P align=justify>The Company does not offer promotional payments, customer
coupons, rebates or other cash redemption offers to its customers. Deposits or
advance payments from customers prior to delivery of goods and passage of title
of goods are recorded as unearned revenue. </P>
<P align=justify><B><U>Income Taxes</U></B></P>
<P align=justify>The Company accounts for income taxes in accordance with ASC
740 &#147;Income Taxes&#148;. Under this method, deferred income taxes are recognized for
the estimated tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts and each
year-end based on enacted tax laws and statutory rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized when, in management&#146;s opinion; it is more likely than not that
some portion of the deferred tax assets will not be realized. The provision for
income taxes represents current taxes payable net of the change during the
period in deferred tax assets and liabilities. </P>
<P align=justify><B><U>Earnings (loss) Per Share</U></B></P>
<P align=justify>The Company reports earnings per share in accordance with the
provisions of ASC 260 &#147;Earnings Per Share.&#148; ASC 260 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised and converted into common stock using the treasury method. </P>
<P align=justify>Common stock equivalents represent the dilutive effect of the
assumed exercise of the outstanding stock options and warrants, using the
treasury stock method, at either the beginning of the respective period
presented or the date of issuance, whichever is later, and only if the common
stock equivalents are considered dilutive based upon the Company&#146;s net income
(loss) position at the calculation dates. As of December 31, 2009, 2008 and
2007, the Company does not have any dilutive securities. The Company does not
have shares outstanding. As a result, earnings per share are not presented. </P>
<P align=justify><B><U>Fair Value of Financial Instruments</U></B></P>
<P align=justify>ASC 820 &#147;Fair Value Measurements and Disclosures,&#148; adopted
January 1, 2008, defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure
requirements for fair value measures. The carrying amounts reported in the
balance sheets for current receivables and payables qualify as financial
instruments. Management concluded the carrying values are a reasonable estimate
of fair value because of the short period of time between the origination of
such instruments and their expected realization and if applicable, their stated
interest rate approximates current rates available. The three levels are defined
as follows: </P>
<UL>
  <LI>
  <p style="margin-bottom: 12">Level 1 - inputs to the valuation methodology are quoted prices
  (unadjusted) for identical assets or liabilities in active markets.
  <LI>Level 2 - inputs to the valuation methodology include quoted prices for
  similar assets and liabilities in active markets, and inputs that are
  observable for the assets or liability, either directly or indirectly, for
  substantially the full term of the
financial instruments.</LI></UL>
<P align=center>F-21</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>


<!--$$/page=-->
<A name="page_18"></A>

<UL>
<LI>
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value.</LI>
</UL>
<P align="justify">
It is management&#146;s opinion that as of December 31, 2009, 2008 and 2007, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is attributed to the
short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates. The carrying amounts of
short-term and long-term loans approximate their fair values because the applicable interest rates approximate current market rates. </P>
<P align="justify">
<B><U>Recent Accounting Pronouncements</U></B></P>
<P align="justify">
In December 2007, the FASB issued SFAS No. 141R (Now included in ASC 805), "Business Combinations," which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any non-controlling&nbsp; interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and for disclosure to enable evaluation of
the nature and financial effects of the business combination. The Company adopted this standard as of January 1, 2009 and does not expect it to have an impact on the Company&#146;s financial statements. </P>
<P align="justify">
In December 2007, the FASB issued SFAS No. 160 (Now ASC 810-10), "Non-controlling Interests in Consolidated Financial Statements,&#148; an amendment of ARB No. 51. ASC 810-10 introduces significant changes in the accounting and reporting for business
acquisitions and non-controlling&nbsp; interest in a subsidiary. ASC 810-10 also changes the accounting and reporting for the deconsolidation of a subsidiary. Companies are required to adopt the new standard for fiscal years beginning after January 1,
2009. The Company adopted this standard effectively January 1, 2009 and does not expect it to have an impact on the Company&#146;s financial statements. </P>
<P align="justify">
Effective July 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (Now ASC 820), which provides guidance on how to measure assets and liabilities that use fair value. ASC 820 applies whenever another U.S. GAAP standard requires (or
permits) measurement of assets or liabilities at fair value, but does not expand the use of fair value to any new circumstances. The Company also adopted FASB Staff Position ("FSP") No. FAS 157-2, which allows the Company to partially defer the
adoption of ASC820. This FSP defers the effective date of ASC 820 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually),
to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or
financial liability as defined in paragraph 6 of Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The adoption of ASC 820 had no impact on our financial statements. </P>
<P align="justify">
In May 2009, the FASB issued SFAS No. 165, &#147;Subsequent Events&#148; (Now ASC 855), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. This disclosure should alert all users
of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. ASC 855 is effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 855
did not have a material impact on the Company&#146;s financial position, results of operations or cash flows. </P>
<P align="justify">
In June 2009, the FASB issued Update No. 2009-01, Generally Accepted Accounting Principles (ASU 2009-01). ASU 2009-01 establishes &#147;The FASB Accounting Standards Codification,&#148; or Codification, which became the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non grandfathered non-SEC accounting literature not included
in the Codification will become non authoritative. ASU 2009-01 is effective for interim and annual periods ending after September 15, 2009. The Company will adopt the provisions of ASU 2009-01 for the period ended September 30, 2009. There will be
no impact on the Company&#146;s operating results, financial position or cash flows. </P>
<P align="justify">
The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on the Company&#146;s results of operations, financial position or cash flows. </P>
<P align="center">
F-22</P>

<HR noshade align="center" width="100%" size=5 color="black" style="page-break-after:always;">

<!--$$/page=--><A name=page_19></A>
<P align=justify><B>NOTE 3 - INVENTORY</B></P>
<P align=justify>Inventory as of December 31, 2009 and 2008 were as follows:
</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Raw material </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;27,292 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;875,282 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Finished goods </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">849,000 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">314,847 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Auxiliary inventory (spare parts)
</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>1,516,867 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>917,572 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Total inventory</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff>&nbsp;<B>2,393,159</B> </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff>&nbsp;<B>2,107,701</B> </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=justify><B>NOTE 4 - ADVANCE TO SUPPLIERS</B></P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Advance to suppliers </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;15,663,763 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;23,873,721 </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=justify>Advance to suppliers represents amounts prepaid for raw
materials. The advances are applied against amounts due to the supplier as the
materials are received </P>
<P align=justify><B>NOTE 5 - PROPERTY, PLANT AND EQUIPMENT</B></P>
<P align=justify>As of December 31, 2009 and 2008, property, plant and equipment
consisted of the following: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Plant and building </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;7,467,107 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;7,448,587 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Machinery and equipment </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">19,209,690 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">18,936,343 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Office furniture and equipment </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>8,398,072 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>8,359,152 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Transportation equipment </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">74,914 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">74,728 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Total property, plant and equipment </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">35,149,783 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">34,818,810 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Less: accumulated depreciation </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>(8,469,539</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>(5,463,481</TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>) </TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Total property, plant and
      equipment, net</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff><B>&nbsp;26,680,244</B> </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff><B>&nbsp;29,355,329</B> </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=justify>Depreciation expense for the years ended December 31, 2009,
2008 and 2007 was $2,990,846, $2,884,014 and $2,280,177, respectively.</P>
<P align=justify><B>NOTE 6 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER
PAYABLES</B></P>
<P align=justify>As of December 31, 2009 and December 31, 2008, the accounts
payable, unearned revenue and accrued liabilities of the Company were summarized
as follows: </P>
<P align=center>F-23</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=-->
      <p><A name=page_20></A></p>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Accounts payable </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;15,536,226 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;6,128,116 </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>Unearned revenue </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">33,245,660 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">17,913,926 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR>
    <TD bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD width="12%" bgcolor="#E6EFFF">&nbsp; </TD>
    <TD width="2%" bgcolor="#E6EFFF">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Accrued liabilities and other
      payables: </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF">&#150; payroll payable </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF">97,894 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF">104,793 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&#150; taxes payable </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">- </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">1,328,830 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF">&#150; customer deposits </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF">2,923,634 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=right width="12%" bgcolor="#E6EFFF">2,190,881 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&#150; payable for equipment purchased
</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">2,119,889 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=right width="12%">3,609,584 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgcolor="#E6EFFF">&#150; others </TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" bgcolor="#E6EFFF">28,291 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD noWrap align=left width="1%" bgcolor="#E6EFFF">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%" bgcolor="#E6EFFF">11,469 </TD>
    <TD noWrap align=left width="2%" bgcolor="#E6EFFF">&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Total accrued expenses and other payables</B> </TD>
    <TD noWrap align=left width="1%"><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>&nbsp;5,169,708</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%"><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>&nbsp;7,245,557</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR></TABLE>
<P align=justify><B>NOTE 7 - RELATED PARTY BALANCE AND TRANSACTIONS</B></P>
<P align=justify><U>Due to related party</U></P>
<P align=justify>As of December 31, 2009 and December 31, 2008, due to related
party was summarized as follows: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%">&nbsp;</TD>
    <TD noWrap align=center width="1%">&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%">&nbsp;</TD>
    <TD noWrap align=center width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Xingtai Longhai Steel Group Co.,
      Ltd. (&#147; Longhai Group&#148;) </TD>
    <TD noWrap align=left width="1%" bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;-</TD>
    <TD noWrap align=left width="2%" bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%" bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;4,214,758 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
<P align=justify>The Company purchased the raw material and utilities for
production from Longhai Group, which is controlled by Mr. Wang, the majority
owner of the Company. As of December 31, 2009 and 2008, the outstanding balance
of this purchase was Nil and $4,214,758, respectively. </P>
<P align=justify><U>Due from related parties</U></P>
<P align=justify>As of December 31, 2009 and December 31, 2008, due from related
parties was summarized as follows: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%">&nbsp;</TD>
    <TD noWrap align=center width="1%">&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%">&nbsp;</TD>
    <TD noWrap align=center width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Xingtai Longhai Steel Group Co.,
      Ltd. </TD>
    <TD noWrap align=left width="1%" bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;42,047,673 </TD>
    <TD noWrap align=left width="2%" bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%" bgColor=#e6efff>$</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>&nbsp;- </TD>
    <TD noWrap align=left width="2%" bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Xingtai Longhai Steel Group Metal Product Co., Ltd.
    </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">242,765 </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">- </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%" bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%" bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%" bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%" bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Total </TD>
    <TD noWrap align=left width="1%"><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>&nbsp;42,290,438</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=left
      width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR></TABLE>
<P align=justify>The Company provided cash advances to Longhai Group. As of
December 31, 2009 and 2008, the outstanding balance of this service was
$42,047,673 and Nil respectively. The Company sells steel wire to Xingtai
Longhai Steel Group Metal Product Co., Ltd. (&#147;Longhai Metal&#148;) As of December 31,
2009 and 2008, the balance of due from Longhai Metal related to such sales was
$242,765 and Nil, respectively. As of the date of this filing, in anticipation
of being a U.S. public company, all balances have been repaid and no loans to
the Longhai Steel Group are outstanding. See Note 12 for subsequent event
related to the settlement of related party receivable. </P>
<P align=justify>REFER TO SUBSEQUENT EVENT RELATED TO THE SETTLEMENT OF RELATED
PARTY RECEIVABLE </P>
<P align=justify><U>Related party transactions</U></P>
<P align=justify>In 2009, the Company purchased production utilities from
Longhai Group amounted to $11,661,547. In addition, the amount of $3,688,573
steel scrape and $71,595 steel wire were sold to Longhai Group during 2009. The
Company provided cash advances to Longhai Group and earned finance income
amounted to $8,360,120 in 2009, which is included in the Company&#146;s revenue. </P>
<P align=center>F-24</P>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_21></A>
<P align=justify>In 2008, the Company purchased billet and production utilities
from the Group amounted to $488,908,517 and $9,111,397, respectively. In
addition, the amount of $5,159,081 steel scrape and $1,604,785 steel wire were
sold to the Group during 2008. </P>
<P align=justify>In 2007, the Company purchased billet and production utilities
from the Group amounted to $222,561,569 and $5,409,213, respectively. In
addition, the amount of $3,091,358 steel scrape was sold to the Group during
2007. </P>
<P align=justify>Since the Company purchased almost all of its raw materials
from the Group during 2008 and 2007, which is an entity under common control
with the Company, the cost of purchases, the gross margin and net income of the
Company might be different from a similar company that purchases raw materials
from an independent third party. </P>
<P align=justify>In addition, Longhai Group rents office building and workshop
to the Company. The lease term is month by month. The rent expense for the years
ended December 31, 2009, 2008 and 2007 was $28,334, $128,604 and $25,447,
respectively. </P>
<P align=justify>The amount of steel wire sold to Longhai Steel Group Metal
Products was $3,955,563 for the year of 2009 and Nil for the years of 2008 and
2007. </P>
<P align=justify><B>NOTE 8 - INCOME TAX</B></P>
<P align=justify>The Company is governed by the Income Tax Law of the PRC
concerning the private-run enterprises, which are generally subject to tax at a
statutory rate of 25% on income reported in the statutory financial statements
after appropriate tax adjustments in 2009 and 2008. </P>
<P align=justify>The following table summarizes the temporary differences which
result in deferred tax assets and liabilities as of December 31, 2009 and
December 31, 2008: </P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Current deferred tax assets: </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Cost of uninvoiced goods delivery </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">161,673 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">2,107,242 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Expenses deductible in next year </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>31,547 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>26,198 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Total current deferred tax assets </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">193,220 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">2,133,440 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Non-current deferred tax assets </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Amortization of long-term prepaid
      expenses </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>- </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>109,422 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Total deferred tax assets</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff><B>&nbsp;193,220</B> </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right width="12%"
    bgColor=#e6efff><B>&nbsp;2,242,862</B> </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR>
    <TD>&nbsp; </TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD>
    <TD width="1%" >&nbsp;</TD>
    <TD width="12%">&nbsp; </TD>
    <TD width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%">&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=center width="2%">&nbsp;</TD>
    <TD noWrap align=center width="1%">&nbsp;</TD>
    <TD noWrap align=center width="12%"><B>December</B> </TD>
    <TD noWrap align=left width="2%">&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>31, 2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Current deferred tax liabilities:
</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Sales of uninvoiced goods delivery (net of output
      VAT) </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">1,365,401 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">2,303,079 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Non-current deferred tax liabilities: </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=left width="12%">&nbsp; </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>Depreciation of fixed assets </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>&nbsp;190,351 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>$</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right width="12%"
    bgColor=#e6efff>&nbsp;222,694 </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Total deferred tax liabilities</B> </TD>
    <TD noWrap align=left width="1%" ><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>&nbsp;1,555,752</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" ><B>$</B></TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>&nbsp;2,525,773</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Net current deferred tax liabilities</B> </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">1,172,181 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%">169,639 </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff><B>Net non-current deferred tax
      liabilities</B> </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>190,351 </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>113,272 </TD>
    <TD noWrap align=left width="2%"
  bgColor=#e6efff>&nbsp;</TD></TR></TABLE>
      <p align="center">F-25<BR>
      </p>
<HR style="PAGE-BREAK-AFTER: always" align=center width="100%" color=black
noShade SIZE=5>
<!--$$/page=--><A name=page_22></A>
<P align=justify>The following table reconciles the U.S. statutory rates to the
Company&#146;s effective tax rate for the years ended December 31, 2009 and 2008:
</P>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left>&nbsp; </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2009</B> </TD>
    <TD noWrap align=center width="2%" >&nbsp;</TD>
    <TD noWrap align=center width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=center
      width="12%"><B>2008</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff>US statutory rates </TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>34.0% </TD>
    <TD noWrap align=left width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=left width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD noWrap align=right width="12%" bgColor=#e6efff>34.0% </TD>
    <TD noWrap align=left width="2%"
bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left>Tax rate difference </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">(9.0</TD>
    <TD noWrap align=left width="2%" >)% </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=right
      width="12%">(9.0</TD>
    <TD noWrap align=left width="2%" >)% </TD></TR>
  <TR>
    <TD bgColor=#e6efff>&nbsp; </TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="1%"  bgColor=#e6efff>&nbsp;</TD>
    <TD width="12%" bgColor=#e6efff>&nbsp; </TD>
    <TD width="2%"  bgColor=#e6efff>&nbsp;</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left><B>Tax per financial statements</B> </TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD style="BORDER-BOTTOM: #000000 3px double" noWrap align=right
      width="12%"><B>25.0%</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD>
    <TD noWrap align=left width="1%" >&nbsp;</TD>
    <TD noWrap align=right width="12%"><B>25.0%</B> </TD>
    <TD noWrap align=left width="2%" >&nbsp;</TD></TR></TABLE>
<P align=justify><B>NOTE 9 - EQUITY</B></P>
<P align=justify>The Company&#146;s equity is comprised of the common stock,
additional paid-in capital plus retained earnings of the Company and the
carved-out Division. As of December 31, 2009 and 2008, the initial capital
contribution of fixed assets totaled to $1,781,004 (at shareholders&#146; cost basis)
was recorded in additional paid-in capital. On August 21, 2008, the Company
received cash contribution totaling $874,037 from the major shareholders as
additional paid-in capital. </P>
<P align=justify><B>NOTE 10 &#150; COMMITMENTS AND CONTINGENCIES</B></P>
<P align=justify><B><U>Social insurance for employees</U></B></P>
<P align=justify>According to the prevailing laws and regulations of the PRC,
the Company is required to cover its employees with medical, retirement and
unemployment insurance programs. Management believes that due to the transient
nature of its employees, the Company does not need to provide all employees with
such social insurances, and has paid the social insurances for the Company&#146;s
employees who have completed three months&#146; continuous employment with the
Company. </P>
<P align=justify>In the event that any current or former employee files a
complaint with the PRC government, the Company may be subject to making up the
social insurances as well as administrative fines. As the Company believes that
these fines would not be material, no provision has been made in this regard.
</P>
<P align=justify><B><U>Tax issues</U></B></P>
<P align=justify>The tax authority of the PRC Government conducts periodic and
ad hoc tax filing reviews on business enterprises operating in the PRC after
those enterprises had completed their relevant tax filings, hence the Company&#146;s
tax filings may not be finalized. It is therefore uncertain as to whether the
PRC tax authority may take different views about the Company&#146;s tax filings which
may lead to additional tax liabilities. </P>
<P align=justify><B><U>Value Added Tax</U></B></P>
<P align=justify>The Company is subject to value added tax ("VAT") for
manufacturing products. The applicable VAT tax rate is 17% for products sold in
the PRC. The amount of VAT liability is determined by applying the applicable
tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on
purchases made with the relevant supporting invoices (input VAT). Under the
commercial practice of the PRC, the Company paid value added taxes ("VAT") based
on tax invoices issued. The tax invoices may be issued subsequent to the date on
which revenue is recognized, and there may be a considerable delay between the
date on which the revenue is recognized and the date on which the tax invoice is
issued. In the event that the PRC tax authorities dispute the date of which
revenue is recognized for tax purposes, the PRC tax office has the right to
assess a penalty, which can range from zero to five times the amount of the
taxes which are determined to be late or deficient. According to the PRC tax
laws, any potential tax penalty payable on late or deficient payments of this
tax could be between zero and five times the amount of the late or deficient tax
payable, and will be expensed as a period expense if and when a determination
has been made by the taxing authorities that a penalty is due. At December 31,
2009 and 2008, the Company accrued Nil and $1,328,829, respectively, of unpaid
value-added taxes. </P>
<P align=center>F-26</P>
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noShade SIZE=5>


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<A name="page_23"></A>

<P align="justify">
<B>NOTE 11 - OPERATING RISKS</B></P>
<P align="justify">
<B>(a) <U>Country risk</U></B></P>
<P align="justify">
Currently, the Company&#146;s revenues are primarily derived from the sale of agriculture tractors to customers in the People&#146;s Republic of China (&#147;PRC&#148;). The Company hopes to expand its operations to other countries, however, such
expansion has not commenced and there is no assurance that the Company will be able to achieve such expansion. Therefore, a downturn or stagnation in the economic environment of the PRC could have a material adverse effect on the Company&#146;s
financial condition. </P>
<P align="justify">
<B>(b) <U>Products risk</U></B></P>
<P align="justify">
In addition to competing with other manufacturers of steel wires, the Company competes with larger PRC companies which have greater funds available for expansion, marketing, research and development and the ability to attract more qualified
personnel. These PRC companies may be able to offer products at a lower price. There can be no assurance the Company will remain competitive should this occur. </P>
<P align="justify">
<B>(c) <U>Exchange risk</U></B></P>
<P align="justify">
The Company can not guarantee the Renminbi, US dollar exchange rate will remain steady, therefore the Company could post the same profit for two comparable periods and post higher or lower profit depending on exchange rate of Renminbi and US
dollars. The exchange rate could fluctuate depending on changes in the political and economic environments without notice. </P>
<P align="justify">
<B>(d) <U>Political risk</U></B></P>
<P align="justify">
Currently, PRC is in a period of growth and is openly promoting business development in order to bring more business into PRC. Additionally PRC currently allows a Chinese corporation to be owned by a United States corporation. If the laws or
regulations relating to ownership of a Chinese corporation are changed by the PRC government, the Company&#146;s ability to operate the PRC subsidiaries could be affected. </P>
<P align="justify">
<B>(e) <U>Interest risk</U></B></P>
<P align="justify">
The Company is exposed to interest rate risk arising from short-term variable rate borrowings from time to time. The Company&#146;s future interest expense will fluctuate in line with any change in borrowing rates. The Company does not have any
derivative financial instruments as of December 31, 2009 and 2008 and believes its exposure to interest rate risk is not material.</P>
<P align="justify">
<B>NOTE 12 - MAJOR CUSTOMERS AND MAJOR VENDORS</B></P>
<P align="justify">
The Company generated 39.0 percent, 51.0 percent and 49.0 percent of its revenues from five customers during the years ended December 31, 2009, 2008 and 2007, respectively. </P>
<P align="justify">
The Company incurred 91.0 percent of its cost of revenues to three vendors during the year ended December 31, 2009. The Company incurred 99.0 percent of its cost of revenues to one vendor during the year ended December 31, 2008. The Company incurred
100 percent of its cost of revenues to one vendor during the year ended December 31, 2007. </P>
<P align="justify">
<B>NOTE 13 - SUBSEQUENT EVENTS</B></P>
<P align="justify">
On March 26, 2010, Longhai entered into and closed an Agreement and Plan of Reorganization with Action Industries, Inc. (&#147;Action&#148;), a Delaware public shell company. Upon closing, the equity owners of Longhai delivered all of their equity
interests in Longhai to Action in exchange for 10,000 shares of Action&#146;s Series A Preferred Stock which constituted 98.5% of Action&#146;s issued and outstanding capital stock on an as-converted basis as of and immediately after the
consummation of the reverse acquisition. As a result of the reverse acquisition, the Company became Action&#146;s wholly-owned subsidiary and the former shareholders of the Company became Action&#146;s controlling stockholders. The share exchange
transaction with Longhai and the shareholders of Action, or Share Exchange, was treated as a reverse acquisition, with the Longhai as the acquirer and Action as the acquired party. Acton changed its name to Longhai Steel, Inc after the reverse
acquisition. </P>
<P align="center">
F-27</P>

<HR noshade align="center" width="100%" size=5 color="black" style="page-break-after:always;">



<!--$$/page=-->
<A name="page_24"></A>

<P align="justify">
On March 25, 2010 the Company settled and received payments for all outstanding balances due from Xingtai Longhai Steel Group, in accordance with the anticipated related party policies and procedures associated with being a public reporting company.
</P>
<P align="justify">
<B>Series A Convertible Preferred Stock</B></P>
<P align="justify">
The Company issued 10,000 shares of Series A Preferred Stock. The Certificate of Designation was filed on March 25, 2010. </P>
<P align="justify">
Shares of Series A Preferred Stock will automatically convert into shares of common stock on the basis of one share of Series A Preferred Stock for 985 shares of common stock immediately subsequent to the effectiveness of a planned 1-for-125 reverse
split of our outstanding common stock, which will become effective on the effective date (the &#147;Reverse Stock Split&#148;). Upon the Reverse Stock Split the 10,000 outstanding shares of Series A Preferred Stock will automatically convert into
9,850,000 shares of common stock, which will constitute 98.5% of the outstanding common stock of Action Industries, Inc. subsequent to the Reverse Stock Split. </P>
<P align="justify">
Holders of Series A Preferred Stock vote with the holders of common stock on all matters on an as-converted to common stock basis, based on an assumed post 1-for-125 reverse split (to retroactively take into account the Reverse Stock Split). </P>
<P align="justify">
The holders of our Series A Preferred Stock are entitled to vote on all matters together with all other classes of stock. Holders of Series A Preferred Stock have protective class voting veto rights on certain matters, such as increasing the
authorized shares of Series A Preferred Stock and modifying the rights of Series A Preferred Stock. </P>
<P align="justify">
Following the effectiveness of the Reverse Stock Split and conversion of Series A Preferred Stock into common stock, there will be approximately 10,000,000 shares of our common stock issued and outstanding and no shares of preferred stock issued and
outstanding. </P>
<P align="justify">
The reverse stock split went effective on June 22, 2010 and all shares of Series A preferred stock are automatically converted into common stock. For accounting purposes, we treated the series A convertible preferred stock as being converted fully
to common stock on the post reverse split basis for all periods presented.</P>
<P align="justify">
<B>The 1-for-125 Reverse Stock Split</B></P>
<P align="justify">
The Company&#146;s Board of Directors unanimously approved, subject to Stockholder approval, the 1-for-125 Reverse Stock Split of our issued and outstanding Common Stock. The Reverse Stock Split will reduce the number of issued and outstanding
shares of our Common Stock outstanding prior to the split. The Reverse Stock Split will trigger the automatic conversion of our Series A Preferred Stock into 9,850,000 shares of Common Stock. The Reverse Stock Split went effective on June 30,
2010.</P>
<P align="justify">
For accounting purposes, all shares are retroactively restated to reflect the reverse stock split.</P>

<P align="center">
F-28</P>

<HR noshade align="center" width="100%" size=5 color="black" style="page-break-after:always;">



<font FACE="Times New Roman" SIZE="2"><b>
<p align="center">EXHIBIT INDEX </p>
</b></font>
<TABLE
style="BORDER-COLOR: black; FONT-SIZE: 10pt; BORDER-COLLAPSE: collapse; "
cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR vAlign=top>
    <TD noWrap align=left width="10%" ><B>Exhibit</B> </TD>
    <TD align=left><B>Description</B> </TD></TR>
  <TR vAlign=top>
    <TD style="BORDER-BOTTOM: #000000 1px solid" noWrap align=left width="10%"
      ><B>No.</B> </TD>
    <TD style="BORDER-BOTTOM: #000000 1px solid" align=left>&nbsp; </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" >1.1** </TD>
    <TD align=justify bgColor=#e6efff>Form of Underwriting
      Agreement </TD></TR>
  <TR vAlign=top>
    <TD align=left width="10%" >2.1 </TD>
    <TD align=justify>Share Exchange Agreement, dated as of March 26,
      2010, among Action Industries, Inc., Kalington Limited, the shareholders
      of Kalington Limited, Goodwin Ventures, Inc. and Xingtai Longhai Wire Co.,
      Ltd. [incorporated by reference to Exhibit 2.1 of the Form 8-K filed by
    the Company March 26, 2010] </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" >3.1</TD>
    <TD align=justify bgColor=#e6efff>Articles of Incorporation
    [incorporated by reference to Exhibit 3.1 of the Form SB-2 filed by the
    Company on February 8, 2007]</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" >3.2</TD>
    <TD align=justify>Amended and Restated Certificate of Incorporation
    [[incorporated by reference to Exhibit 3.2 of the Form SB-2 filed by the
    Company on February 8, 2007]</TD></TR>
  <TR vAlign=top>
    <TD align=left bgColor=#e6efff width="10%" ><a href="exhibit3-3.htm">3.3*</a></TD>
    <TD align=justify bgColor=#e6efff><a href="exhibit3-3.htm">Certificate of Amendment
    </a>
  </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" >3.4</TD>
    <TD align=justify>Bylaws, as amended [incorporated by reference to
    Exhibit 3.2 of the Form SB-2 filed by the Company on February 8, 2007, as
    amended by Exhibit 3.2 to the current report on Form 8-K filed by the
    Company on March 25, 2010]</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" >3.5</TD>
    <TD align=justify>Certificate of Designation of Series A Convertible
    Preferred Stock, as filed with the Nevada Secretary of State on March 25,
    2010 [incorporated by reference to Exhibit 3.3 of the Current Report on Form
    8-K, as filed by the Company March 26, 2010]</TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" >4.5** </TD>
    <TD align=justify>Form of Underwriter&#146;s unit purchase
      warrant </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" >4.6** </TD>
    <TD align=justify bgColor=#e6efff>Specimen common stock
      certificate </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left width="10%" >4.7** </TD>
    <TD align=justify>Warrant Agreement with attached form of
      warrant </TD></TR>
  <TR vAlign=top>
    <TD noWrap align=left bgColor=#e6efff width="10%" >5.1** </TD>
    <TD align=justify bgColor=#e6efff>Opinion of Counsel
</TD></TR>
  <TR vAlign=top>
    <TD align=left width="10%" >10.1 </TD>
    <TD align=justify>Purchase Agreement for Steel Billet by and
      between Xingtai Longhai Steel Wire Ltd. and Xingtai Longhai Steel Group
      Ltd., dated October 1, 2008 [incorporated by reference to Exhibit 10.1 of
      the Current Report on Form 8-K, as filed by the Company March 26, 2010]
  </TD></TR>
  <tr>
    <TD align=left bgColor=#e6efff style="border-top-style: none; border-top-width: medium" width="10%">10.2 </TD>
    <TD align=justify bgColor=#e6efff style="border-top-style: none; border-top-width: medium">
      <P align=justify>Lease Agreement, as amended, between Xingtai Longhai
      Steel Wire Co. Ltd and Xingtai Longhai Steel Group Co. Ltd., dated October
      1, 2008, as amended [incorporated by reference to Exhibit 10.2 of the
      Current Report on Form 8-K, as filed by the Company March 26, 2010]
  </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%">10.3 </TD>
    <TD align=justify>
      <P align=justify>Form of Wire Purchase and Sales Contract [incorporated by
      reference to Exhibit 10.3 of the Current Report on Form 8-K, as filed by
      the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left bgColor=#e6efff width="10%">10.4 </TD>
    <TD align=justify bgColor=#e6efff>
      <P align=justify>Consulting Services Agreement dated March 19, 2010
      between Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai
      Wire Co., Ltd. [incorporated by reference to Exhibit 10.4 of the Current
      Report on Form 8-K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%">10.5 </TD>
    <TD align=justify>
      <P align=justify>Operating Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.5 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left bgColor=#e6efff width="10%">10.6 </TD>
    <TD align=justify bgColor=#e6efff>
      <P align=justify>Proxy Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.6 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%">10.7 </TD>
    <TD align=justify>
      <P align=justify>Option Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.7 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left bgColor=#e6efff width="10%">10.8 </TD>
    <TD align=justify bgColor=#e6efff>
      <P align=justify>Equity Pledge Agreement dated March 19, 2010 between
      Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire
      Co., Ltd. [incorporated by reference to Exhibit 10.8 of the Current Report
      on Form 8-K, as filed by the Company March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%"><a href="exhibit10-9.htm">10.9*</a> </TD>
    <TD align=justify>
      <P align=justify><a href="exhibit10-9.htm">Employment Agreement, between Longhai Steel, Inc.
      (formerly, Action Industries, Inc.) and Dr. Eberhard Kornotzki </a> </P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%" bgcolor="#E6EFFF">
    <a href="exhibit10-10.htm">10.10*</a></TD>
    <TD align=justify bgcolor="#E6EFFF">
      <P align=justify><a href="exhibit10-10.htm">Form of Independent Director Agreement
      </a> </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%">14 </TD>
    <TD align=justify>
      <P align=justify>Code of Ethics, adopted on July 19, 2010 [incorporated by
      reference to Exhibit 14 of the current report on Form 8-K filed by the
      Company on July 20, 2010]. </P></TD>
  </tr>
  <tr>
    <TD align=left width="10%" bgcolor="#E6EFFF">21 </TD>
    <TD align=justify bgcolor="#E6EFFF">
      <P align=justify>Subsidiaries of the Company [incorporated by reference to
      Exhibit 21 of the Current Report on Form 8-K, as filed by the Company
      March 26, 2010] </P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%"><a href="exhibit23-1.htm">23.1* </a> </TD>
    <TD align=justify>
      <P align=justify><a href="exhibit23-1.htm">Consent of MaloneBailey LLP </a> </P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%" bgcolor="#E6EFFF">23.2 </TD>
    <TD align=justify bgcolor="#E6EFFF">
      <P align=justify>Consent of Counsel, included in Exhibit 5
</P></TD>
  </tr>
  <tr>
    <TD noWrap align=left width="10%">24 </TD>
    <TD align=justify>
      <P align=justify>Power of Attorney (included on the signature page
      of this registration statement) </P></TD>
  </tr>
  <TR vAlign=top>
    <TD align=left width="10%" >&nbsp;</TD>
    <TD align=justify>&nbsp;</TD></TR></TABLE>
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  <TR>
    <TD vAlign=top width="5%">____________________</TD>
    <TD>&nbsp;</TD></TR>

  <TR>
    <TD vAlign=top width="5%" colspan="2">* Filed herewith </TD>
    </TR>
  <TR>
    <TD vAlign=top width="5%" colspan="2">** To be filed by amendment </TD>
    </TR></TABLE>
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[{"type": "S-1", "sequence": "1", "filename": "longhai_s1.htm", "description": "FORM S-1", "secsgml_size_bytes": 953307}]
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Longhai Steel, Inc.: Form S-1 - Filed by newsfilecorp.com
As filed with the
Securities and Exchange Commission on July 20, 2010
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LONGHAI STEEL, INC.
(Exact name of registrant as
specified in its charter)
Nevada
3310
11-3699388
(State or other jurisdiction of incorporation
(Primary Standard Industrial
      Classification
(I.R.S. Employer
or organization)
Code Number)
Identification No.)
No. 1 Jingguang Road, Neiqiu County
Xingtai City, Hebei
Province, China 054000
+86 (319) 686-1111
(Address, including zip
code, and telephone number, including area code, of registrant's principal
executive offices)
___________________________
Dr. Eberhard Kornotzki, CFO
Scott Kline, Esq.
Longhai Steel, Inc.
Pillsbury Winthrop Shaw Pittman LLP
No. 1 Jingguang Road, Neiqiu County
50 Fremont Street
Xingtai City, Hebei Province, China
San Francisco, CA 94105-2228
+86 (319) 686-1111
(415) 983-1523
(Names, addresses and telephone numbers of agents for
service)
____________________________
Copies to:
Bradley A. Haneberg, Esq.
Anthony W. Basch, Esq.
Kaufman & Canoles, P.C.
Three James Center, 12th Floor
1051
E. Cary St.,
Richmond, Virginia 23219
(804) 771-5700
____________________________
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the effective date of this registration
statement.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [  ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [  ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [  ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer [  ]
(Do not check if a
      smaller reporting company)
Smaller reporting company [X]
CALCULATION OF REGISTRATION FEE
Proposed
Proposed
Maximum
Maximum
Amount of
Amount to be
Offering Price
Aggregate
Registration
Title of
      Each Class of Securities to be Registered
Registered
Per Unit
(
1)
Offering Price
(
1)
Fee
(
2)
Units, each consisting of two shares of common stock,
      $0.0001 par value, and one warrant
--
--
$
20,000,000
$
1,430
Shares of
      common stock included as part of the units
--
--
--
--
Warrants to purchase shares of common stock included as
      part of the units
--
--
--
--
(4)
Shares of common
      stock underlying the warrants included in the units
(3)
--
--
--
--
Underwriter Representative warrants
(4)
--
--
--
--
(4)
Shares of common
      stock underlying Underwriter Representative warrants, $0.0001 par
      value
(3)
--
--
$
800,000
$
60
Total
$
20,800,000
$
1,490
(5)
(1)
Estimated solely for the purpose of calculating the
      registration fee pursuant to Rule 457(o) promulgated under the Securities
      Act of 1933, as amended
(2)
Calculated pursuant to Rule 457(o), based on an estimate
      of the proposed maximum aggregate offering price.
(3)
Pursuant to Rule 416, there are also being registered
      such indeterminable additional securities as may be issued to prevent
      dilution resulting from stock splits, stock dividends or similar
      transactions as a result of the adjustment provisions contained in the
      warrants and the warrants included in the Underwriter Representative's
      unit purchase option.
(4)
No fee due pursuant to Rule 457(g).
(5)
Paid herewith.
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
The information in this prospectus is not complete and may be
changed. No person may sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and no person named in this prospectus
is soliciting offers to buy these securities in any state where the offer or
sale is not permitted.
PRELIMINARY PROSPECTUS
Subject to completion, dated July
20, 2010
[___] Units
Each Unit Consisting of
Two Shares of
Common Stock and
One Warrant to Purchase One Share of Common
Stock
We are offering up to
[___]
units, each of which
consists of two shares of our common stock, par value $0.0001 per share, and one
warrant to purchase one share of our common stock at an exercise price per share
equal to 62.5% of the public offering price per unit
(or 125% of the proportionate price per
share of common stock underlying the units)
, during the
[___]
-year period commencing on the date of this prospectus. The common
stock and the warrants may be transferred separately immediately upon
issuance.
Our common stock is quoted on the inter-dealer electronic
quotation and trading system maintained by Pink OTC Markets Inc., under the
symbol "ACTND." The closing bid price for our common stock on July 19, 2010 was
$15.00 per share, as reported by the Pink OTC Markets Inc., after giving effect
to our 1-for-125 reverse stock split effected on June 30, 2010. We have applied to
list our common stock on the NASDAQ Global Market under the symbol "LHAI" upon
consummation of this offering, however, the units and warrants included in the
units will not publicly trade.
Per Unit
Total
Public offering price
$
$
Underwriting discount
(1)
$
$
Proceeds to us, before expenses
$
$
(1)
The underwriting discount will be [___]% of the public
    offering price per unit. The discount does not reflect additional
    compensation to the underwriters in the form of warrants to purchase up to a
    number of shares equal to 4% of the number of shares of common stock
    underlying the units sold in this offering, not including any shares of
    common stock issuable upon exercise of the warrants underlying the units.
    See "Underwriting."
Investing in our units involves a high degree of risk. See
"Risk Factors" beginning on page 6 to read about factors you should consider
before buying the units.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Ladenburg Thalmann & Co. Inc.
The date of this Prospectus is ___________, 2010.
TABLE OF CONTENTS
Page
SUMMARY
1
RISK FACTORS
6
SPECIAL NOTE REGARDING
      FORWARD-LOOKING STATEMENTS
15
DETERMINATION OF OFFERING PRICE
16
USE OF PROCEEDS
16
MARKET FOR OUR COMMON STOCK
16
DIVIDEND POLICY
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
19
OUR BUSINESS
27
MANAGEMENT
37
EXECUTIVE COMPENSATION
43
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN
      CONTROL PERSONS; CORPORATE GOVERNANCE
45
CHANGE IN ACCOUNTANTS
47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT
48
DESCRIPTION OF SECURITIES TO BE
      REGISTERED
49
UNDERWRITING
52
CORPORATE STRUCTURE AND HISTORY
56
LEGAL MATTERS
58
EXPERTS
58
INTERESTS OF NAMED EXPERTS AND COUNSEL
59
WHERE YOU CAN FIND MORE INFORMATION
59
You should only rely on the information contained in this
prospectus. We have not authorized any other person to provide you with
different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is accurate only as of the
date on the front cover, but the information may have changed since that date.
SUMMARY
The items in the following summary are described in more
detail later in this prospectus. This summary provides an overview of selected
information and does not contain all the information you should consider.
Therefore, you should also read the more detailed information set out in this
prospectus, including the financial statements, the notes thereto and matters
set forth under "Risk Factors." For certain defined terms, see "Use of Terms" on
page 3.
Overview of Our Business
Through our PRC operating variable interest entity, or VIE,
Xingtai Longhai Wire Rod Co. Ltd., or "Longhai", we are a leading producer of steel
wire products in eastern China. We produce steel wire ranging from 6mm to 10mm
in diameter on two wire production lines, which have a combined annual capacity
of approximately nine hundred thousand tons per year. Our products are sold to a
number of distributors who transport the wire to nearby wire processing
facilities. Our wire is then further processed by these third party wire
refiners into a variety of products such as nails, screws, and wire mesh for use
in reinforced concrete and fencing.
Demand for our steel wire is driven primarily by spending in
the construction and infrastructure industries. We have benefited from strong
fixed asset investment and construction growth as the PRC has rapidly grown
increasingly urbanized and invested in modernizing its infrastructure.
We sell our products to a number of distribution companies that
transport our wire to nearby wire processors. Our products are manufactured on
an on-demand basis, and we usually collect payment in advance. Sales prices are
set at the market price for wire on a daily basis. Our customers generally
prepay for their orders, and the final price may be adjusted to the market price
on the day of pick up. This allows us to maintain a low inventory of both wire
and billet and largely protects us from exposure to commodity price volatility.
In order to increase sales and be competitive in the market, we occasionally
offer discounted wholesale prices to newer or larger customers at our
discretion. Our sales efforts are directed toward developing long-term
relationships with customers who are able to purchase in large quantities.
During the year  2009, our top five distributors accounted for
39% of our revenues.
Our production facilities are located
at a 107,000 square meter property in Xingtai, Hebei. Our production facilities include a fifth
generation Morgan steel rolling mill, and we have a production capacity of
approximately 900,000 metric tons of wire per year. We believe our rolling and
drawing facilities are among the most advanced in the world.
Overview of Our Industry
China is the world's largest producer of steel, and it is
estimated that actual production in 2009 was over 567 million metric tons, or
MMT. Japan, the second largest producer, produces less than 30% of that amount.
In total, China accounts for roughly 45% of global steel production. China's
steel industry, while enormous in total scale, is a fractured industry where a
great number of  producers each account for a small amount of total output. China's steel
industry includes a wide range of producers, including smaller, inefficient
backyard operations, huge state-owned enterprises with large, unionized labor
forces and their accompanying pension obligations as well as newly constructed
steel plants built according to the highest technology and efficiency standards
in the world.
Competition
Competition within the steel industry in the PRC is intense.
There is an estimated capacity of 660 MMT of steel capacity in China. Our
competitors range from small private enterprises to extremely large state-owned
enterprises. Our VIE, Longhai, is located in Xingtai, Hebei province. Hebei is
the largest producer of steel by province in the PRC; therefore, we are located
near numerous wire facilities. We are the largest non-state owned steel wire
manufacturer in Hebei. We believe that many of our competitors are significantly
smaller, lesser equipped and less technologically developed than we are. Due to
our modern equipment, economies of scale and management experience, we believe
that we can produce steel wire at higher efficiencies and lower prices than
these competitors. The state-owned enterprises with whom we compete tend to be
significantly larger, primarily because of general steel production rather than
just wire processing, and often have unionized labor forces with attendant
pension and healthcare liabilities and operate with lower production efficiency.
Our profitability may be adversely affected if competition intensifies or if our
competitors develop efficiencies and reduce prices. We currently distinguish
ourselves in the market based on our reputation for fast order turnaround, high
quality and low prices.
- 1 -
Our Growth Strategy
We believe that the market for high quality steel wire will
continue to grow in the PRC. The PRC has placed a temporary moratorium on new
steel wire plant construction in an effort to encourage consolidation of
facilities; therefore, our expansion plan is to build capacity through the
acquisition of facilities at attractive prices from competitors who lack our
management experience, efficient labor force, and financial resources. We plan
to continue to improve margins through increased efficiencies in our production
process.
We intend to pursue the following strategies to achieve our
goal:
Identify and acquire modern, high quality producers at low
  valuations
: In light of the moratorium on building new wire making
  facilities in China, we plan to expand our business and operations through the
  acquisition of steel wire producers with production facilities in the vicinity of
  our current facilities. We expect to limit our acquisition targets to
  producers with facilities that have had a major overhaul or modernization of
  production machinery in the last 2-3 years, as we expect such facilities to
  achieve better production efficiency, lower maintenance costs and increased
  output, as compared to less modern facilities, and will help us to more
  rapidly achieve higher margins and increase our market share.
Expansion to create economies of scale
: We expect that our
  acquisition of modernized facilities will result in increased wire-making
  capacity, resulting in greater bargaining power with supplier and customer
  pricing and otherwise enable us to capitalize on economies of scale to produce
  at higher margins.
Risk Factors
Our ability to successfully operate our business and achieve
our goals and strategies is subject to numerous risks as discussed more fully in
the section titled "Risk Factors," including for example:
our ability to produce steel wire at a consistently profitable margin as
  we have historically;
the impact that a downturn or negative changes in the steel market may
  have on sales;
our ability to obtain additional capital in future years to fund our
  planned expansion;
economic, political, regulatory, legal and foreign exchange risks
  associated with our operations; or
the loss of key members of our senior management and our qualified sales
  personnel.
Any of the above risks could materially and negatively affect
our business, financial position and results of operations. An investment in our
common stock involves risks. You should read and consider the information set
forth in "Risk Factors" and all other information set forth in this prospectus
before investing in our common stock.
Corporate Information
We were originally incorporated under the laws of the State of
Georgia on December 4, 1995. On March 14, 2008, the Georgia corporation was
merged with and into a newly formed Nevada corporation also named Action
Industries, Inc., and all of the outstanding shares of the Georgia corporation
were exchanged for shares in the surviving Nevada corporation. Prior to our
reverse acquisition of Kalington Limited, or "Kalington," we were primarily in
the business of providing prepaid long distance calling cards and other
telecommunication products and had not commenced planned principal operations.
As a result of our reverse acquisition of Kalington we are no longer a shell
company and active business operations were revived.
On June 30, 2010, we amended our Articles of Incorporation to
change our name to "Longhai Steel Inc." to reflect our current business and
operations. The following chart reflects our corporate organizational structure
(after giving effect to the name change):
- 2 -
Our principal executive offices are located at No. 1 Jingguang
Road, Neiqiu County, Xingtai City, Hebei Province, People's Republic of China
054000. Our corporate telephone number is +86 (319) 686-1111 and our fax number
is +86 (319) 688-8851.
Use of Terms
Except as otherwise indicated by the context, all references in
this prospectus to:
the "Company," "we," "us," and "our" are to the combined business of (i)
  Longhai Steel, Inc., or "LSI", a Nevada corporation, (ii) Kalington Limited,
  or "Kalington," a Hong Kong limited company and wholly-owned subsidiary of
  LSI, (iii) Xingtai Kalington Consulting Service Co., Ltd., or "Kalington
  Consulting," a PRC limited company and wholly-owned subsidiary of Kalington,
  and (iv) Kalington Consulting's variable interest entity, or VIE, Xingtai
  Longhai Wire Rod Co. Ltd. Ltd., or "Longhai," a PRC limited company, as the case may be;
"Exchange Act" are to the Securities Exchange Act of 1934, as amended;
"Securities Act" are to the Securities Act of 1933, as amended;
"Hong Kong" are to the Hong Kong Special Administrative Region of the
  People's Republic of China;
"PRC," "China," and "Chinese," are to the People's Republic of China
  (excluding Macau, Hong Kong and Taiwan);
"Renminbi" and "RMB" are to the legal currency of China, for purposes of
  this prospectus only; and "U.S. dollar," "$," "USD" and "US$" are to the legal
  currency of the United States.
In this prospectus we are relying on and refer to information
and statistics regarding the steel wire industry and economy in China that we
have obtained from various cited government and institute research publications.
Much of this information is publicly available for free and has not been
specifically prepared for us for use or incorporation in this prospectus or
otherwise. We have not independently verified such information, and you should
not unduly rely upon it.
- 3 -
The Offering
Units Offered
Up to [_____] Units, each comprised of two
      shares of common stock and one warrant to purchase one share of common
      stock
Common Stock:
Common stock outstanding before the
      offering
[_____] shares.
Common stock included in units
Up to [_____] shares.
Common stock issuable upon exercise of
      warrants
Up to [_____] shares.
included in units
Common stock outstanding after the offering
Up to [_____] shares, assuming exercise of all
      warrants included in the Units.
(1)
Warrants:
Warrants included in units
Up to [_____]
Warrant exercise price and term
Each warrant entitles the
    holder to purchase one share of common stock at an exercise price equal to
    62.5% of the public offering price per unit
(or 125% of the proportionate price
    per share of common stock underlying the units)
, during the five-year
    period commencing on the date of this prospectus.
Proceeds to us
Assuming a public offering price of $[_____]
      per unit and the sale of all of the units offered in this offering, we
      will receive net proceeds of approximately $[_____] million from our sale
      of units in this offering, after deducting underwriting discounts and
      estimated offering expenses payable by us. We intend to use these proceeds
      as follows: (i) to construct and expand our production facilities and
      maintain existing machinery; (ii) to acquire new production facilities;
      and (iii) for general corporate purposes, including working capital. The
      proceeds from the exercise of any warrants will be used for working
      capital.
Pink OTC Markets Inc. Symbol:
ACTND
Reserved NASDAQ Global Market Symbol:
LHAI
Risk Factors:
See "Risk Factors" beginning on page 10 and the
      other information in this prospectus for a discussion of the factors you
      should consider before deciding to invest in our common stock.
_____________
(1) Based on 10,000,000 shares of common stock
outstanding at the filing of this Registration Statement, after giving effect to
the 1-for-125 reverse split effected on June 30, 2010.
- 4 -
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes selected financial data
regarding our business and should be read in conjunction with our consolidated
financial statements and related notes contained elsewhere in this prospectus
and the information under "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The financial statement data as of and for
each of the fiscal years ended December 31, 2009 and 2008 have been derived from
our audited consolidated financial statements included elsewhere in this
prospectus. The financial statement data as of and for each of the three months
ended March 31, 2010 and 2009 have been derived from our unaudited consolidated
financial statements included elsewhere in this prospectus.
(All amounts in U.S. dollars, except number of shares
outstanding data)
STATEMENT OF INCOME
Three Months Ended March
      31,
Years Ended December
      31,
2010
2009
2009
2008
Revenue
105,976,651
89,061,713
373,660,461
511,487,983
Gross profit
4,044,400
4,509,331
16,827,420
18,695,064
Income before income taxes
3,840,332
4,415,532
15,596,813
17,785,820
Net income
2,879,789
3,310,621
11,697,610
13,339,365
Net Income per share – basic and diluted
0.29
0.34
1.19
1.35
Weighted average shares
outstanding – basic and diluted
9,860,000
9,850,000
9,850,000
9,850,000
Diluted Earnings Per Share
0.29
0.34
1.19
1.35
BALANCE SHEET DATA
March 31,
December 31,
December
      31,
2010
2009
2009
2008
Working capital
8,159,725
4,424,801
4,424,801
(9,919,449
)
Current assets
69,829,564
62,064,611
62,064,611
26,409,519
Total assets
95,813,207
88,744,855
88,744,855
55,795,191
Current liabilities
61,669,839
57,449,459
57,449,459
36,328,968
Long-term debt
--
--
--
--
Total liabilities
61,853,897
57,639,810
57,639,810
36,442,240
Noncontrolling interest
--
--
--
--
Total liabilities and stockholders' equity
95,813,207
88,744,855
88,744,855
55,795,191
- 5 -
RISK FACTORS
The shares of our common stock are highly speculative in
nature, involve a high degree of risk and should be purchased only by persons
who can afford to lose the entire amount invested in the common stock. Before
purchasing our common stock, you should carefully consider the following factors
relating to our business and prospects. If any of the following risks actually
occurs, our business, financial condition or operating results will suffer, the
trading price of our common stock could decline, and you may lose all or part of
your investment. You should also refer to the other information about us
contained in this prospectus, including our financial statements and related
notes.
RISKS RELATED TO OUR BUSINESS
We face risks related to general domestic and global
economic conditions and to the current credit crisis.
Our current operating cash flows provide us with stable funding
capacity. However, the current uncertainty arising out of domestic and global
economic conditions, including the recent disruption in credit markets, poses a
risk to the PRC economy and may impact our ability to manage normal
relationships with our customers, suppliers and creditors. If the current
situation deteriorates significantly, our business could be materially
negatively impacted, as demand for our products and services may decrease from a
slow-down in the general economy, or supplier or customer disruptions may result
from tighter credit markets.
Our business is dependent on continued infrastructure and
construction spending and our growth may be inhibited by the inability of
potential customers to fund purchases of our products and services.
Our products are dependent on the continued growth of
infrastructure and construction projects in the PRC. There is no guarantee that
the PRC will continue to invest in infrastructure and construction.
In order to grow at the pace expected by management, we
will require additional capital to support our long-term growth strategies. If
we are unable to obtain additional capital in future years, we may be unable to
proceed with our plans and we may be forced to curtail our growth.
We will require additional working capital to support our
long-term growth strategies, which includes identifying suitable points of
market entry for expansion growing the number of points of sale for our
products, so as to enhance our product offerings and benefit from economies of
scale. Our working capital requirements and the cash flow provided by future
operating activities, if any, may vary greatly from quarter to quarter,
depending on the volume of business and the price level of steel during the
period. We may not be able to obtain adequate levels of additional financing,
whether through equity financing, debt financing or other sources. Additional
financings could result in significant dilution to our earnings per share or the
issuance of securities with rights superior to our current outstanding
securities. In addition, we may grant registration rights to investors
purchasing our equity or debt securities in the future. If we are unable to
raise additional financing, we may be unable to implement our long-term growth
strategies, develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures on a timely basis.
If we are unable to attract and retain senior management
and qualified technical and sales personnel, our operations, financial condition
and prospects will be materially adversely affected.
Our future success depends in part on the contributions of our
management team and key technical and sales personnel and our ability to attract
and retain qualified new personnel. In particular, our success depends on the
continuing employment of our Chief Executive Officer, Mr. Chaojun Wang, our
Chief Technology Officer, Ms. Dongmei Pan, and our Chief Financial Officer, Dr.
Eberhard Kornotzki. There is significant competition in our industry for
qualified managerial, technical and sales personnel, and we cannot assure you
that we will be able to retain our key senior managerial, technical and sales
personnel or that we will be able to attract, integrate and retain other such
personnel that we may require in the future. If we are unable to attract and retain key personnel in the future, our business,
operations, financial condition, results of operations and prospects could be
materially adversely affected.
- 6 -
We do not carry business interruption or other
commercial
insurance, so we have to bear losses
ourselves.
We are subject to risk inherent to our business, including
equipment failure, theft, natural disasters, industrial accidents, labor
disturbances, business interruptions, property damage, product liability,
personal injury and death. We do not carry any business interruption insurance
or third-party liability insurance or other insurance to cover risks associated
with our business. As a result, if we suffer losses, damages or liabilities,
including those caused by natural disasters or other events beyond our control
and we are unable to make a claim again a third party, we will be required to
bear all such losses from our own funds, which could have a material adverse
effect on our business, financial condition and results of operations.
Our quarterly operating results are likely to fluctuate,
which may affect our stock price.
Our quarterly revenues, expenses, operating results and gross
profit margins vary from quarter to quarter. As a result, our operating results
may fall below the expectations of securities analysts and investors in some
quarters, which could result in a decrease in the market price of our common
stock. The reasons our quarterly results may fluctuate include:
variations in the price of steel and steel wire;
changes in the general competitive and economic conditions; and
delays in, or uneven timing in the delivery of, customer orders.
Period to period comparisons of our results should not be
relied on as indications of future performance.
RISKS RELATED TO THE VIE AGREEMENTS
The PRC government may determine that the VIE Agreements
are not in compliance with applicable PRC laws, rules and
regulations.
Kalington Consulting manages and operates our steel wire
production business through Longhai pursuant to the rights it holds under the
VIE Agreements. Almost all economic benefits and risks arising from Longhai's
operations are transferred to Kalington Consulting under these agreements.
Details of the VIE Agreements are set out in "OUR BUSINESS - Acquisition of
Kalington Limited"
below.
There are risks involved with the operation of our business in
reliance on the VIE Agreements, including the risk that the VIE Agreements may
be determined by PRC regulators or courts to be unenforceable. Our PRC counsel
has provided a legal opinion that the VIE Agreements are binding and enforceable
under PRC law, but has further advised that if the VIE Agreements were for any
reason determined to be in breach of any existing or future PRC laws or
regulations, the relevant regulatory authorities would have broad discretion in
dealing with such breach, including:
imposing economic penalties;
discontinuing or restricting the operations of Longhai or Kalington
  Consulting;
imposing conditions or requirements in respect of the VIE Agreements with
  which Longhai or Kalington Consulting may not be able to comply;
requiring our company to restructure the relevant ownership structure or
  operations;
taking other regulatory or enforcement actions that could adversely affect
  our company's business; and
revoking the business licenses and/or the licenses or certificates of
  Kalington Consulting, and/or voiding the VIE Agreements.
Any of these actions could adversely affect our ability to
manage, operate and gain the financial benefits of Longhai, which would have a
material adverse impact on our business, financial condition and results of
operations.
- 7 -
Our ability to manage and operate Longhai under the VIE
Agreements may not be as effective as direct ownership.
We conduct our steel wire production business in the PRC and
generate virtually all of our revenues through the VIE Agreements. Our plans for
future growth are based substantially on growing the operations of Longhai.
However, the VIE Agreements may not be as effective in providing us with control
over Longhai as direct ownership. Under the current VIE arrangements, as a legal
matter, if Longhai fails to perform its obligations under these contractual
arrangements, we may have to (i) incur substantial costs and resources to
enforce such arrangements, and (ii) reply on legal remedies under PRC law, which
we cannot be sure would be effective. Therefore, if we are unable to effectively
control Longhai, it may have an adverse effect on our ability to achieve our
business objectives and grow our revenues.
As the VIE Agreements are governed by PRC law, we would
be required to rely on PRC law to enforce our rights and remedies under them;
PRC law may not provide us with the same rights and remedies as are available in
contractual disputes governed by the law of other jurisdictions.
The VIE Agreements are governed by the PRC law and provide for
the resolution of disputes through arbitral proceedings pursuant to PRC law. If
Longhai or its shareholders fail to perform the obligations under the VIE
Agreements, we would be required to resort to legal remedies available under PRC
law, including seeking specific performance or injunctive relief, or claiming
damages. We cannot be sure that such remedies would provide us with effective
means of causing Longhai to meet its obligations, or recovering any losses or
damages as a result of non-performance. Further, the legal environment in China
is not as developed as in other jurisdictions. Uncertainties in the application
of various laws, rules, regulations or policies in PRC legal system could limit
our liability to enforce the VIE Agreements and protect our interests.
The payment arrangement under the VIE Agreements may be
challenged by the PRC tax authorities.
We generate our revenues through the payments we receive
pursuant to the VIE Agreements. We could face adverse tax consequences if the
PRC tax authorities determine that the VIE Agreements were not entered into
based on arm's length negotiations. For example, PRC tax authorities may adjust
our income and expenses for PRC tax purposes, which could result in our being
subject to higher tax liability or cause other adverse financial consequences.
The controlling shareholder of Longhai may have potential
conflicts of interest with our company that may adversely affect our
business.
Chaojun Wang is our chief executive officer, and is also the
largest shareholder of Longhai. Conflicts could arise from time to time between
our interests and the interests of Mr. Wang. Conflicts could also arise between
us and Longhai that would require our shareholders and Longhai's shareholders to
vote on corporate actions necessary to resolve the conflict. There can be no
assurance in any such circumstances that Mr. Wang will vote his shares in our
best interest or otherwise act in the best interests of our company. If Mr. Wang
fails to act in our best interests, our operating performance and future growth
could be adversely affected.
We rely on the approval certificates and business license
held by Kalington Consulting and any deterioration of the relationship between
Kalington Consulting and Longhai could materially and adversely affect our
business operations.
We operate our steel wire production business in China on the
basis of the approval certificates, business license and other requisite
licenses held by Kalington Consulting and Longhai. There is no assurance that
Kalington Consulting and Longhai will be able to renew their licenses or
certificates when their terms expire with substantially similar terms as the
ones they currently hold.
Further, our relationship with Longhai is governed by the VIE
Agreements, which are intended to provide us with effective control over the
business operations of Longhai. However, the VIE Agreements may not be effective
in providing control over the application for and maintenance of the licenses
required for our business operations. Longhai could violate the VIE Agreements,
become insolvent, suffer from difficulties in its business or otherwise become
unable to perform its obligations under the VIE Agreements and, as a result, our
operations, reputations and business could be materially harmed.
If Kalington Consulting exercises the purchase option it
holds over Longhai's share capital pursuant to the VIE Agreements, the payment
of the purchase price could materially and adversely affect our financial
position.
Under the VIE Agreements, Longhai's shareholders have granted
Kalington Consulting an option for the maximum period of time allowed by law to
purchase all of the equity interest in Longhai at a price equal to the capital
paid in by the transferors, adjusted pro rata for purchase of less than all of
the equity interest, unless applicable PRC laws and regulations require an appraisal of the equity interest or stipulate other
restrictions regarding the purchase price of the equity interest. Since Longhai
is already our contractually controlled affiliate, our exercise of the option
would not bring immediate benefits to our company, and we would only do so if
Longhai or its shareholders fail to perform the obligations under the VIE
Agreements and we are unable to obtain specific performance, injunctive relief,
or other damages in PRC courts, or otherwise protect our interests. The parties
have agreed that if the applicable PRC laws and regulations require an appraisal
of the equity interest or stipulate other restrictions regarding the purchase
price of the equity interest at the time that the option is exercised, then the
purchase price will be set at the lowest price permissible under the applicable
laws and regulations. However, due to uncertainties in the application of
various laws, rules, regulations or policies in PRC legal system, we cannot be
sure that if we choose to exercise such option, any appraisal of equity interest
or other stipulated restrictions required by PRC law will not materially
increase the payment price for the option and adversely affect our results of
operations.
- 8 -
RISKS RELATED TO DOING BUSINESS IN CHINA
Changes in China's political or economic situation could
harm us and our operating results.
Economic reforms adopted by the Chinese government have had a
positive effect on the economic development of the country, but the government
could change these economic reforms or any of the legal systems at any time.
Such a change could either benefit or damage our operations and profitability.
Some other political and economic factors that could affect our operations and
profitability include the following:
level of government involvement in the economy;
control of foreign exchange;
methods of allocating resources;
balance of payments position;
international trade restrictions; and
international conflict.
The Chinese economy differs from the economies of most
countries belonging to the Organization for Economic Cooperation and
Development, or OECD, in many ways. For example, state-owned enterprises still
constitute a large portion of the Chinese economy, and weak corporate governance
and a lack of flexible currency exchange policy still prevail in China. As a
result of these differences, we may not develop in the same way or at the same
rate as might be expected if the Chinese economy was similar to those of the
OECD member countries.
Uncertainties with respect to the PRC legal system could
limit the legal protections available to you and us.
We conduct substantially all of our business through our
operating subsidiary and affiliate in the PRC. Our principal operating
subsidiary and controlled affiliate, Kalington Consulting and Longhai,
respectively, are subject to laws and regulations applicable to foreign
investments in China and, in particular, laws applicable to foreign-invested
enterprises. The PRC legal system is based on written statutes, and prior court
decisions may be cited for reference but have limited precedential value. Since
1979, a series of new PRC laws and regulations have significantly enhanced the
protections afforded to various forms of foreign investments in China. However,
since the PRC legal system continues to evolve rapidly, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties, which may limit legal
protections available to you and us. In addition, any litigation in China may be
protracted and result in substantial costs and diversion of resources and
management attention.
You may have difficulty enforcing judgments against
us.
Our principal operating subsidiary and affiliate, Kalington
Consulting and Longhai, respectively, are located in the PRC. We conduct most of
our current operations in the PRC, and most of our assets are located outside
the United States. In addition, most of our officers and directors are nationals
and residents of countries other than the United States. A substantial portion
of the assets of these persons are also located outside the United States. As a
result, it could be difficult for investors to effect service of process in the
United States or to enforce a judgment obtained in the United States against our
Chinese operations and subsidiary and/or controlled affiliate. It may also be
difficult for you to enforce in U.S. courts judgments predicated on the civil liability provisions of the U.S. federal securities laws
against us and our officers and directors, most of whom are not residents in the
United States and the substantial majority of whose assets are located outside
the United States. In addition, there is uncertainty as to whether the courts of
the PRC would recognize or enforce judgments of U.S. courts. The recognition and
enforcement of foreign judgments are provided for under the PRC Civil Procedures
Law. Courts in China may recognize and enforce foreign judgments in accordance
with the requirements of the PRC Civil Procedures Law based on treaties between
China and the country where the judgment is made or on reciprocity between
jurisdictions. China does not have any treaties or other arrangements that
provide for the reciprocal recognition and enforcement of foreign judgments with
the United States. In addition, according to the PRC Civil Procedures Law,
courts in the PRC will not enforce a foreign judgment against us or our
directors and officers if they decide that the judgment violates basic
principles of PRC law or national sovereignty, security or the public interest.
So it is uncertain whether a PRC court would enforce a judgment rendered by a
court in the United States.
- 9 -
The PRC government exerts substantial influence over the
manner in which we must conduct our business activities.
The PRC government has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China may be harmed by
changes in its laws and regulations, including those relating to taxation,
import and export tariffs, environmental regulations, land use rights, property,
and other matters. We believe that our operations in China are in material
compliance with all applicable legal and regulatory requirements. However, the
central or local governments of the jurisdictions in which we operate may impose
new, stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.
Accordingly, government actions in the future, including any
decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the
implementation of economic policies, could have a significant effect on economic
conditions in China or particular regions thereof and could require us to divest
ourselves of any interest we then hold in Chinese properties or joint ventures.
Future inflation in China may inhibit our ability to
conduct business in China.
In recent years, the Chinese economy has experienced periods of
rapid expansion and highly fluctuating rates of inflation. During the past ten
years, the rate of inflation in China has been as high as 20.7% and as low as
-2.2%. These factors have led to the adoption by the Chinese government, from
time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. High inflation
may in the future cause the Chinese government to impose controls on credit
and/or prices, or to take other action, which could inhibit economic activity in
China, and thereby harm the market for our products and our company.
Restrictions on currency exchange may limit our ability
to receive and use our revenues effectively.
All of our revenues are generated in RMB and any future
restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside China or to make
dividend or other payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign-invested enterprises may only buy, sell
or remit foreign currencies after providing valid commercial documents, at those
banks in China authorized to conduct foreign exchange business. In addition,
conversion of RMB for capital account items, including direct investment and
loans, is subject to governmental approval in China, and companies are required
to open and maintain separate foreign exchange accounts for capital account
items. We cannot be certain that the Chinese regulatory authorities will not
impose more stringent restrictions on the convertibility of the RMB.
Fluctuations in exchange rates could adversely affect our
business and the value of our securities.
The value of our common stock will be indirectly affected by
the foreign exchange rate between U.S. dollars and RMB and between those
currencies and other currencies in which our sales may be denominated.
Appreciation or depreciation in the value of the RMB relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations.
Fluctuations in the exchange rate will also affect the relative value of any
dividend we issue that will be exchanged into U.S. dollars as well as earnings
from, and the value of, any U.S. dollar-denominated investments we make in the
future. Please refer to a further discussion of exchange rates on page 27 of
this document.
- 10 -
Since July 2005, the RMB is no longer pegged to the U.S.
dollar. Although the People's Bank of China regularly intervenes in the foreign
exchange market to prevent significant short-term fluctuations in the exchange
rate, the RMB may appreciate or depreciate significantly in value against the
U.S. dollar in the medium to long term. Moreover, it is possible that in the
future PRC authorities may lift restrictions on fluctuations in the RMB exchange
rate and lessen intervention in the foreign exchange market.
Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions. While we may enter into hedging transactions in
the future, the availability and effectiveness of these transactions may be
limited, and we may not be able to successfully hedge our exposure at all. In
addition, our foreign currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert RMB into foreign
currencies.
Restrictions under PRC law on our PRC subsidiary's
ability to make dividends and other distributions could materially and adversely
affect our ability to grow, make investments or acquisitions that could benefit
our business, pay dividends to you, and otherwise fund and conduct our
businesses.
Substantially all of our revenues are earned by Kalington
Consulting, our PRC subsidiary. PRC regulations restrict the ability of our PRC
subsidiary to make dividends and other payments to its offshore parent company.
PRC legal restrictions permit payments of dividends by our PRC subsidiary only
out of its accumulated after-tax profits, if any, determined in accordance with
PRC accounting standards and regulations. Our PRC subsidiary is also required
under PRC laws and regulations to allocate at least 10% of our distributed
annual after-tax profits determined in accordance with PRC GAAP to a statutory
general reserve fund until the amounts in said fund reaches 50% of our
registered capital; however, our PRC subsidiary has not distributed any
after-tax profits to date. Allocations to these statutory reserve funds can only
be used for specific purposes and are not transferable to us in the form of
loans, advances or cash dividends. Any limitations on the ability of our PRC
subsidiary to transfer funds to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to
our business, pay dividends and otherwise fund and conduct our business.
Failure to comply with PRC regulations relating to the
establishment of offshore special purpose companies by PRC residents may subject
our PRC resident shareholders to personal liability, limit our ability to
acquire PRC companies or to inject capital into our PRC subsidiary or affiliate,
limit our PRC subsidiary's and affiliate's ability to distribute profits to us
or otherwise materially adversely affect us.
In October 2005, State Administration of Foreign Exchange of
the People's Republic of China, or SAFE, issued the Notice on Relevant Issues in
the Foreign Exchange Control over Financing and Return Investment Through
Special Purpose Companies by Residents Inside China, generally referred to as
Circular 75, which required PRC residents to register with the competent local
SAFE branch before establishing or acquiring control over an offshore special
purpose company, or SPV, for the purpose of engaging in an equity financing
outside of China on the strength of domestic PRC assets originally held by those
residents. Internal implementing guidelines issued by SAFE, which became public
in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (1)
purporting to cover the establishment or acquisition of control by PRC residents
of offshore entities which merely acquire "control" over domestic companies or
assets, even in the absence of legal ownership; (2) adding requirements relating
to the source of the PRC resident's funds used to establish or acquire the
offshore entity; covering the use of existing offshore entities for offshore
financings; (3) purporting to cover situations in which an offshore SPV
establishes a new subsidiary in China or acquires an unrelated company or
unrelated assets in China; and (4) making the domestic affiliate of the SPV
responsible for the accuracy of certain documents which must be filed in
connection with any such registration, notably, the business plan which
describes the overseas financing and the use of proceeds. Amendments to
registrations made under Circular 75 are required in connection with any
increase or decrease of capital, transfer of shares, mergers and acquisitions,
equity investment or creation of any security interest in any assets located in
China to guarantee offshore obligations, and Notice 106 makes the offshore SPV
jointly responsible for these filings. In the case of an SPV which was
established, and which acquired a related domestic company or assets, before the
implementation date of Circular 75, a retroactive SAFE registration was required
to have been completed before March 31, 2006; this date was subsequently
extended indefinitely by Notice 106, which also required that the registrant
establish that all foreign exchange transactions undertaken by the SPV and its
affiliates were in compliance with applicable laws and regulations. Failure to
comply with the requirements of Circular 75, as applied by SAFE in accordance
with Notice 106, may result in fines and other penalties under PRC laws for
evasion of applicable foreign exchange restrictions. Any such failure could also
result in the SPV's affiliates being impeded or prevented from distributing
their profits and the proceeds from any reduction in capital, share transfer or
liquidation to the SPV, or from engaging in other transfers of funds into or out
of China.
- 11 -
We have advised our shareholders who are PRC residents, as
defined in Circular 75, to register with the relevant branch of SAFE, as
currently required, in connection with their equity interests in us and our
acquisitions of equity interests in our PRC subsidiary and affiliate. However, we cannot provide any
assurances that their existing registrations have fully complied with, and they
have made all necessary amendments to their registration to fully comply with,
all applicable registrations or approvals required by Circular 75. Moreover,
because of uncertainty over how Circular 75 will be interpreted and implemented,
and how or whether SAFE will apply it to us, we cannot predict how it will
affect our business operations or future strategies. For example, our present
and prospective PRC subsidiary's and affiliate's ability to conduct foreign
exchange activities, such as the remittance of dividends and foreign
currency-denominated borrowings, may be subject to compliance with Circular 75
by our PRC resident beneficial holders. In addition, such PRC residents may not
always be able to complete the necessary registration procedures required by
Circular 75. We also have little control over either our present or prospective
direct or indirect shareholders or the outcome of such registration procedures.
A failure by our PRC resident beneficial holders or future PRC resident
shareholders to comply with Circular 75, if SAFE requires it, could subject
these PRC resident beneficial holders to fines or legal sanctions, restrict our
overseas or cross-border investment activities, limit our subsidiary's and
affiliate's ability to make distributions or pay dividends or affect our
ownership structure, which could adversely affect our business and prospects.
Our business and financial performance may be materially
adversely affected if the PRC regulatory authorities determine that our
acquisition of Longhai constitutes a Round-trip Investment without MOFCOM
approval.
On August 8, 2006, six PRC regulatory agencies promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, or the 2006 M&A Rule, which became effective on September 8,
2006. According to the 2006 M&A Rule, when a PRC business that is owned by
PRC individual(s) is sold to a non-PRC entity that is established or controlled,
directly or indirectly, by those same PRC individual(s) it must be approved by
the Ministry of Commerce, or MOFCOM, and any indirect arrangement or series of
arrangements which achieves the same end result without the approval of MOFCOM
is a violation of PRC law.
On March 18, 2010, Mr. Chaojun Wang, our Chief Executive
Officer, who is a PRC citizen, entered into a call option agreement with Mr.
Jinhai Guo, a US passport holder and the sole shareholder of Merry Success
Limited, our principal shareholder after the reverse acquisition. Under the call
option agreement, Mr. Wang shall have right and option to acquire up to 100%
shares of Merry Success Limited for fixed consideration within the next 3 years.
The call option agreement also provides that Mr. Guo shall not dispose any of
the shares of Merry Success Limited without Mr. Wang's consent.
The PRC regulatory authorities may take the view that the
reverse acquisition transaction and related transaction documents are part of an
overall series of arrangements which constitute a Round-trip Investment, because
at the end of these transactions, the Founder will become majority owner and
effective controlling party of a foreign entity that acquired ownership of our
Chinese subsidiary. The PRC regulatory authorities may also take the view that
the registration of the reverse acquisition with the Beijing office of the PRC
State Administration of Industry and Commerce, or AIC, and the filings with the
SAFE may not be evidence that the Acquisition has been properly approved because
the relevant parties did not fully disclose to the AIC, SAFE or MOFCOM the
overall restructuring arrangements, the existence of the Share Exchange
Agreement and its link with the Acquisition. If the PRC regulatory authorities
take the view that the Acquisition constitutes a Round-trip Investment under the
2006 M&A Rule, we cannot assure you that we will be able to obtain the
approval required from MOFCOM.
If the PRC regulatory authorities take the view that the
Acquisition constitutes a Round-trip Investment without MOFCOM approval, they
could invalidate our acquisition and ownership of our Chinese subsidiary.
Additionally, the PRC regulatory authorities may take the view that the
Acquisition constitutes a transaction that requires the prior approval of the
China Securities Regulatory Commission, or CSRC, before MOFCOM approval is
obtained. We believe that if this takes place, we may be able to find a way to
re-establish control of our Chinese subsidiary's business operations through a
series of contractual arrangements rather than an outright purchase of our
Chinese subsidiary. But we cannot assure you that such contractual arrangements
will be protected by PRC law or that we can receive as complete or effective
economic benefit and overall control of our Chinese subsidiary's business as if
we had direct ownership of our Chinese subsidiary. In addition, we cannot assure
you that such contractual arrangements can be successfully effected under PRC
law. If we cannot obtain MOFCOM or CSRC approval if required by the PRC
regulatory authorities to do so, and if we cannot put in place or enforce
relevant contractual arrangements as an alternative and equivalent means of
control of our Chinese subsidiary, our business and financial performance will
be materially adversely affected.
Under the New EIT Law, we may be classified as a
"resident enterprise" of China. Such classification will likely result in
unfavorable tax consequences to us and our non-PRC shareholders.
Under the New EIT Law effective on January 1, 2008, an
enterprise established outside China with "de facto management bodies" within
China is considered a "resident enterprise," meaning that it can be treated in a
manner similar to a Chinese enterprise for enterprise income tax purposes. The
implementing rules of the New EIT Law define de facto management as "substantial and overall management and control over the
production and operations, personnel, accounting, and properties" of the
enterprise.
- 12 -
On April 22, 2009, the State Administration of Taxation issued
the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment
Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to
Criteria of de facto Management Bodies, or the Notice, further interpreting the
application of the New EIT Law and its implementation to non-Chinese enterprise
or group controlled offshore entities. Pursuant to the Notice, an enterprise
incorporated in an offshore jurisdiction and controlled by a Chinese enterprise
or group will be classified as a "non-domestically incorporated resident
enterprise" if (i) its senior management in charge of daily operations reside or
perform their duties mainly in China; (ii) its financial or personnel decisions
are made or approved by bodies or persons in China; (iii) its substantial assets
and properties, accounting books, corporate chops, board and shareholder minutes
are kept in China; and (iv) at least half of its directors with voting rights or
senior management primarily reside in China. A resident enterprise would be
subject to an enterprise income tax rate of 25% on its worldwide income and must
pay a withholding tax at a rate of 10% when paying dividends to its non-PRC
shareholders. However, it remains unclear as to whether the Notice is applicable
to an offshore enterprise incorporated by a Chinese natural person. Nor are
detailed measures on imposition of tax from non-domestically incorporated
resident enterprises are available. Therefore, it is unclear how tax authorities
will determine tax residency based on the facts of each case.
We may be deemed to be a resident enterprise by Chinese tax
authorities. If the PRC tax authorities determine that we are a "resident
enterprise" for PRC enterprise income tax purposes, a number of unfavorable PRC
tax consequences could follow. First, we may be subject to the enterprise income
tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise
income tax reporting obligations. In our case, this would mean that income such
as interest on financing proceeds and non-China source income would be subject
to PRC enterprise income tax at a rate of 25%. Second, although under the New
EIT Law and its implementing rules dividends paid to us from our PRC subsidiary
would qualify as "tax-exempt income," we cannot guarantee that such dividends
will not be subject to a 10% withholding tax, as the PRC foreign exchange
control authorities, which enforce the withholding tax, have not yet issued
guidance with respect to the processing of outbound remittances to entities that
are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, it is possible that future guidance issued with respect to the new
"resident enterprise" classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC shareholders and
with respect to gains derived by our non-PRC shareholders from transferring our
shares. We are actively monitoring the possibility of "resident enterprise"
treatment for the 2010 tax year.
If we were treated as a "resident enterprise" by PRC tax
authorities, we would be subject to taxation in both the U.S. and China, and our
PRC tax may not be creditable against our U.S. tax.
We may be exposed to liabilities under the Foreign
Corrupt Practices Act and Chinese anti-corruption laws, and any determination
that we violated these laws could have a material adverse effect on our
business.
We are subject to the Foreign Corrupt Practice Act, or FCPA,
and other laws that prohibit improper payments or offers of payments to foreign
governments and their officials and political parties by U.S. persons and
issuers as defined by the statute, for the purpose of obtaining or retaining
business. We have operations, agreements with third parties and we make all of
our sales in China. The PRC also strictly prohibits bribery of government
officials. Our activities in China create the risk of unauthorized payments or
offers of payments by the employees, consultants, sales agents or distributors
of our company and its affiliate, even though they may not always be subject to
our control. It is our policy to implement safeguards to discourage these
practices by our employees, and we have implemented a policy to comply
specifically with the FCPA. In spite of these efforts, our existing safeguards
and any future improvements may prove to be less than effective, and the
employees, consultants, sales agents or distributors of our company and its
affiliate may engage in conduct for which we might be held responsible.
Violations of the FCPA or Chinese anti-corruption laws may result in severe
criminal or civil sanctions, and we may be subject to other liabilities, which
could negatively affect our business, operating results and financial condition.
In addition, the U.S. government may seek to hold our company liable for
successor liability FCPA violations committed by companies in which we invest or
that we acquire.
Because our business is located in the PRC, we may have
difficulty establishing adequate management, legal and financial controls, which
we are required to do in order to comply with U.S. securities laws.
PRC companies have historically not adopted a Western style of
management and financial reporting concepts and practices, which includes strong
corporate governance, internal controls and, computer, financial and other
control systems. Most of our middle and top management staff are not educated
and trained in the Western system, and we may have difficulty hiring new
employees in the PRC with such training. In addition, we may need to rely on a
new and developing communication infrastructure to efficiently transfer our information from
retail outlets to our headquarters. 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. Therefore, we may, in turn, experience difficulties in implementing
and maintaining adequate internal controls as required under Section 404 of the
Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or
material weaknesses in our internal controls, which could impact the reliability
of our financial statements and prevent us from complying with SEC rules and
regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such
deficiencies, weaknesses or lack of compliance could have a materially adverse
effect on our business.
- 13 -
RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY
Our common stock is quoted on the OTC Bulletin Board,
which may have an unfavorable impact on our stock price and liquidity.
Our common stock is quoted on the inter-dealer electronic
quotation and trading system maintained by Pink OTC Markets Inc., under the
symbol "ACTND." The Pink OTC Markets Inc. is a significantly more limited market
than established trading markets such as the New York Stock Exchange or NASDAQ.
The quotation of our shares by the Pink OTC Markets Inc. may result in a less
liquid market available for existing and potential shareholders to trade shares
of our common stock, could depress the trading price of our common stock and
could have a long-term adverse impact on our ability to raise capital in the
future. We are submitting an application to list our common stock on the NASDAQ
Global Market under the symbol "LHAI," concurrently with the filing of the
registration statement of which this prospectus is a part, however, we cannot
assure you that we will be able to meet the NASDAQ initial listing standards, or
that we will be able to maintain such listing.
We may be subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common
stock.
The SEC has adopted regulations which generally define
so-called "penny stocks" to be an equity security that has a market price less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exemptions. Our common stock is a "penny stock" and is subject to
Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes
additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market,
thus possibly making it more difficult for us to raise additional capital.
For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in penny stock, of a disclosure
schedule required by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.
There can be no assurance that our common stock will qualify
for exemption from the Penny Stock Rule. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest.
Provisions in our Articles of Incorporation and Bylaws or
Nevada law might discourage, delay or prevent a change of control of us or
changes in our management and, therefore depress the trading price of the common
stock.
Our Articles of Incorporation authorize our board of directors
to issue up to 10,000,000 shares of preferred stock. The preferred stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the board of directors without further action by stockholders.
These terms may include preferences as to dividends and liquidation, voting
rights, conversion rights, redemption rights and sinking fund provisions. The
issuance of any preferred stock could diminish the rights of holders of our
common stock, and therefore could reduce the value of such common stock. In
addition, specific rights granted to future holders of preferred stock could be
used to restrict our ability to merge with, or sell assets to, a third party.
The ability of our board of directors to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly to acquire or
effect a change-in-control, which in turn could prevent our stockholders from
recognizing a gain in the event that a favorable offer is extended and could
materially and negatively affect the market price of our common stock.
- 14 -
In addition, Nevada corporate law and our Articles of
Incorporation and Bylaws also contain other provisions that could discourage,
delay or prevent a change in control of our Company or changes in its management
that our stockholders may deem advantageous. These provisions:
deny holders of our common stock cumulative voting rights in the election
  of directors, meaning that stockholders owning a majority of our outstanding
  shares of common stock will be able to elect all of our directors;
require any stockholder wishing to properly bring a matter before a
  meeting of stockholders to comply with specified procedural and advance notice
  requirements; and
allow any vacancy on the board of directors, however the vacancy occurs,
  to be filled by the directors.
We do not intend to pay dividends for the foreseeable
future.
For the foreseeable future, we intend to retain any earnings to
finance the development and expansion of our business, and we do not anticipate
paying any cash dividends on our common stock. Accordingly, investors must be
prepared to rely on sales of their common stock after price appreciation to earn
an investment return, which may never occur. Investors seeking cash dividends
should not purchase our common stock. Any determination to pay dividends in the
future will be made at the discretion of our board of directors and will depend
on our results of operations, financial condition, contractual restrictions,
restrictions imposed by applicable law and other factors our board deems
relevant.
Our controlling stockholder holds a significant
percentage of our outstanding voting securities, which could hinder our ability
to engage in significant corporate transactions without his approval.
Mr. Chaojun Wang, through his option to purchase Merry Success
Limited, is the beneficial owner of approximately 51% of our outstanding voting
securities, prior to commencement of this offering and will have [____]% upon
completion of this offering. As a result, he possesses significant influence,
giving him the ability, among other things, to elect a majority of our board of
directors and to authorize or prevent proposed significant corporate
transactions. His ownership and control may also have the effect of delaying or
preventing a future change in control, impeding a merger, consolidation,
takeover or other business combination or discourage a potential acquirer from
making a tender offer.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The
forward-looking statements are contained principally in the sections entitled
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business." These statements involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from any
future results, performances or achievements expressed or implied by the
forward-looking statements. These risks and uncertainties include, but are not
limited to, the factors described in the section captioned "Risk Factors" above.
In some cases, you can identify forward-looking statements by
terms such as "anticipates," "believes," "could," "estimates," "expects,"
"intends," "may," "plans," "potential," "predicts," "projects," "should,"
"would" and similar expressions intended to identify forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and are based on assumptions subject to risks and uncertainties. Given
these uncertainties, you should not place undue reliance on these
forward-looking statements.
Also, forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus. You should read this
prospectus and the documents that we reference in this prospectus, or that we
filed as exhibits to the registration statement of which this prospectus is a
part, completely and with the understanding that our actual future results may
be materially different from what we expect.
Except as required by law, we assume no obligation to update
any forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the future.
- 15 -
DETERMINATION OF OFFERING PRICE
The public offering price of the units and the exercise price
and other terms of the warrants were negotiated between us and the underwriters,
based on the trading prior to the offering, among other things. Other factors
considered in determining the public offering price of the units and the
exercise price and other terms of the warrants include the history and prospects
of the company, the stage of development of our business, our business plans for
the future and the extent to which they have been implemented, an assessment of
our management, general conditions of the securities markets at the time of the
offering and such other factors as were deemed relevant.
USE OF PROCEEDS
We estimate that the net proceeds from our sale of units in
this offering, assuming the sale of all of the units offered in this offering
and a public offering price of $[___] per unit after deducting underwriting
discounts and estimated offering expenses payable by us, will be approximately
$[___] million.
We intend to use the net proceeds from this offering (i) to acquire new production facilities and (ii) for general corporate
purposes, including working capital. If not all of the units are sold in the
offering, less capital will be available, which may result in a delay of
acquisitions.
The proceeds from
the exercise of any warrants issued as part of the units will be used for working capital.
We will have broad discretion over the manner in which the net
proceeds of the offering will be applied, and we may not use these proceeds in a
manner desired by our shareholders. Although we have no present intention of
doing so, future events may require us to reallocate the offering proceeds.
CAPITALIZATION
The following table sets forth our capitalization (i) as of
March 31, 2010, and (ii) as adjusted as of that date to give effect to the
application of the estimated net proceeds of this offering (at an assumed public
offering price of $[____] per unit). This table should be read in conjunction
with our consolidated financial statements and the related notes, appearing
elsewhere in this prospectus.
March 31,
March 31,
2010
2010
(as adjusted)
Cash and cash equivalents
$
211,416
$
211,416
Equipment, net
$
25,983,643
$
25,983,643
Due to related parties, short term portion
$
90,026
$
90,026
Shareholder's equity:
100,000,000, par value $.0001, authorized, actual
      and as adjusted;
10,000,000* and [____] million
      shares of common stock, issued and outstanding, actual and as adjusted
$
10,000
$
[____]
Additional paid-in capital
2,624,390
[____]
Retained earnings
30,224,962
[____]
Total shareholder's equity
33,959,310
[____]
Total capitalization
$
34,049,336
$
[____]
__________
* After giving effect to the 1-for-125 reverse split to be
effected on June 30, 2010.
MARKET FOR OUR COMMON STOCK
Our common stock is quoted on the inter-dealer electronic
quotation and trading system maintained by Pink OTC Markets Inc., under the
symbol "ACTND." The closing bid price for our common stock on July 19, 2010 was
$15.00 per share, as reported by the Pink OTC Markets Inc., after giving effect
to the 1-for-125 reverse split effected on June 30, 2010.  We expect that upon consummation of
this offering, our common stock will be separately listed on the NASDAQ Global
Market under the symbols "LHAI". The units and warrants included in the units
will not publicly trade.
- 16 -
The following table sets forth, for the periods indicated, the
high and low closing prices of our common stock. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
Closing Bid
      Prices
(1)
High
Low
Year Ended December 31,
      2010
First Quarter
$
30.00
$
7.50
Second Quarter (through June 17,
      2010)
23.75
8.875
Third Quarter (through July 19, 2010)
15.00
15.00
Year Ended December 31,
      2009
First Quarter
3.75
1.25
Second Quarter
3.75
0.9375
Third Quarter
10.00
7.50
Fourth Quarter
3.125
7.50
Year Ended December 31,
      2008
First Quarter
8.75
6.25
Second Quarter
6.25
6.25
Third Quarter
3.75
3.75
Fourth Quarter
6.25
6.25
________________
(1) The above tables set forth the range of high and low
closing bid prices per share of our common stock as reported by
www.quotemedia.com for the periods indicated, after giving effect to the
1-for-125 reverse split effected on June 30, 2010.
Holders
As of July 19, 2010 there were approximately 464 stockholders
of record of our common stock. This number does not include shares held by
brokerage clearing houses, depositories or others in unregistered form.
We plan to furnish our stockholders with an annual report for
each fiscal year ending December 31 containing financial statements audited by
our independent certified public accountants. We are subject to the information
reporting requirements of the Exchange Act. As such, we file annual, quarterly
and current reports and other documents with the SEC. We intend to maintain
compliance with the periodic reporting requirements of the Exchange Act.
Securities Authorized for Issuance under Equity Compensation
Plans
We do not have in effect any compensation plans under which our
equity securities are authorized for issuance and we do not have any outstanding
stock options.
Recent Sales of Unregistered Securities
On March 26, 2010, we issued 10,000 shares of our Series A
Preferred Stock to the shareholders of Kalington. The total consideration for
the 10,000 shares of our Series A Preferred Stock was 10,000 ordinary shares of
Kalington, which is all the issued and outstanding capital stock of Kalington.
The number of our shares issued to the shareholders of Kalington was determined
based on an arm's length negotiation. The issuance of our shares to the
shareholders of Kalington was made in reliance on the exemption provided by
Section 4(2) of the Securities Act for the offer and sale of securities not
involving a public offering and Regulation D promulgated thereunder.
On March 26, 2010, we issued 7,450,000 shares of our Common
Stock to Goodwin Ventures, Inc. in consideration for Goodwin Ventures, Inc.
paying off approximately $90,000 in liabilities incurred by LSI prior to the
reverse merger acquisition. The issuance of our shares to Goodwin Ventures, Inc.
was made in reliance on the exemption provided by Section 4(2) of the Securities
Act for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder.
- 17 -
We issued securities in reliance upon Rule 506 of Regulation D
of the Securities Act. These shareholders who received the securities in such
instances made representations that (a) the shareholder is acquiring the
securities for his, her or its own account for investment and not for the account of any other
person and not with a view to or for distribution, assignment or resale in
connection with any distribution within the meaning of the Securities Act, (b)
the shareholder agrees not to sell or otherwise transfer the purchased shares
unless they are registered under the Securities Act and any applicable state
securities laws, or an exemption or exemptions from such registration are
available, (c) the shareholder has knowledge and experience in financial and
business matters such that he, she or it is capable of evaluating the merits and
risks of an investment in us, (d) the shareholder had access to all of our
documents, records, and books pertaining to the investment and was provided the
opportunity to ask questions and receive answers regarding the terms and
conditions of the offering and to obtain any additional information which we
possessed or were able to acquire without unreasonable effort and expense, and
(e) the shareholder has no need for the liquidity in its investment in us and
could afford the complete loss of such investment. Management made the
determination that the investors in instances where we relied on Regulation D
are accredited investors (as defined in Regulation D) based upon management's
inquiry into their sophistication and net worth. In addition, there was no
general solicitation or advertising for securities issued in reliance upon
Regulation D.
In instances described above where we indicate that we relied
upon Section 4(2) of the Securities Act in issuing securities, our reliance was
based upon the following factors: (a) the issuance of the securities was an
isolated private transaction by us which did not involve a public offering; (b)
there were only a limited number of offerees; (c) there were no subsequent or
contemporaneous public offerings of the securities by us; (d) the securities
were not broken down into smaller denominations; and (e) the negotiations for
the sale of the stock took place directly between the offeree and us.
On June 30, 2010, we effected a 1-for-125 reverse split of our
outstanding common stock, after which shares of our Series A Preferred Stock
automatically converted into shares of common stock on the basis of 1 share of
Series A Preferred Stock for 985 shares of common stock. This resulted in the
automatic conversion of the 10,000 outstanding shares of Series A Preferred
Stock into 9,850,000 shares of common stock, constituting 98.5% of our
outstanding common stock.
Purchases of Equity Securities
No repurchases of our common stock were made during the fiscal
year ended December 31, 2009 or during the first two quarters of 2010.
Transfer Agent and Registrar
Our independent stock transfer agent is PacWest Transfer, LLC.
Their mailing address is 4045 South Spencer Street, Suite 403, Las Vegas, NV
89119, and their phone number is (702) 270-9646.
DIVIDEND POLICY
In the past, we have not distributed earnings to shareholders.
Any future decisions regarding dividends will be made by our board of directors.
We currently intend to retain and use any future earnings for the development
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Our board of directors has complete discretion on
whether to pay dividends. Even if our board of directors decides to pay
dividends, the form, frequency and amount will depend upon our future operations
and earnings, capital requirements and surplus, general financial condition,
contractual restrictions and other factors that the board of directors may deem
relevant.
Substantially all of our revenues are earned by Longhai or
Kalington Consulting, our PRC controlled affiliate and subsidiary, respectively.
PRC regulations restrict the ability of our PRC affiliate and subsidiary to make
dividends and other payments to their offshore parent company. PRC legal
restrictions permit payments of dividend by our PRC subsidiary and affiliate
only out of their accumulated after-tax profits, if any, determined in
accordance with PRC accounting standards and regulations. Our PRC subsidiary and
affiliate are also required under PRC laws and regulations to allocate at least
10% of our distributed annual after-tax profits determined in accordance with
PRC GAAP to a statutory general reserve fund until the amounts in said fund
reaches 50% of our registered capital, however, our PRC subsidiary has not
distributed any after-tax profits to date. Allocations to these statutory
reserve funds can only be used for specific purposes and are not transferable to
us in the form of loans, advances or cash dividends. Any limitations on the
ability of our PRC subsidiary to transfer funds to us could materially and
adversely limit our ability to grow, make investments or acquisitions that could
be beneficial to our business, pay dividends and otherwise fund and conduct our
business.
- 18 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Longhai was originally formed on August 26, 2008 as a result of
a carve-out from the Longhai Steel Group. We are a leading producer of steel
wire products in eastern China. Demand for our steel wire is driven primarily by
spending in the construction and infrastructure industries. We have benefited
from strong fixed asset investment and construction growth as the PRC has
rapidly grown increasingly urbanized and invested in modernizing its
infrastructure.
Our principal business is the production of steel wire ranging
from 6mm to 10mm in diameter. We operate two wire production lines, which have a
combined annual capacity of approximately 0.9MMT. Our products are sold to
a number of distributors who transport the wire to nearby wire processing
facilities. Our wire is then further processed by these third party wire
refiners into a variety of products such as nails, screws, and wire mesh for use
in reinforced concrete and fencing. Our facilities and head offices are located
in the town of Xingtai in southern Hebei Province.
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following
factors:
Growth in the Chinese Economy -
We operate our facilities in
  China and derive almost all of our revenues from sales to customers in China.
  Economic conditions in China, therefore, affect virtually all aspects of our
  operations, including the demand for our products, the availability and prices
  of our raw materials and our other expenses. China has experienced significant
  economic growth, achieving a compound annual growth rate of over 10% in gross
  domestic product from 1996 through 2008. China is expected to experience
  continued growth in all areas of investment and consumption, even in the face
  of a global economic recession. However, China has not been entirely immune to
  the global economic slowdown and is experiencing a slowing of its growth rate.
Supply and Demand in the Steel Market –
We are subject to
  macroeconomic factors dictating the supply and demand of steel and wire in the
  PRC. Steel commodity prices have been volatile in the past, and while they
  have stabilized since the first quarter of 2009, our revenues and earnings
  could be dramatically affected by increases and decreases in raw material and
  wire costs.
Infrastructure and Construction Growth –
We have in the past
  benefited from strong growth in fixed asset investment in roads, residential
  and commercial construction, bridges and other fundamental infrastructure and
  construction projects in the PRC. As the Chinese economy matures and develops,
  we expect this growth to slow and fixed asset investment to fall as a
  percentage of GDP, however, we believe demand for our products will remain
  strong for many years to come.
Taxation
United States and Hong Kong
We are subject to United States tax at a tax rate of 34%. No
provision for income taxes in the United States has been made as we have no
income taxable in the United States due to the fact that we operate a VIE
structure in China. Our subsidiary, Kalington, is incorporated in Hong Kong and
is taxed on profits generated in Hong Kong at the rate of 16.5%. However, since Kalington is merely a holding company, we do not expect to generate any profits
in Hong Kong or be subject to such taxes.
People's Republic of China
Income Taxes
– We account for income taxes in accordance
with ASC 740 "Income Taxes." ASC 740 requires an asset and liability approach
for financial accounting and reporting for income taxes and allows recognition
and measurement of deferred tax assets based upon the likelihood of realization
of tax benefits in future years. Under the asset and liability approach,
deferred taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance is
provided for deferred tax assets if it is more likely than not these items will
either expire before we are able to realize their benefits, or that future
deductibility is uncertain. There was no deferred tax asset or liability for the
years ended December 31, 2009 and 2008.
- 19 -
Because all of our operations are conducted in the PRC, we are
governed by the Income Tax Law of the PRC applied to privately-run enterprises.
On March 16, 2007, the National People's Congress of China passed a new
Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both
of which became effective on January 1, 2008. Before the implementation of the
New EIT Law, foreign invested enterprises ("FIE's") established in the PRC,
unless granted preferential tax treatment by the PRC government, were generally
subject to an earned income tax, or EIT, at the rate of 33%, which included a
30% state income tax and a 3% local income tax. The New EIT Law and its
implementing rules impose a unified EIT rate of 25% on all domestic-invested
enterprises and FIEs, unless they qualify under certain limited exceptions.
In addition to the changes to the current tax structure, under
the New EIT Law, an enterprise established outside of China with "de facto
management bodies" within China is considered a resident enterprise and will
normally be subject to an EIT of 25% on its global income. The implementing
rules define the term "de facto management bodies" as "an establishment that
exercises, in substance, overall management and control over the production,
business, personnel, accounting, etc., of a Chinese enterprise." If the PRC tax
authorities subsequently determine that we should be classified as a resident
enterprise, then our organization's global income will be subject to PRC income
tax of 25%. For detailed discussion of PRC tax issues related to resident
enterprise status, see "Risk Factors – Risks Related to Our Business – Under the
New EIT Law, we may be classified as a 'resident enterprise' of China. Such
classification will likely result in unfavorable tax consequences to us and our
non-PRC stockholders."
In fiscal years 2009 and 2008 we were subject to tax at a
statutory rate of 25%, on income reported in the statutory financial statements
after appropriated tax adjustments in the relevant periods. Our future effective
income tax rate depends on various factors, such as tax legislation, the
geographic composition of our pre-tax income and non-tax deductible expenses
incurred. Our management carefully monitors these legal developments and will
timely adjust our effective income tax rate when necessary.
Value Added Taxes
– We are also subject to value added
tax, or VAT, on the sale of merchandise. The applicable VAT rate is 17% for
products sold in the PRC. The amount of VAT liability is determined by applying
the applicable tax rate to the invoiced amount of goods sold (output VAT) less
VAT paid on purchases made with the relevant supporting invoices (input VAT).
Under the commercial practice of the PRC, we pay VAT based on tax invoices
issued. The tax invoices may be issued subsequent to the date on which revenue
is recognized, and there may be a considerable delay between the date on which
the revenue is recognized and the date on which the tax invoice is issued. In
the event that the PRC tax authorities dispute the date on which revenue is
recognized for tax purposes, the PRC tax office has the right to assess a
penalty, which can range from zero to five times the amount of the taxes which
are determined to be late or deficient. According to PRC tax laws, any potential
tax penalty payable on late or deficient payments of this tax could be between
zero and five times the amount of the late or deficient tax payable, and will be
expensed as a period expense if and when a determination has been made by the
taxing authorities that a penalty is due. As of December 31, 2009 and 2008, we
accrued zero and $1,328,830, respectively, of unpaid value-added taxes.
Results of Operations
Comparison of Three Months Ended March 31, 2010 and March
31, 2009 (Unaudited)
The following table sets forth key components of our results of
operations during the three month periods ended March 31, 2010 and 2009, both in
dollars and as a percentage of our revenues.
Three Months Ended
Three Months Ended
March 31, 2010
March 31, 2009
% of
% of
Amount
Revenues
Amount
Revenues
Revenues
$
105,976,651
100.0%
$
89,061,713
100.0%
Cost of revenues
101,932,251
96.2%
84,552,382
94.9%
Gross profit
4,044,400
3.8%
4,509,331
5.1%
General and administrative expenses
151,281
0.1%
76,303
0.1%
Operating income
3,893,119
3.7%
4,433,028
5.0%
Other income & interest expense
(52,787
)
0.0%
(17,496
)
0.0%
Income before income tax
3,840,332
3.6%
4,415,532
5.0%
Income tax expense
960,543
0.9%
1,104,911
1.2%
Net income
2,879,789
2.7%
3,310,621
3.7%
Other comprehensive income
4,977
0.0%
24,792
0.0%
Comprehensive income
$
2,884,766
2.7%
$
3,335,413
3.7%
- 20 -
Revenues
. Our revenues increased to $105,976,651 in the
three months ended March 31, 2010 from $89,061,713 in the same period in 2009,
representing a 19.0% increase. This increase was mainly due to the
quarter-over-quarter increase of 11.57% in average steel wire prices.
Cost of revenues
. Our cost of revenues increased
$17,379,869 to $101,932,251 in the three months ended March 31, 2010, from
$84,552,382 in the same period in 2009. The cost of goods sold as a percentage
of total revenues increased from 94.9% to 96.2% primarily due to an increase in
the average price of steel billet by 14.71% during the period.
Gross Profit and Gross Margin.
Our gross profit
decreased $464,931 to $4,044,400 in the three months ended March 31, 2010 from
$4,509,331 in the same period in 2009. Gross margin declined from 5.1% for the
three months ended March 31, 2010 to 3.8% for the three months ended March 31,
2010. The decrease in gross margin was primarily due to an increase in the price
of steel billet.
General and Administrative Expenses.
Our general and administrative
expenses nearly doubled to $151,281 in the three months ended March 31, 2010,
from $76,303 in the same period in 2009. During the period we prepaid land use
taxes for the full year in the amount of approximately $31,600, as compared to
$7,800 in land use taxes during the 2009 period. Other general and
administrative expenses increased due to increased payments for insurances and
for expenses related to becoming a publicly traded company. The increase is not
material because general and administrative expenses as a whole are still less
than 0.15% of revenues.
Other Income and Expenses.
Other expenses increased to $52,787 in the
three months ended March 31, 2010 from $17,496 in the same period in 2009 due to
an increase in interest expenses as a result of increased usage of bank
acceptance as payment method.
Income Before Income Taxes.
Our income before income taxes decreased to
$3,840,332 in the three months ended March 31, 2010 from $4,415,532 in the same
period in 2009. This decrease was due to a decrease in our gross profit as
discussed above.
Income Tax.
Income tax decreased to $960,543 in the three months ended
March 31, 2010 from $1,104,911 in the same period in 2009 as we had lower
taxable income.
Net Income.
In the three months ended March 31, 2010, we generated net
income of $2,879,789, compared to $3,310,621 in the same period in 2009. This
decrease was primarily attributable to the factors discussed above.
Comparison of Fiscal Years Ended December 31, 2009 and 2008
The following table sets forth key components of our results of operations
during the twelve months ended December 31, 2009 and 2008, both in U.S. dollars
and as a percentage of our revenues. As the reverse acquisition of Kalington was
entered into after December 31, 2009 and during the periods indicated Longhai
was the only entity in our combined business that had operations, the results of
operations below refer only to that of Longhai.
Fiscal Year Ended
Fiscal Year Ended
December 31, 2009
December 31, 2008
% Net
% Net
Amount
Sales
Amount
Sales
Revenues
$
373,660,461
100.0%
$
511,487,983
100.0%
Cost of revenues
356,833,041
95.5%
492,792,919
96.3%
Gross profit
16,827,420
4.5%
18,695,064
3.7%
General and administrative expenses
1,114,016
0.3%
798,083
0.2%
Operating Income
15,713,404
4.2%
17,896,981
3.5%
Other income & interest expense
(116,591
)
0.0%
(111,161
)
0.0%
Income Before Income Taxes
15,596,813
4.2%
17,785,820
3.5%
Income taxes
3,899,203
1.0%
4,446,455
0.9%
Net income
$
11,697,610
3.1%
$
13,339,365
2.6%
- 21 -
Revenues.
Our revenues decreased to $373,660,461 in the
twelve months ended December 31, 2009 from $511,487,983 in the same period in
2008, representing a 26.9% decrease year-over-year. This decrease was mainly due
to a sharp decline in the commodity prices of steel and steel wire. We
experienced no change in our manufacturing output year over year, as we operated
at nearly full capacity during both 2008 and 2009, producing 859,000 MT of wire in
2008 and 848,000 MT in 2009. The graph below shows the (unaudited) average sales
price of steel wire versus the purchase price we experienced in the marketplace
for the past two years:
Steel wire sales prices fell 45% from a high of RMB 5,133 (approximately $755) per metric ton in June of 2008 to a low of RMB 2,802 (approximately $411) per metric ton in March of 2009. Our average purchase price for steel billet reached a
peak in May 2008 at RMB 4,766 (approximately $701) per metric ton and fell to a low of RMB 2,540 (approximately $374) per metric ton in March of 2009, a decline of 46.7%. Throughout this period of intense volatility we were able to maintain
positive margins throughout every fiscal quarter due to our inventory systems and controls and sales model.
Cost of revenues
. Our cost of revenues decreased to $356,833,041 in the twelve months ended December 31, 2009 from $492,792,919 in the same period in 2008. The cost of goods sold as a percentage of revenues declined from 96.3% to
95.5%, mainly due to greater efficiencies in our cost control program.
Gross Profit and Gross Margin.
Our gross profit decreased from $18,695,064 in 2008 to $16,827,420 in 2009. Gross margin as a percentage of net revenue increased 0.8 percentage points to 4.5% in 2009, from 3.7% in 2008. The increase in
gross margin was primarily due to greater production efficiencies and lower volatility in the steel and steel wire market.
General and Administrative Expenses
. Our general and administrative expenses increased by 39.6% to $1,114,016 in 2009 from $798,083 in 2008, primarily due to an increase in business taxes and surcharges during the 2009 period. This
increase was, as a percentage of revenues, an increase of 0.1 percentage points.
Other Income
. Other income, attributable to interest expense and other expenses, remained at roughly the same level over the two year period, at $(116,591) for 2009 and $(111,161) in 2008.
Income before Income Taxes
. Our income before income taxes decreased to $15,596,813 in 2009 from $17,785,820 in 2008. This decrease was mainly due to the change in commodity prices discussed above.
Income Tax
. Income tax fell to $3,899,203 in 2009 from $4,446,455 in 2008. The decrease was due to lower net income, as our income tax rate remained constant at 25%.
Net Income
. In the twelve months ended December 31, 2009, we generated net income of $11,697,610, a decrease of 12% from $13,339,365 in the same period in 2008 primarily due to the change in commodity prices discussed above.
- 22 -
Liquidity and Capital Resources
As of March 31, 2010, we had cash and cash equivalents of
$211,416, consisting primarily of cash on hand and demand deposits. The
following table provides detailed information about our net cash flow for all
financial statement periods presented in this prospectus. To date, we have
financed our operations primarily through cash flows from investing activities
and equity contributions by our shareholders.
As of December 31, 2009, we had cash and cash equivalents of
$115,510, primarily consisting of cash on hand and demand deposits. The
following table provides detailed information about our net cash flow for all
financial statement periods presented in this prospectus. To date, we have
financed our operations primarily through cash flows from operations and equity
contributions by our shareholders.
The following table sets forth a summary of our cash flows for
the periods indicated:
Cash Flow
(all amounts in U.S. dollars)
Three Months Ended
March 31,
2010
2009
Net cash provided by (used in)
      operating activities
$
(41,508,356
)
$
15,202,528
Net cash provided by (used in) investing activities
41,603,246
(10,092,101
)
Net cash used in financing
      activities
-
(4,212,458
)
Effect of Exchange Rate Changes on Cash
(14
)
5,082
Net Increase in Cash and Cash
      Equivalents
94,876
903,051
Cash and Cash Equivalents at Beginning of the
      Quarter
116,540
363,903
Cash and Cash Equivalents at End of
      the Quarter
211,416
1,266,954
Year
      Ended
December 31,
2009
2008
Net cash provided by operating activities
$
30,776,570
$
2,607,070
Net cash used in investing
      activities
(29,565,474
)
-
Net cash used in financing activities
(1,468,253
)
(2,449,545
)
Effect of Exchange Rate Changes on
      Cash
8,764
206,378
Net (Decrease) Increase in Cash and Cash Equivalents
(248,393
)
363,903
Cash and Cash Equivalents at
      Beginning of the Year
363,903
-
Cash and Cash Equivalents at End of the Year
115,510
363,903
Operating activities
Net cash used by operating activities was $41,508,356 for the
three months ended March 31, 2010, as compared to net cash provided by operating
activities of $15,202,528 for the same period in 2009. The decrease in net cash
provided by operating activities was due to increases in accounts receivable,
inventory, advances to suppliers, prepaid expenses, and accounts payable
resulting from an increase in inventory. As steel prices rose rapidly in the
first quarter of 2010, we intentionally accumulated a larger-than-normal amount
of inventory in order to benefit from the increasing price of steel wire. We
anticipate returning to normal inventory levels in the near future.
Net cash used in operating activities was $30,776,570 for the
twelve months ended December 31, 2009, as compared to $2,607,070 for the same
period in 2008. The net cash used in 2009 came from operations and prepayments
from our customers.
Investing activities
Net cash provided by investing activities for the three months
ended March 31, 2010 was $41,603,246, as compared to net cash used in investing
activities of $10,092,101 during the same period of 2009. This amount was mainly
due to repayment of a loan that had been granted to related parties.
- 23 -
Net cash used in investing activities for the twelve months ended December 31, 2009 was $29,565,474, as compared to $Nil net cash used in investing activities during the same period of 2008. This amount was mainly due to advances made to
Longhai Steel Group. See-- "Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons" on page 44 of this prospectus.
Financing activities
Net cash used in financing activities for the three months ended March 31, 2010 was $Nil, as compared to $4,212,458 during the same period of 2009 as a result of the repayment of a related party loan during first quarter of 2009.
Net cash used in financing activities for the twelve months ended December 31, 2009 was $1,468,253, as compared to $2,449,545 during the same period of 2008 primarily as a result of repayments on loans to related parties.
We believe that our cash on hand and cash flows from operations will meet our present cash needs, but we may require additional cash resources to meet our expected capital expenditure and working capital needs for the next 12 months to implement our
expansion through the acquisition of additional facilities. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The
sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would
restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations
and could harm our overall business prospects.
Inflation
Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price
changes in the steel industry and continually maintain effective cost control in operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our securities.
Seasonality
Our operating results and operating cash flows have not historically been subject to seasonal variations, however, the first quarter is usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.
Significant Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("US GAAP") requires our management to make assumptions, estimates and judgments that affect the amounts reported,
including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are
important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management's
difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive
because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies
involve the most significant estimates and judgments used in the preparation of our financial statements:
Revenue Recognition
Retail sales are recognized at the point of sale to customers, are recorded net of estimated returns, and exclude VAT. Wholesales to contracted customers are recognized as revenue at the time the product is shipped and title passes to the customer
FOB shipping point.
- 24 -
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially
from those estimates.
Accounts Receivable
Accounts receivable consists of unpaid balances due from the wholesale customers. Such balances generally are cleared in the subsequent month when the wholesale customers place another order. We do not provide an allowance for doubtful accounts
because we have not experienced any credit losses in collecting these amounts from whole-sale customers.
Impairment of Long-Lived Assets
We account for impairment of property and equipment and amortizable intangible assets in accordance with ASC 360, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", which requires us to evaluate a
long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not
recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset's (or asset group's) fair value. There was no impairment of
long-lived assets for the three month periods ended March 31, 2010 and 2009 or the years ended December 31, 2009 or 2008.
Inventories
Merchandise inventories are stated at the lower of cost or market. Cost is determined on a weighted average basis and includes all expenditures incurred in bringing the goods to the point of sale and putting them in a
salable condition. In assessing
the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase as our projected demand requirements or decrease
due to market conditions and product life cycle changes. We estimate the demand requirements based on market conditions, forecasts prepared by customers, sales contracts and orders in hand.
In addition, we estimate net realizable value based on intended use, current market value and inventory ageing analyses. We write down inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of
inventories and their estimated market value based upon assumptions about future demand and market conditions.
Comprehensive Income
We have adopted the provisions of ASC 220 "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose
financial statements.
ASC 220 defines comprehensive income as comprised of net income and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders, including
adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities. Our other comprehensive income arose from the effect of foreign currency translation adjustments.
Foreign Currency Translation
Our reporting currency is the U.S. dollar. The functional currency of our PRC subsidiary and affiliate is the Renminbi (RMB). The financial statements of our PRC subsidiary are translated to U.S. dollars using year-end exchange rates as to assets
and liabilities and average exchange rates as to revenues, expenses and cash flows. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. 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.
- 25 -
The balance sheet amounts with the exception of stockholders' equity at March 31, 2010 were translated at the rate of 6.8361 RMB to $1.00 as compared to 6.8376 RMB to $1.00 at December 31, 2009. The stockholders' equity accounts
were stated at their historical exchange rate. The average translation rates applied to the income and cash flow statement amounts for the three months ended March 31, 2010 and 2009 were 6.83604 RMB and 6.84659 RMB to $1.00, respectively.
Translation adjustments resulting from this process are included in "accumulated other comprehensive income" in the consolidated statement of stockholders' equity and were $811,795 and $806,818 as of March 31, 2010 and
December 31, 2009, respectively.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R (now included in ASC 805), "Business Combinations" which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any non-controlling  interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and for disclosure to enable
evaluation of the nature and financial effects of the business combination. We adopted this standard as of January 1, 2009 and do not expect it to have an impact on our financial statements.
In December 2007, the FASB issued SFAS No. 160 (now ASC 810-10), "Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51." ASC 810-10 introduces significant changes in the accounting and reporting for business
acquisitions and non-controlling  interest in a subsidiary. ASC 810-10 also changes the accounting and reporting for the deconsolidation of a subsidiary. Companies are required to adopt the new standard for fiscal years beginning after January 1,
2009. We adopted this standard effectively January 1, 2009 and the adoption of this ASC did not have a material impact on the company's consolidated financial statements.
Effective July 1, 2008, we adopted SFAS No. 157 (now ASC 820), "Fair Value Measurements," which provides guidance on how to measure assets and liabilities that use fair value. ASC 820 applies whenever another US GAAP standard requires (or
permits) measurement of assets or liabilities at fair value, but does not expand the use of fair value to any new circumstances. We also adopted FASB Staff Position ("FSP") No. FAS 157-2, which allows us to partially defer the adoption of ASC 820.
This FSP defers the effective date of ASC 820 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years. Nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or financial liability
as defined in paragraph 6 of Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." The adoption of ASC 820 had no impact on our financial statements.
In May 2009, the FASB issued SFAS No. 165 (now ASC 855), "Subsequent Events," which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. This disclosure should alert all users
of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. ASC 855 is effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 855
did not have a material impact on our financial position, results of operations or cash flows.
In June 2009, the FASB issued Update No. 2009-01 (ASU 2009-01), "Generally Accepted Accounting Principles." ASU 2009-01 establishes "The FASB Accounting Standards Codification", or Codification, which became the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become non-authoritative. ASU 2009-01 is effective for interim and annual periods ending after September 15, 2009. We will adopt the provisions of ASU 2009-01 for the period ended September 30, 2009.
There will be no impact on our operating results, financial position or cash flows as a result of adoption.
We do not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flows.
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.
- 26 -
Foreign Currency Exchange Rates
All of our sales revenues are collected in and substantially
all of our expenses are paid in the Chinese Renminbi. We face foreign currency
rate translation risk when our results are translated to U.S. Dollars. The
registered equity capital denominated in the functional currency is translated
at the historical rate of exchange at the time of capital contribution.
The Chinese Renminbi had remained stable against the U.S.
Dollar at approximately 8.28 RMB to 1.00 U.S. Dollar for several years and it
was not until July 21, 2005 that the Chinese currency regime was altered, with a
2.1% revaluation versus the U.S. Dollar. This move initially valued the Renminbi
at 8.11 RMB per U.S. Dollar. In addition, the Renminbi is no longer linked to
the U.S. currency but rather to a basket of currencies with a 0.3% margin of
fluctuation. However, there remains international pressure on the Chinese
government to adopt an even more flexible currency policy and since June 30,
2009 the exchange rate has remained stable at 6.8307 Yuan to 1.00 U.S. Dollar
until June 30, 2010 when the Chinese Central Bank allowed a further appreciation
of the RMB by 0.43% to 6.798 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 denominated in Renminbi, and (ii) the payment of dividends, if
any, will be in U.S. dollars, any decrease in the value of the Renminbi against
other foreign currencies would adversely affect the value of the shares and
dividends payable to shareholders, in foreign currency terms.
Commodity Prices
We are generally exposed to commodity price swings. Although
there is no guaranteed correlation, steel wire prices generally fluctuate with
steel prices, but the differential between market prices of steel billet and
steel wire also fluctuates. Although we generally hold inventory for the duration of
our 24-hour production cycle, sudden changes in the market price of steel and
wire may directly impact the valuation of inventory and goods in progress, which
influences earnings. So long as the market price differential between billets
and wire does not shrink disproportionally, rising steel prices generally work
in our favor as inventory purchased at lower prices would appreciate in such a
scenario, resulting in additional profits when the wire is sold.
OUR BUSINESS
Business Overview
Through our PRC operating variable interest entity, Xingtai
Longhai Wire Rod Co. Ltd., Ltd., we are a leading producer of steel wire products in
eastern China. We produce steel wire ranging from 6mm to 10mm in diameter on two
wire production lines, which have a combined annual capacity of approximately
900,000 metric
tons. Our products are sold to a number of distributors
who transport the wire to nearby wire processing facilities. Our wire is then
further processed by these third party wire refiners into a variety of products
such as nails, screws, and wire mesh for use in reinforced concrete and
fencing.
We sell our products to a number of distribution companies that
transport our wire to nearby wire processors. Our products are manufactured on
an on-demand basis and we usually collect payment in advance. Sales prices are
set at the market price for wire on a daily basis. Our customers generally
prepay for their orders, and the final price may be adjusted to the market price
on the day of pick up. This allows us to maintain a low inventory of both wire
and billet, and protects us from exposure to commodity price volatility, except
with respect to any changes in pricing that may occur between production and
delivery. In order to increase sales and be competitive in the market, we
occasionally offer discounted wholesale prices to newer or larger customers at
our discretion. Our sales efforts are directed toward developing long term
relationships with customers who are able to purchase in large quantities.
During the year ended December 31, 2009, our top five distributers accounted for
39% of our revenues, and during the three months ended March 31, 2010, our top
five distributers accounted for 43.9% of our revenues.
Our production facilities are located at a 107,000 square meter
property in Xingtai, Hebei Province. Our production facilities include a fifth
generation Morgan steel rolling mill.  We believe our rolling and
drawing facilities are among the most advanced in the world.
All our business has been conducted in Renminbi, the official
currency of China. Renminbi is still not a free floating currency. The value of
Renminbi is subject to changes in the Chinese government's policies and depends
to a large extent on China's
domestic and international economic and political developments, as well as supply and demand in the local market. The Renminbi has slowly but steadily appreciated against the U.S. dollar since July 2005.
- 27 -
Our revenues increased from $238,644,939 in fiscal year 2007 to $511,487,983 in fiscal year 2008, representing a growth rate of approximately 214%, primarily due to our ramping up our capacity during the 2008 period, but decreased in the
2009 fiscal year to $373,660,461, primarily due to a sharp decline in the price of steel wire caused by the global economic downturn during the period, though our gross margins improved markedly as we improved our operational efficiency. Our
revenues increased from $89,061,713 in the three months ended March 31, 2009, to $105,976,651 in the same 2010 period, representing a growth rate of approximately 19%.
Our Industry
China is the world's largest producer of steel and it is estimated that annual
production capacity in 2009 was 567MMT. Japan, the second largest producer, produces less than 30% of that
amount. In total, China accounts for roughly 45% of
global steel production. China's steel industry, while enormous in total scale, is a fractured industry where a great number
of producers each account for a small amount of total output. China's steel
industry includes a wide range of producers, including smaller, inefficient
backyard operations, huge state owned enterprises beset with unnecessarily large, unionized labor forces and their accompanying pension burdens as well as newly constructed steel plants possessing  facilities
built according to the highest technology and efficiency standards in the world.
PRC Macroeconomic Drivers
The steel industry is a fundamental cornerstone of the economy and growth in the steel industry has coincided with consistent and strong growth in the PRC economy as a whole. It is estimated that real GDP year over year quarterly growth has been
well over an average of 9% since 2000, with a low of 6.1% in the first quarter of 2009:
We believe that GDP growth will gradually slow but remain positive on the whole as China industrializes further.
Steel Consumption, Construction and Fixed Asset Investment
Steel consumption in the PRC is highly correlated with nominal fixed asset investment. Construction is the largest driver of steel usage in China. The following table details steel consumption by economic sector; construction consumes the most steel
by a wide margin.
- 28 -
Construction growth has been strong and has rebounded from the financial downturn in late 2008 robustly. We expect to continue to benefit from the housing and commercial needs created by urbanization trends and infrastructure trends in the future:
There is also a close relationship between steel consumption and fixed asset investment (FAI) in China. The PRC's fixed asset investment as a portion of GDP has been historically strong and growing. It is estimated that in 2009, fixed asset
investment comprised as much as 70% of GDP. The graph below details the rapid and strong growth in FAI:
- 29 -
The Steel Wire Market
China is estimated to have produced roughly 567MMT of steel wire in 2009. Steel wire is used in a variety of products and serves the construction industry.
The chart below details average steel wire prices we experienced over the past two years in our local market:
- 30 -
Steel wire prices, along with the majority of other commodities, had a strong run up in prices leading to a large collapse in 2008. Throughout the rapid increase and decline in commodity prices, we were able to maintain positive gross and net
margins. We believe steel wire prices have stabilized and we expect them to rise during 2010 as demand increases due to new and ongoing construction projects.
Our Growth Strategy
We believe that the market for high quality steel wire will continue to grow in the PRC. The PRC has placed a temporary moratorium on new steel wire plant construction in an effort to encourage consolidation
of facilities; therefore, our expansion plan is to
build capacity through the acquisition of facilities at attractive prices from competitors who lack our management experience, efficient labor force, and financial resources. We plan to continue to improve margins through increased efficiencies in
our production process.
We intend to pursue the following strategies to achieve our goal:
Identify and acquire modern, high quality producers at low valuations
: In light of the moratorium on building new wire making facilities in China, we plan to expand our business and operations through the acquisition of steel
wire producers with
production facilities in the vicinity of our current facilities. We expect to limit our acquisition targets to producers with facilities that have had a major overhaul or modernization of production machinery in the last 2-3 years, as we expect such
facilities to achieve better production efficiency, lower maintenance costs and increased output, as compared to less modern facilities, and will help us to more rapidly achieve higher margins and increase our market share.
Expansion to create economies of scale
: We expect that our acquisition of modernized facilities will result in increased wire-making capacity, resulting in greater bargaining power with supplier and customer pricing and otherwise enable us to
capitalize on economies of scale to produce at higher margins.
Our Products
Our products are steel wires ranging in diameter from 6.5mm to 10mm. All our wires are manufactured in accordance to ISO9001-2000 quality management system standards. Our 6.5mm diameter wires also meet PRC national GB/700-88 standards,
the PRC national standard for carbon structural steel. We ensure a low quantity
of oxide in our wire to provide our downstream customers with the highest
quality products for further processing. Our end customers process the wire into a variety of end
products vital to construction and infrastructure, including but not limited to nails, screws, wire mesh, and fencing.
Longhai Steel Wire Products coming off production line and loading onto transport trucks
We sell 100% of our products in China, with approximately 80%  being sold in Hebei province, our largest market. The industrial area in and around the nearby city of Hengshui contains one of the largest collective wire processing
capacities in the world. Much of our wire is distributed in this area for further processing.
Domestic economic growth and the accompanying fixed asset investment in construction and infrastructure projects is the major macroeconomic driver of our growth.
- 31 -
Our Customers
We sell our products to a number of distribution companies that
transport our wire to nearby wire processors. Our products are manufactured on
an on-demand basis, and we usually collect payment in advance. Sales prices are
set at the market price for wire on a daily basis. Our customers generally
prepay for their orders, and the final price may be adjusted to the market price
on the day of pick up. This allows us to maintain a low inventory of both wire
and billet and largely protects us from exposure to commodity price
volatility.
In order to increase sales and be competitive in the market, we
occasionally offer discounted wholesale prices to newer or larger customers at
our discretion. Our sales efforts are directed toward developing long term
relationships with customers who we expect are or will be able to purchase in
large quantities. During the year ended December 31, 2009, our top five
distributers accounted for 38.8% of our revenues as follows:
Rank
Customer
Percentage of Total Revenues
    in 2009
1.
Beixin Jiancai Group Co., Ltd.
16.1%
2.
Hebei Huatong Wire and Cable Co. Ltd.
8.3%
3.
Beijing Jingtie Metal Materials Company
5.3%
4.
Guangxi Lianhang Investment Co., Ltd.
5.1%
5.
Guangxi Huazhan Investment Co., Ltd
3.9%
Total
38.8%
We pride ourselves on our ability to meet our customers' demand
for high quality products, fast turnaround and timely delivery, and customer
support. We believe that our ability to consistently meet or exceed these
standards is critical to our success and market share. Our sales department
currently has 20 full time employees.
Our Major Supplier of Raw Materials
The principal raw material used in our products is steel
billet. In 2009, steel billet accounted for more than 95% of our production
costs. We generally purchase billet only after a customer has made a wire order
and therefore avoid a large inventory of billet. This insulates us from
commodity price fluctuation risk associated with holding large quantities of raw
materials. We are generally able to pass higher costs due to fluctuations in raw
material costs directly through to our customers.
Prior to 2009, we purchased our steel billet at a slight
discount from the Longhai Steel Group, an entity owned and controlled by our
CEO, Chaojun Wang. However, since 2009, we have purchased our steel billet at
prevailing market prices from third party trading companies who source their
steel billet from local steel manufacturers, including the Longhai Steel Group.
Our purchasing team monitors and tracks movements in steel billet prices daily
and provides regular guidance to management to respond quickly to market
conditions and aid in long term business planning.
The table below lists our top five suppliers as of December 31,
2009, showing the cumulative dollar amount of raw materials purchased from them
during the fiscal year ended December 31, 2009 and the percentage of raw
materials purchased from each supplier as compared to procurement of all raw
materials.
Cumulative
Percentage of
Amount Purchased
Total Purchases
During Fiscal Year
During Fiscal
Rank
Supplier's name
2009
(US$)
Year 2009
1
Hebei Huaneng Industrial Development Co., Ltd.
209,632,751
62%
2
Beixin Jiancai Group Co., Ltd.
46,374,186
14%
3
Beijing Jingtie Metal Materials Company
68,736,793
20%
4
Others
14,040,003
4%
Total Purchasing
      Volume
338,783,733
100%
- 32 -
Our Competition
Competition within the steel industry in the PRC is intense.
There is an estimated capacity of 660MMT of steel capacity in China. Our
competitors range from small private enterprises to extremely large state-owned
enterprises. Our operating subsidiary, Longhai, is located in Xingtai, Hebei
Province. Hebei is the largest producer of steel by province in the PRC and we
are the largest non-state-owned steel wire manufacturer in Hebei.
The table below details our major competitors:
Company
Production Lines
Est. Capacity
Line Speed (m/s)
Ownership
Xingtai Steel Company*
2
2MMT
90
State Owned
Hebei Xinjin Company
1
0.5MMT
90
Private
Wuan Minglao Steel
      Company
1
0.5MMT
75
Private
Yongnian Jianfa Company
1
0.3MMT
49
Private
We operate two production lines with a combined yearly steel
wire capacity of 0.9MMT, a line speed of 90 meters per second and
the most advanced production equipment on the market. We expect to exceed Xingtai Steel's capacity when we acquire two additional processing lines with
the proceeds of the offering.
Private steel product manufacturers in China generally focus on
low-end products. Many of our competitors are significantly smaller than we are
and use outdated equipment and production techniques. Due to our high quality
equipment, economies of scale and management experience, we produce steel wire
at higher efficiencies and lower prices than these competitors. The larger state
owned enterprises with whom we compete often have oversized, unionized labor
forces and associated pension and healthcare liabilities and cannot match our
production efficiency. We believe that we distinguish ourselves in the market
based on our extremely fast turnaround, high quality and low prices.
Our Properties and Facilities
We lease 107,000 square meters of space in Xingtai, Hebei
province, pursuant to a lease agreement, dated October 1, 2008, as amended,
between Longhai and the Longhai Steel Group. We are required to make an annual
lease payment of RMB 193,831.66 (approximately, $28,455), payable on a
semiannual basis, on or before the 15
th
day of each payment
month.
Our property is comprised of a five-story building for our
executive offices, accounting for 1% of our space, and another building which
houses our production facilities, occupying approximately 30% of our space, and
our warehouse and common areas, accounting for the remaining space.
- 33 -
Our production facilities include a fifth generation Morgan
steel rolling mill. We utilize a double chamber heating furnace which feeds one
coarse and one intermediate rolling mill, and then splits into two wire
production lines arranged in a Y-shaped layout. We believe our rolling and
drawing facilities are among the most advanced in the world. We have a capacity
of approximately 900,000 MT of wire per year.
Our Employees
As of December 31, 2009, we had  458 full-time and
no part-time employees. The following table illustrates the allocation of these
employees among the various job functions conducted at our company.
Department
Staff
Management
10
Administrative
12
Accounting
14
Sales
20
Production
402
Total
458
We believe that we maintain a satisfactory working relationship
with our employees and we have not experienced any significant labor disputes or
any difficulties in recruiting staff for our operations.
Our employees in China participate in a state pension plan
organized by Chinese municipal and provincial governments to which we are
required to contribute 20% of monthly salaries of those employees who elected to
pay their plan contributions through us.  Employees from the countryside
can opt to pay their contributions in their home village instead, where
contributions are lower - thus getting higher net pay in return for a lower
pension.  The compensation expenses
related to the state pension plan were $76,700 and $5,100 for the fiscal years
2009 and 2008, respectively. In addition, we are required by Chinese law to
cover employees in China with various types of social insurance. We have
purchased social insurances for all of our employees.
Regulations
Because our principal operating subsidiary, Longhai, is located
in the PRC, our business is regulated by the national and local laws of the PRC.
We believe our conduct of business complies with existing PRC laws, rules and
regulations.
- 34 -
General Regulation of Businesses
We believe we are in material compliance with all applicable labor and safety laws and regulations in the PRC, including the PRC Labor Contract Law, the PRC Production Safety Law, the PRC Regulation for Insurance for Labor Injury, the PRC
Unemployment Insurance Law, the PRC Provisional Insurance Measures for Maternity of Employees, PRC Interim Provisions on Registration of Social Insurance, PRC Interim Regulation on the Collection and Payment of Social Insurance Premiums and other
related regulations, rules and provisions issued by the relevant governmental authorities from time to time, for our operations in the PRC.
According to the PRC Labor Contract Law, we are required to enter into labor contracts with our employees. We are required to pay no less than local minimum wages to our employees. We are also required to provide employees with labor safety and
sanitation conditions meeting PRC government laws and regulations and carry out regular health examinations of our employees engaged in hazardous occupations.
Foreign Currency Exchange
The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended (2008). Under these Rules, RMB is freely convertible for current account items, such as trade and service-related
foreign exchange transactions, but not for capital account items, such as direct investment, loan or investment in securities outside China unless the prior approval of, and/or registration with, SAFE or its local counterparts (as the case may be)
is obtained.
Pursuant to the Foreign Currency Administration Rules, foreign invested enterprises, or FIEs, in China may purchase foreign currency without the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial
documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by SAFE) to satisfy foreign exchange liabilities or to pay dividends. In addition, if a foreign company acquires a company in China, the
acquired company will also become an FIE. However, the relevant PRC government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct
investment, loan and investment in securities outside China are still subject to limitations and require approvals from, and/or registration with, SAFE.
Regulation of Income Taxes
On March 16, 2007, the National People's Congress of China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Before the implementation of the New EIT Law,
FIEs established in the PRC, unless granted preferential tax treatments by the PRC government, were generally subject to an earned income tax, or EIT, rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income tax. The New EIT
Law and its implementing rules impose a unified EIT rate of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions.
In addition to the changes to the current tax structure, under the New EIT Law, an enterprise established outside of China with "de facto management bodies" within China is considered a resident enterprise and will normally be subject to
an EIT of 25% on its global income. The implementing rules define the term "de facto management bodies" as "an establishment that exercises, in substance, overall management and control over the production, business, personnel,
accounting, etc., of a Chinese enterprise." If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our organization's global income will be subject to PRC income tax of 25%. For
detailed discussion of PRC tax issues related to resident enterprise status, see "Risk Factors – Risks Related to Our Business – Under the New EIT Law, we may be classified as a 'resident enterprise' of China. Such
classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders."
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income and non-tax deductible expenses incurred. Our management carefully monitors these legal developments and will
timely adjust our effective income tax rate when necessary.
Dividend Distribution
Under applicable PRC regulations, FIEs in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a FIE in China is required to set aside at least
10.0%
of its distributed annual after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not distributable as cash
dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
- 35 -
The New EIT Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes unless the jurisdiction of incorporation of such
enterprises' shareholder has a tax treaty with China that provides for a different withholding arrangement. Kalington Consulting is considered an FIE and is directly held by our subsidiary Kalington in Hong Kong. According to a 2006 tax treaty
between the Mainland and Hong Kong, dividends payable by an FIE in China to the company in Hong Kong who directly holds at least 25% of the equity interests in the FIE will be subject to a no more than 5% withholding tax. We expect that such 5%
withholding tax will apply to dividends paid to Kalington by Kalington Consulting, but this treatment will depend on our status as a non-resident enterprise.
Environmental Matters
Longhai's manufacturing facilities are subject to various pollution control regulations with respect to noise, water and air pollution and the disposal of waste and hazardous materials. We are also subject to periodic inspections by local
environmental protection authorities. Our operating controlled affiliate Longhai has received certifications from the relevant PRC government agencies in charge of environmental protection indicating that its business operations are in material
compliance with the relevant PRC environmental laws and regulations. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.
Insurance
Insurance companies in China offer limited business insurance products. While business interruption insurance is available to a limited extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties
associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we could face liability from the interruption of our business as summarized under "Risk Factors –
Risks Related to Our Business – We do not carry business interruption insurance so we could incur unrecoverable losses if our business is interrupted."
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise
from time to time that may 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.
- 36 -
MANAGEMENT
Directors and Executive Officers
The following sets forth information about our directors and
executive officers as of the date of this prospectus:
NAME
AGE
POSITION
Chaojun Wang
55
Chairman and CEO
Dr. Eberhard Kornotzki
47
CFO and Director
Basil Hwang
38
Director (Independent)
Dr. Michael Cheng
36
Director (Independent)
Drew Bernstein
53
Director (Independent)
Chaojun Wang:
Mr. Wang has served as our Chairman and
Chief Executive Officer since March 2010, and has served as the Chief Executive
Officer of our VIE, Longhai, since its inception in 2008, and as Chairman of the
Longhai Steel Group, our former parent company, since 1999. Mr. Wang is also a
member of the local parliament and holds a
Bachelor's Degree in
enterprise management from the Shijiazhuang Railway College.
Dr. Eberhard Kornotzki:
Dr. Kornotzki has served as our
Chief Financial Officer since his appointment on April 1, 2010, and as our
director, since June 19, 2010. He has also served as the Chief Executive Officer
of Wealth Index Capital Group LLC, providers of corporate finance and management
consulting services, since May 2007. Dr. Kornotzki has 15 years of international
experience in the capital goods industry, working for German-owned manufacturing
companies such as Hermes, Weidmüller, and Bosch Group in Hong Kong, Singapore
and Beijing. Prior to joining us, Dr. Kornotzki served, from October 2007 to
December 2008, as a Non-Executive Director of Sunity PLC, a UK-based company
engaged in providing management services to Sunity (Beijing) Technology Co.,
Limited, a provider of integrated telecommunication software systems, radio
frequency identification systems and call centers; and from 2003 to 2006, as a
Managing Director of Tianjin Buderus Heating Technology Co. Ltd., a subsidiary
of Germany-based Bosch Group. From 2005 to 2006, Dr. Kornotzki also served as
Vice Chairman of the Trade and Distribution Working Group of the European
Chamber of Commerce in Beijing. He holds a PhD in Chinese studies from
Humboldt-Universität zu Berlin (Germany) and a Master of Science in Business
Administration from the University of Illinois, Champaign-Urbana (USA). He is
fluent in English, German and Mandarin Chinese. Dr. Kornotzki dedicates
approximately 60% of his time to his role as the Company's Chief Financial
Officer.
Basil H. Hwang:
Mr. Hwang has been appointed to serve as
our director, effective as of the closing date of the Offering, and is the
Founder and Managing Partner of the Hong Kong office of Hwang & Co in
association with Dechert LLP. Prior to this, Mr. Hwang was a partner with Paul,
Hastings, Janofsky & Walker LLP and a counsel with O'Melveny & Myers
LLP. Mr. Hwang is a member of the Executive Committee of the Singapore Chamber
of Commerce in Hong Kong. He has published Private Equity and Venture Capital
Investing in Asia and Renminbi (RMB) Denominated Funds – An Emerging Platform
for Private Equity Investment in China, and has lectured on Asian Private Equity
Deal Terms. He is ranked as a leading lawyer by both Chambers Global and by the
Asia-Pacific Legal 500 directories. Mr. Hwang is fluent in English, Mandarin and
Cantonese and received his education in Singapore, Canada and England. He is a
graduate of the National University of Singapore and a postgraduate of the Board
of Legal Education. Mr. Hwang is admitted to practice law in Hong Kong,
Singapore, and England and Wales.
Dr. Michael Cheng:
Dr. Cheng has been appointed to serve
as our director, effective as of the closing date of the Offering, and has
served as a Principal of STIC Investments (Asia Private Equity Fund), since
March 2008. Prior to joining STIC Investments, Dr. Cheng served, from August
2006 to March 2008, as a Senior Consultant with Booz Allen Hamilton's Greater
China office, and from May 2005 to August 2006, as an Agriculture Risk
Management Consultant with the World Bank. Dr. Cheng is fluent in Mandarin and
is a contributor and co-author of The Fusion of International Vision and Chinese
Situation published by Beijing Publishing Group in 2006. He holds a Bachelor of
International Trade from the Inner Mongolia Finance & Economics College in
China, a Ph.D. in Economics from the University of Hawaii at Manoa and Master of
Public Administration, from Harvard University's, J.F. Kennedy School of
Government.
Drew Bernstein:
Mr. Bernstein has been appointed to
serve as our director, effective as of the closing date of the Offering, and has
served as a Principal and co-founder of Bernstein & Pinchuk LLP, a fast
growing accounting firm headquartered in New York, since 1983. Mr. Bernstein
received his BS degree from the University of Maryland Business School. He is
qualified to perform accounting and auditing services for public companies and
has qualified as an expert witness and serves as a director of NeoStem,
Incorporated (NYSE Amex: NBS), a pharmaceutical research company, Oriental Paper
Company, Inc. (NYSE Amex: ONP), a PRC-based manufacturer and distributor of
paper products, and China Wind Systems, Inc. (NASDAQ: CWS), a PRC-based supplier of forged rolled rings and other forged
components. Mr. Bernstein is licensed in the state of New York and other states
and is a member of the AICPA, the NYSSCPA and the NSA.
- 37 -
Family Relationships
There is no family relationship among any of our officers or
directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or
executive officers has been convicted in a criminal proceeding, excluding
traffic violations or similar misdemeanors, or has been a party to any judicial
or administrative proceeding during the past ten years that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws. Except as set
forth in our discussion below in "Certain Relationships and Related
Transactions, and Director Independence – Transactions with Related Persons,"
none of our directors, director nominees or executive officers has been involved
in any transactions with us or any of our directors, executive officers,
affiliates or associates which are required to be disclosed pursuant to the
rules and regulations of the SEC.
There are no agreements or understandings for any of our
executive officers or directors to resign at the request of another person and
no officer or director is acting on behalf of nor will any of them act at the
direction of any other person. To the best of our knowledge and belief, there
are no arrangements or understandings with any of our principal stockholders,
customers, suppliers, or any other person, pursuant to which any of our
directors or executive officers were appointed.
Directors are elected until their successors are duly elected
and qualified.
Significant Employees
The following sets forth the name and position of each of our
current significant employees.
NAME
AGE
POSITION
Dongmei Pan
48
CTO
Chaohong
      Wang
44
Sales Manager
Dongmei Pan:
Ms. Pan has served as Longhai's Chief
Technology Officer since its inception in October 2008 and our Chief Technology
Officer since March 26, 2010. Ms. Pan graduated from Hebei Polytechnic
University with a bachelor's degree in metal processing. Previous work
experience includes CTO of Xingtai Steel Co Ltd from 1983 to 1995, CTO of Henan
Luoherenhe Steel Wire Co Ltd from 1995 to 1998 and vice-manager and CTO of our
predecessor company, Longhai Steel Group from 2003 to 2008. She published
articles about the steel market and is a certified steel rolling and wire
production engineer.
Chaohong Wang:
Mr. Wang has served as Longhai's Sales
Manager since October 2008 and our Sales Manager since March 26, 2010. Prior to
becoming Sales Manager at Longhai, Mr. Wang worked as Supply Manager at the
Longhai Steel Group since 2003.
Governance Structure
Our company is governed by a Board of Directors that will
consist of five members, effective as of the closing of the Offering, Chaojun
Wang, Eberhard Kornotzki, Basil H. Hwang, Michael Cheng and Drew Bernstein, with
Chaojun Wang serving as Board Chairman, and Messrs. Hwang, Cheng and Bernstein
serving as our "independent" directors, as that term is defined by the NASDAQ
Stock Market Rules.
The Board believes the interests of all stockholders are best
served at the present time through a leadership model with a combined
Chairman/CEO position. However, the Board retains authority to amend the By-Laws
to separate the positions of Chairman and CEO at any time. The current CEO
possesses an in-depth knowledge of our company, its integrated operations in
China, and the array of challenges to be faced, gained through over 30 years of
successful experience. The Board believes that these experiences and other
insights put the CEO in the best position to provide broad leadership for the
Board as it considers strategy and as it exercises its fiduciary
responsibilities to its stockholders.
Further, the Board has demonstrated its commitment and ability
to provide independent oversight of management. A majority of the Board will be
comprised of independent directors, and 100% of the Audit, Compensation, and
Corporate Governance committees will be independent. Each independent director
has access to the CEO and other Company executives on request,
may call meetings of the independent directors, and may request agenda topics to be added or dealt with in more detail at meetings of the full Board or an appropriate Board committee.
- 38 -
The Board's Role in Risk Oversight
The Board oversees that the assets of the Company are properly safeguarded, that the appropriate financial and other controls are maintained, and that the Company's business is conducted wisely and in compliance with applicable laws and
regulations and proper governance. Included in these responsibilities is the Board of Directors' oversight of the various risks facing the Company. In this regard, the Board seeks to understand and oversee critical business risks. The Board
does not view risk in isolation. Risks are considered in virtually every business decision and as part of the Company's business strategy. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful
and appropriate risk-taking is essential for the Company to be competitive on a global basis and to achieve its objectives.
While the Board oversees risk management, Company management is charged with managing risk. The Company has robust internal processes and a strong internal control environment to identify and manage risks and to communicate with the Board. The Board
and the new Audit Committee monitor and evaluate the effectiveness of the internal controls and the risk management program at least annually. Management communicates routinely with the Board, Board Committees and individual Directors on the
significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management.
The Board has implemented its risk oversight function both as a whole and through new Board Committees, which will meet regularly and report back to the full Board. All Committees will play significant roles in carrying out the risk oversight
function. In particular:
The Audit Committee will oversee risks related to the Company's financial statements, the financial reporting process, accounting and legal matters. The Audit Committee will also oversee the internal audit function and the Company's ethics
programs, including the Codes of Business Conduct. The Audit Committee members will meet separately with representatives of the independent auditing firm.
The Compensation Committee will evaluate the risks and rewards associated with the Company's compensation philosophy and programs. The Compensation Committee will also review and approve compensation programs with features that mitigate risk
without diminishing the incentive nature of the compensation. Management will discuss with the Compensation Committee the procedures that have been put in place to identify and mitigate potential risks in compensation.
Independent Directors; Committees and Meetings
Prior to June 19, 2010, our Board did not have any standing committees, however, on June
19, 2010, our Board established three standing committees which, pursuant to delegated authority, will perform various duties on behalf of and report to the
Board: (i) Audit Committee, (ii) Compensation Committee and (iii) Corporate Governance and Nominating Committee. Each of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee are comprised entirely of
independent directors. From time to time, the Board may establish other committees.
Copies of the charters for each of our three standing committees are filed as Exhibits 99.1, 99.2 and 99.3 to our current report on Form 8-K filed with the SEC on
or about
July 20, 2010.
Audit Committee and Audit Committee Financial Expert
Each of Basil H. Hwang, Michael Cheng and Drew Bernstein, whom our Board determined to be "independent" as that term is defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules, have been appointed to serve as members of the
Company's Audit Committee, effective as of the closing date of the Offering. Mr. Bernstein serves as Chair of the audit committee.
Our audit committee will oversee our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is responsible for, among other things:
selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;
reviewing with our independent auditors any audit problems or difficulties and management's response;
reviewing and approving all proposed related-party transactions;
discussing the annual audited financial statements with management and our independent auditors;
- 39 -
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control deficiencies;
annually reviewing and reassessing the adequacy of our audit committee charter;
meeting separately and periodically with management and our internal and independent auditors;
reporting regularly to the full Board of Directors; and
such other matters that are specifically delegated to our audit committee by our Board of Directors from time to time.
Our Board of Directors has determined that Mr. Bernstein possesses the accounting or related financial management experience that qualifies him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the NASDAQ Marketplace Rules and
that he is an "audit committee financial expert" as defined by the rules and regulations of the SEC.
Compensation Committee
Our compensation committee will consist of Basil H. Hwang, Michael Cheng and Drew Bernstein, effective as of the closing date of the Offering, each of whom are "independent" as that term is defined by Rule 4200(a)(15) of the NASDAQ
Marketplace Rules. Our compensation committee will assist the Board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive
officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. Mr. Hwang will serve as Chair of the compensation committee.
The compensation committee will be responsible for, among other things:
approving and overseeing the compensation package for our executive officers;
reviewing and making recommendations to the Board with respect to the compensation of our directors;
reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level
of our chief executive officer based on this evaluation; and
reviewing periodically and making recommendations to the Board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.
The Compensation Committee will have the sole authority to retain and terminate outside counsel, compensation consultants retained to assist the Compensation Committee in determining the compensation of the Chief Executive Officer or senior
executive officers, or other experts or consultants, as it deems appropriate, including sole authority to approve the firms' fees and other retention terms. The Compensation Committee may also form and delegate authority to subcommittees and may
delegate authority to one or more designated members of the Compensation Committee. The Compensation Committee may from time to time seek recommendations from the executive officers of the Company regarding matters under the purview of the
Compensation Committee, though the authority to act on such recommendations rests solely with the Compensation Committee.
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee will consist of Basil H. Hwang, Michael Cheng and Drew Bernstein, effective as of the closing date of the Offering, each of whom is "independent" as that term is defined by Rule 4200(a)(15)
of the NASDAQ Marketplace Rules. The corporate governance and nominating committee will assist the Board of Directors in identifying individuals qualified to become our directors and in determining the composition of the Board and its committees.
Dr. Cheng will serve as Chair of the corporate governance and nominating committee.
The corporate governance and nominating committee is responsible for, among other things:
identifying and recommending to the Board nominees for election or re-election to the board, or for appointment to fill any vacancy;
reviewing annually with the Board the current composition of the Board in light of the characteristics of independence, age, skills, experience and availability of service to us;
identifying and recommending to the Board the directors to serve as members of the Board's committees; and
monitoring compliance with our code of business conduct and ethics.
- 40 -
In identifying and recommending nominees for election or re-election to the board, or for appointment to fill any vacancy, the corporate governance and nominating committee is also committed to engendering Board strength and effectiveness by seeking
candidates with a diverse set of business, academic and life experiences and backgrounds who also possess knowledge and skills in areas of importance to the Company. The Committee will not use quotas but will consider diversity when evaluating
potential new directors.
The Committee will identify director candidates primarily through recommendations made by the non-employee directors. These recommendations will be developed based on the directors' own knowledge and experience in a variety of fields.
Additionally the Committee will consider recommendations made by the employee directors, stockholders, and others. All recommendations, regardless of the source, will be evaluated on the same basis.
Stockholders may send recommendations for director candidates to the Company's Corporate Secretary, at the Company's most recent address with the SEC. A submission recommending a candidate should include:
Sufficient biographical information to allow the Committee to evaluate the candidate;
Information concerning any relationship between the candidate and the stockholder recommending the candidate; and
Material indicating the willingness of the candidate to serve if nominated and elected.
Director Qualifications
Directors are responsible for overseeing the Company's business consistent with their fiduciary duty to stockholders. This significant responsibility requires highly-skilled individuals with various qualities, attributes and professional
experience. The Board believes that there are general requirements for service on the Company's Board of Directors that are applicable to all Directors and that there are other skills and experience that should be represented on the Board as a
whole but not necessarily by each Director. The Board considers the qualifications of Directors and Director candidates individually and in the broader context of the Board's overall composition and the Company's current and future
needs.
Qualifications for All Directors
In its assessment of each potential candidate, including those recommended by stockholders, the Board considers the nominee's judgment, integrity, experience, independence, understanding of the Company's business or other related
industries and such other factors the Board determines are pertinent in light of the current needs of the Board. The Board also takes into account the ability of a Director to devote the time and effort necessary to fulfill his or her
responsibilities to the Company.
The Board requires that each Director be a recognized person of high integrity with a proven record of success in his or her field. Each Director must demonstrate innovative thinking, familiarity with and respect for corporate governance
requirements and practices, an appreciation of multiple cultures and a commitment to sustainability and to dealing responsibly with social issues. In addition to the qualifications required of all Directors, the Board assesses intangible qualities
including the individual's ability to ask difficult questions and, simultaneously, to work collegially.
The Board does not have a specific diversity policy, but considers diversity of race, ethnicity, age, cultural background and professional experiences and opinions in evaluating candidates for Board membership. Diversity is important because a
variety of points of view contribute to a more effective decision-making process.
Qualifications, Attributes, Skills and Experience to be Represented on the Board as a Whole
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of our current needs and business priorities. The Board believes that a diversity of
professional experiences in the steel industry, specific knowledge of key geographic growth areas, and knowledge of U.S. capital markets and of U.S. accounting and financial reporting standards are important attributes on the Board.
Set forth below is a tabular disclosure summarizing some of the specific qualifications, attributes, skills and experiences of our directors.
- 41 -
Director
Titles
Material Qualifications
Chaojun Wang
Chairman
Not only is Mr. Wang Chaojun the founder of the company,
      but he is also a pillar of the community and is widely respected by
      employees, business partners and government officials alike. He has many
      years of experience in the industry, is a member of local parliament and a
      charismatic and benevolent leader. Integrity and modesty are Mr. Wang's
      personal values that have facilitated his leadership success and will
      continue to do so.
Eberhard Kornotzki
Chief
      Financial Officer and Director
Dr. Kornotzki's deep understanding of Chinese language
      and culture, combined with his top level academic achievements enable him
      to facilitate effective and unfiltered cross-cultural communication. His
      many years of international top management experience enable him to get
      things done with punctuality, reliability and precision. Having been
      involved in the capital goods industry (such as machine tools and
      electrical components), Dr. Kornotzki's profound knowledge of business
      processes at large companies and of client behavior will add significant
      value to the board.
Basil Hwang
Director (Independent)
As managing partner and the founder of a premier
      international law firm's Hong Kong and China operation, Mr. Hwang has been
      involved in numerous securities and financing transactions. Mr. Hwang
      circulates widely within the Mainland Chinese and Hong Kong business and
      financial community and provides counsel to business leaders in the
      region. He is recognized by clients for his business insight and the
      quality of his advice, his familiarity with regulations and business
      practices in China and Hong Kong, and his ability to reliably and
      successfully execute transactions. His counsel and experience in both the
      Chinese and international capital markets will provide guidance and
      direction to our future growth.
Michael Cheng
Director (Independent)
Dr. Cheng has extensive capital markets experience and
      proven track record advising international and domestic companies in their
      formation of successful business strategies in China. He also has strong,
      long-term relationships with PRC central and local governments, financial
      institutions, industry experts and accounting professionals. We believe
      that Dr. Cheng's unique perspective and experience both in China and
      overseas will be a great benefit to the Company.
Drew Bernstein
Director and Audit Committee Financial Expert
Mr. Bernstein serves as an accountant and advisor to
      numerous entities across the U.S., China and Europe in diverse industries,
      including in retail, manufacturing, hospitality and professional
      practices. He also provides business advisory and specialized auditing
      services to clients throughout Europe including the Czech Republic,
      France, Germany and Switzerland, and in Israel. He is a frequent speaker
      at industry, investment banking and university conferences, and has been
      responsible for more than 200 real estate transactions with an aggregate
      value in excess of US$3 billion. We believe that Mr. Bernstein's
      experience as an accountant and advisor is invaluable to the Company.
Code of Ethics
On June 19, 2010, our board of directors adopted a code of
ethics, which applies to all of our directors, officers and employees, including
our principal executive officer, principal financial officer, and principal
accounting officer. The code of ethics is designed to deter wrongdoing and to
promote honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;
full, fair, accurate, timely and understandable disclosure in reports and
documents that we file with, or submit to, the SEC, and in other public
communications that we made; compliance with applicable government laws, rules and
regulations; the prompt internal reporting of violations of the code to the
appropriate person or persons; and accountability for adherence to the code of
ethics.
- 42 -
The code of ethics requires the highest standard of ethical
conduct and fair dealing of its senior financial officers, or SFO, defined as
the Chief Executive Officer and Chief Financial Officer. While this policy is
intended to only cover the actions of the SFO, we expect our other officers,
directors and employees will also review our code and abide by its provisions.
We believe that our reputation is a valuable asset and must continually be
guarded by all associated with us so as to earn the trust, confidence and
respect of our suppliers, customers and stockholders. A copy of the code of
ethics has been filed as Exhibit 14 of our current report on Form 8-K, filed on
July 20, 2010.
FCPA Policy
The Foreign Corrupt Practices Act, or the FCPA, prohibits
companies and individuals subject to FCPA jurisdiction from providing to foreign
officials any "corrupt payments" (
i.e
., bribes, kickbacks, and similar
benefits) in order to obtain any unfair advantage with respect to government
contracts, regulatory approvals, licenses, and other government actions for the
purpose of obtaining or retaining business. The FCPA applies to: 1) "issuers" –
U.S. and foreign companies subject to SEC jurisdiction; 2) "domestic concerns" –
individuals who are citizens, nationals or residents of the United States and
companies with a principal place of business in the United States or organized
under U.S. law; and 3) "other persons" – foreign companies or persons who act in
the United States to further a corrupt payment. The term "other persons" has
been interpreted broadly to include foreign entities that send an email in
furtherance of a corrupt act to a U.S. recipient, or that clear a corrupt
payment through a U.S. bank. The FCPA requires issuers to maintain accurate
books and records that do not misrepresent their payments or expenses. Issuers
are also liable for the accuracy of their majority-owned subsidiaries' books and
records, and are required to act in good faith to encourage their minority-owned
subsidiaries to adopt reasonable internal accounting controls intended to avoid
corrupt payments. Issuers, domestic concerns and other persons may be liable for
the actions of their foreign subsidiaries and agents if they know or should know
that a subsidiary or agent is likely to make a corrupt payment to a foreign
official.
Issuers, domestic concerns and other persons subject to the
FCPA are subject to severe criminal and civil penalties for violations of the
FCPA. Entities that make corrupt payments may be fined as much as $2 million per
violation, or twice the amount of the benefit sought in return for the payment.
Individuals may be fined up to $100,000 and/or imprisoned for up to five years.
Issuers who violate the FCPA's books and records requirements are subject to
fines up to $25 million, and individuals can be fined up to $5 million and/or
imprisoned for up to 20 years. Companies may not indemnify their officers or
employees for FCPA violations.
On July 17, 2010, our board of directors adopted a Foreign
Corrupt Practices Act Policy which applies to all of our directors, officers,
employees, agents and representatives, including our principal executive
officer, principal financial officer, and principal accounting officer. Our FCPA
Policy requires of our directors, officers, employees, agents and
representatives to adhere to strict anti-corruption policies and practices. The
policy also requires that prospective agents and representatives of the Company
be familiarized with and agree to adopt our anti-corruption standards and
expectations for ethical conduct, prior to entering into any engagement with any
of them, and that we perform due diligence, from time to time, to ensure such
compliance.
EXECUTIVE COMPENSATION
Summary Compensation Table – 2009 and 2008
The following table sets forth information concerning all cash
and non-cash compensation awarded to, earned by or paid to the named persons for
services rendered in all capacities during the noted periods. No other executive
officers received total annual salary and bonus compensation in excess of
$100,000.
- 43 -
Non-
Non-
Equity
qualified
Incentive Plan
      Deferred
Stock
Option
Compensation
Compensation
All Other
Name and
Salary
Bonus
Awards
Awards
Earnings
Earnings
Compensation
Total
Principal
Year
($)
($)
($)
($)
($)
($)
($)
($)
Position
Chaojun Wang,
2009
0
0
0
0
0
0
0
0
CEO
(1)
2008
0
0
0
0
0
0
0
0
Joseph Meuse,
2009
0
0
0
0
0
0
0
0
former
2008
0
0
0
0
0
0
0
0
CEO
(1)
(1)
On March 26, 2010, we acquired Kalington in a reverse acquisition
      transaction that was structured as a share exchange and in connection with
      that transaction, Mr. Chaojun Wang became our Chief Executive Officer.
      Prior to the effective date of the reverse acquisition, Mr. Joseph Meuse
      served as our President. Prior to June 2010, Mr. Wang did not receive any
      annual, long term and other compensation from the Company or any of its
      subsidiaries or affiliates.
Summary of Employment Agreements and Material Terms
Prior to our reverse acquisition of Kalington, our operating
subsidiary was a private limited company organized under the laws of the PRC,
and in accordance with PRC regulations, the salary of our executives was
determined by our shareholders. In addition, each employee is required to enter
into an employment agreement. Accordingly, all our employees, including
management, have executed our employment agreement.
Our employment agreements with our executives provide the
amount of each executive officer's salary and establish their eligibility to
receive a bonus. Mr. Chaojun Wang's employment agreement provides for an annual
salary of RMB 120,000 (approximately $17,700), commencing June 1, 2010. Dr.
Kornotzki's employment agreement with the Company, dated April 1, 2010, provides
for a salary of $2,000 per month and a five-year option to purchase up to
200,000 shares of the Company's Common Stock on a cash exercise basis at an
exercise price of $6.00 per share, with 50% immediately vested and the remaining
50% to vest in two equal portions on March 31, 2011 and on March 31, 2012,
respectively. Dr. Kornotzki's cash compensation will be doubled to $4,000 per
month going forward, if the Company obtains its first financing and completes
the listing of its Common Stock for trading on NASDAQ. Other than the salary and
necessary social benefits required by the government, which are defined in the
employment agreements, we currently do not provide other benefits to our
officers at this time. Dr. Kornotzki's employment agreement is scheduled to
expire on March 31, 2012, but may be terminated by the Company or without cause
with 30 days' prior written notice. In the event that the Company desires to
terminate Dr. Kornotzki without cause, any unvested portion of his stock options
will automatically vest and be exercisable on the termination date and will
remain exercisable until the options expire.
Outstanding Equity Awards at Fiscal Year End
For the year ended December 31, 2009, no director or executive
officer received compensation from us pursuant to any compensatory or benefit
plan.
- 44 -
Compensation of Directors
No member of our board of directors received any compensation
for his services as a director during the year ended December 31, 2009, however,
our new independent directors will each enter into our form of independent
director agreement, effective as of the closing of the Offering, pursuant to
which they will receive as compensation 5,000 restricted shares per annum,
vesting semi-annually, commencing on the 6-month anniversary of our NASDAQ
Listing, except that Mr. Bernstein, who serves as our Audit Committee Chair will
receive 7,500 restricted shares. Our executive directors, Mr. Wang and Dr.
Kornotzki will receive compensation only in their capacities as officers.
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN
CONTROL PERSONS; CORPORATE GOVERNANCE
Transactions with Related Persons
The following includes a summary of transactions since the
beginning of the 2008 fiscal year, or any currently proposed transaction, in
which we were or are to be a participant and the amount involved that exceeded
or exceeds the lesser of $120,000 or one percent of the average of our total
assets at year-end for the last two completed fiscal years, and in which any
related person had or will have a direct or indirect material interest (other
than compensation described under "Executive Compensation"). We believe the
terms obtained or consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to terms
available or the amounts that would be paid or received, as applicable, in
arm's-length transactions.
Our VIE, Longhai, was established in August 2008, as a result of the
  separation of Longhai from the Longhai Steel Group at that time. Prior to its
  establishment as a stand-alone company, Longhai was a division within the
  Longhai Steel Group. The Longhai Steel Group was founded in 2003. Chaojun
  Wang, Chief Executive Officer and controlling stockholder serves as the
  Chairman of the Board of Directors and General Manager of Longhai and
  beneficially owns 80% of the capital stock in Longhai. Chaojun Wang also owns
  80% of the capital stock of and is the chief executive officer of the Longhai
  Steel Group.
Longhai leases a five-story office space and the building which houses our
  production facilities from the Longhai Steel Group. The rent expense for such
  facilities for the years ended December 31, 2009 and 2008 was $28,334 and
  $128,604, respectively.
Steel billet is the principal raw material used in our production of steel
  wire and in 2009, steel billet accounted for more than 95% of our production
  costs. Prior to 2009, we purchased our steel billet at a small per ton volume
  discount, from the Longhai Steel Group, an entity owned and controlled by our
  CEO, Chaojun Wang, with $488,908,517 in steel billet purchased in 2008.
  However, since 2009, we have purchased our steel billet at prevailing market
  prices from third party trading companies who source their steel billet from
  local steel manufacturers, including the Longhai Steel Group.
In 2009 and 2008, Longhai purchased production utilities from the Longhai
  Steel Group in the amounts of $11,661,547 and $9,111,397, respectively.
In addition, during 2009 and 2008, Longhai sold to the Longhai Steel Group
  steel scrape in the amounts of $3,688,573 and $5,159,081, and steel wire in
  the amounts of $71,595 and $1,604,785, respectively.
In 2009, prior to the consummation of our reverse acquisition transaction,
  Longhai provided cash advances to the Longhai Steel Group and earned finance
  income amounting to $8,360,120, which is included in the Company's revenue for
  the period. The financing was effected through Longhai's offering of sales
  discounts to third party customers in return for large customer deposits,
  which Longhai would then advance to the Longhai Steel Group for use of such
  funds in the production of steel billet. This amount was repaid in full by
  Longhai Steel Group at the closing of the reverse merger transaction.
Prior to our reverse acquisition of Kalington, as at December 31, 2009
  Longhai had loaned $42,047,673 to the Longhai Steel Group. However, as of the
  date of this filing, all balances have been repaid and no loans to the Longhai
  Steel Group are outstanding.
On March 19, 2010, prior to the reverse acquisition transaction, Kalington
  Consulting and Longhai entered into a series of agreements known as variable
  interest agreements (the "VIE Agreements") pursuant to which Longhai became
  Kalington Consulting's contractually controlled affiliate. The use of VIE
  agreements is a common structure
used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements included:
- 45 -
A Consulting Services Agreement through which Kalington Consulting has the right to advise, consult, manage and operate Longhai and collect and own all of the net profits of Longhai;
an Operating Agreement through which Kalington Consulting has the right to recommend director candidates and appoint the senior executives of Longhai, approve any transactions that may materially affect the assets, liabilities, rights or operations
of Longhai, and guarantee the e contractual performance by Longhai of any agreements with third parties, in exchange for a pledge by Longhai of its accounts receivable and assets;
a Proxy Agreement under which the three owners of Longhai have vested their collective voting control over Longhai to Kalington Consulting and will only transfer their respective equity interests in Longhai to Kalington Consulting or its
designee(s);
an Option Agreement under which the owners of Longhai have granted to Kalington Consulting the irrevocable right and option to acquire all of their equity interests in Longhai; and
an Equity Pledge Agreement under which the owners of Longhai have pledged all of their rights, titles and interests in Longhai to Kalington Consulting to guarantee Longhai's performance of its obligations under the Consulting Services
Agreement.
For details regarding the foregoing agreements, see our Current Report on Form 8-K filed on March 26, 2010 and the exhibits thereto. Mr. Chaojun Wang, our Chief Executive Officer and controlling stockholder, is a director of Kalington, Kalington
Consulting and Longhai and a controlling shareholder of Longhai.
Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.
Insider Transactions Policies and Procedures
Prior to June 19, 2010, we did not have an insider transaction policy, but on June
19, 2010, we adopted a new Code of Ethics which, along with our Bylaws, govern written policies and procedures for review, approval or ratification of relationships
or transactions with related persons.
Our Bylaws requires that our Board of Directors monitor and manage potential conflicts of interest of management and the Board and assume other responsibilities as may be required from time to time. As permitted under the Company's Bylaws, the
Board has delegated some of these responsibilities to the Board's Audit Committee and Nominating and Corporate Governance Committee. Our Audit Committee Charter provides that the Audit Committee is responsible for establishing procedures for
the approval of and approve the entry of the Company into any and all related party transactions between the Company and any executive officer or director that would potentially require disclosure pursuant to Item 404 of SEC Regulation S-K. The
Audit Committee Charter also mandates that the Audit Committee must approve the entry of the Company into any such related party transaction. Our Nominating and Corporate Governance Committee Charter provides that the Nominating and Corporate
Governance Committee is responsible for reviewing and assessing the adequacy of the Company's Code of Business Ethics and Conduct and other internal policies and guidelines and monitor whether the principles described therein are being
incorporated into the Company's culture and business practices.
Our Code of Business Ethics and Conduct provides a number of specific procedures, requirements, and prohibitions relating to related party transactions. It prohibits directors, officers and employees from accepting simultaneous employment with a
Company supplier, customer, developer, or competitor, or from taking part in any activity that enhances or supports a competitor's position. All directors, officers and employees must disclose to the Company any interest that may conflict with
the Company. A director, officer and employee may accept a position as a director of another company only if he or she obtains approval from the Board of Directors; the other company does not compete with the Company; and any compensation received
in this capacity is commensurate with its responsibilities.
Our Code of Business Ethics and Conduct generally requires directors, officers, and employees of the Company to avoid conducting Company business with a relative or significant other, or with a business in which a relative or significant other is
associated in any significant manner. Where a Company director, officer or employee believes that such a transaction is unavoidable, he or she must fully disclose it to the Company's Chief Executive Officer. If the Chief Executive Officer deems
it material to the Company, the Nominating and Corporate Governance Committee must review and provide advance written approval for such transactions. The Board subsequently
reassigned part of this responsibility to the Audit Committee pursuant to the
Audit Committee Charter. The most significant related party transactions,
especially those involving the Company's directors or executive officers, must
be reviewed and approved in writing in advance by the Company's Board of
Directors. The Board also delegated part of this function to the Audit Committee
under the Audit Committee Charter, as explained above. The Company must report
all such material related party transactions under applicable accounting rules,
federal securities laws, SEC rules and regulations, and securities market rules.
Any dealings with a related party must be conducted in such a way that no
preferential treatment is given.
- 46 -
In addition, our Code of Business Ethics and Conduct
discourages the employment of relatives and significant others in positions or
assignments within the same department and prohibits the employment of such
persons in positions that have influence (e.g., an auditing or control
relationship, or a supervisor/subordinate relationship). Our Human Resources
department is primarily responsible for administering this aspect of our related
party transactions policy. If any covered relationship develops or exists
between two employees, the senior employee must advise his or her supervisor.
The Company may separate the employees either by reassignment or termination, if
necessary.
Our Code of Business Ethics and Conduct permits waivers of the
above policies and procedures as to directors or executive officers only if they
are approved in writing by the Board of Directors and promptly disclosed. Any
waiver with respect to any employee, agent or contractor must be approved in
writing by the Company. Under its Charter, our Nominating and Corporate
Governance Committee is also responsible for reviewing requests for any waivers
and recommending to the Board whether a particular request should be granted.
Any type of related party transaction not expressly covered by
the above policies and procedures is subject to the review and approval of our
Board of Directors.
Promoters and Certain Control Persons
We did not have any promoters at any time during the past five
fiscal years.
CHANGE IN ACCOUNTANTS
On March 26, 2010, we reported a change of independent
auditors, effective immediately, from Robison Hill & Company, or Robison, to
MaloneBailey, LLP, or MaloneBailey.
Robinson audited the financial statements of the Company, for
the years ended December 31, 2009 and 2008 prior to the Company's reverse
acquisition of Kalington. Robinson's reports on the Company's financial
statements as of and for the years ended December 31, 2009 and 2008 did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles, except that
its report for the year ended December 31, 2009 contained a going concern
qualification as to the Company's ability to continue as a going concern. During
the years ended December 31, 2009 and 2008 and through Robinson's dismissal on
March 26, 2010, there were (1) no disagreements with Robinson on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Robinson, would have caused Robinson to make reference to the subject matter of
the disagreements in connection with its reports, and (2) no events of the type
listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K.
During the last two fiscal years ended December 31, 2009 and
December 31, 2008, MaloneBailey did not conduct any audits or complete any audit
reports on our Company's financial statements. However, MaloneBailey did conduct
an audit and completed an audit report on the balance sheets of Kalington
Limited, the Company's subsidiary, as of December 31, 2009 and 2008, and the
related statements of operations and comprehensive income, changes in
shareholders' equity and cash flows of Kalington Limited, for the years ended
December 31, 2009, 2008 and 2007, which reports did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with the audits
of the financial statements of Kalington Limited for the fiscal years ended
December 31, 2009 and 2008, there were: (i) no disagreements between our Company
and MaloneBailey on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of MaloneBailey, would have caused MaloneBailey
to make reference to the subject matter of the disagreement in their reports on
the Company's financial statements for such years, and (ii) no reportable events
within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
- 47 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding beneficial
ownership of our common stock after giving effect to our reverse split on June
30, 2010 (i) by each person who is known by us to beneficially own more than 5%
of our common stock; (ii) by each of our officers and directors; and (iii) by
all of our officers and directors as a group. Unless otherwise specified, the
address of each of the persons set forth below is in care of Longhai Steel,
Inc., No. 1 Jingguang Road, Neiqiu County, Xingtai City, Hebei Province,
People's Republic of China, 054000.
Amount and
Nature of
Percent of
Name & Address of Beneficial
Beneficial
Common
Owner
Office, If Any
Title of Class
Ownership
(1)
Stock
(2)
Officers and Directors
Chaojun
    Wang
Chairman and Chief
Executive Officer
Common Stock
5,100,330
(3)
51.0%
Eberhard Kornotzki
(4)
Chief Financial
Officer and Director
Common Stock
524,535
5.2%
Basil
      Hwang
(5)
Director
Common Stock
0
0
Michael Cheng
(5)
Director
Common Stock
0
0
Drew
      Bernstein
(5)
Director
Common Stock
0
0
All officers and directors as a group
(2 persons named
      above)
--
Common Stock
5,624,865
56.2%
5% Security Holders
Merry Success Limited
(3)
P.O Box 957
Offshore Incorporation Centre,
Road Town, Tortola
--
Common Stock
5,100,330
51.0%
Xingfang Zhang
(6)
Zheng No.15, No.33 North
Xinhua Road,
Qiaodong
      District, Xingtai,
Hebei Province, China
--
Common Stock
2,900,825
29.0%
________
*Less than 1%
(1)
Beneficial Ownership is determined in accordance with the rules of the
      SEC and generally includes voting or investment power with respect to
      securities. Each of the beneficial owners listed above has direct
      ownership of and sole voting power and investment power with respect to
      the shares of our common stock.
(2)
As of June 30, 2010, a total of 10,000,000 shares of our common stock
      will be considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For
      each Beneficial Owner above, any options exercisable within 60 days have
      been included in the denominator.
(3)
Based on an option to purchase all of the shares of Merry Success
      Limited, a British Virgin Islands limited company, which owns 5,178 shares
      of Series A Convertible Preferred. Merry Success Limited is owned and
      controlled by Jinhai Guo, but Chaojun Wang serves as Chief Executive
      Officer and Director of, and exercises dispositive control over the shares
      owned by Merry Success Limited.
(4)
Represents an option to purchase 100,000 shares of our Common Stock at
      an exercise price of $6.00 per share, which vested on April 1, 2010,
      pursuant to Dr. Kornotzki's employment agreement, as well as 219,655
      shares held by Wealth Index Capital Group LLC, in which Dr. Kornotzki
      holds a controlling interest, and 204,880 shares held by K International
      Consulting Ltd., which is owned and controlled by him.
(5)
On June 19, 2010, each of Michael Cheng, Basil Hwang and Drew
      Bernstein were appointed as to serve as our directors, effective as of the
      closing of the Offering.
(6)
Xingfang Zhang is the nephew of Chaojun Wang, our Chief Executive
      Officer and beneficially controlling shareholder.
- 48 -
DESCRIPTION OF SECURITIES TO BE REGISTERED
In this offering, we are registering shares of our common
stock, par value $0.001 per share, underlying units, each consisting of two
shares of common stock and one warrant to purchase one share of common
stock.
Common Stock
We are currently authorized to issue 100,000,000 shares of
common stock, par value $0.001 per share, of which 10,000,000 shares were issued
and outstanding after giving effect to our reverse stock split on June 30, 2010.
Each common share entitles the holder to one vote on all matters submitted to a
vote of our stockholders.
The holders of shares of our common stock are entitled to
dividends out of funds legally available when and as declared by our board of
directors. Our board of directors has never declared a dividend and does not
anticipate declaring a dividend in the foreseeable future. Should we decide in
the future to pay dividends, as a holding company, our ability to do so and meet
other obligations depends upon the receipt of dividends or other payments from
our operating subsidiary and other holdings and investments. In addition, our
operating subsidiary in the PRC, from time to time, may be subject to
restrictions on their ability to make distributions to us, including as a result
of restrictive covenants in loan agreements, restrictions on the conversion of
local currency into U.S. dollars or other hard currency and other regulatory
restrictions. In the event of our liquidation, dissolution or winding up,
holders of our common stock are entitled to receive, ratably, the net assets
available to shareholders after payment of all creditors.
All of the issued and outstanding shares of our common stock
are duly authorized, validly issued, fully paid and non-assessable. To the
extent that additional shares of our common stock are issued, the relative
interests of existing stockholders will be diluted.
Preferred Stock
We are authorized to issue up to 10,000,000 shares of preferred
stock, par value $0.001 per share, in one or more series as may be determined by
our board of directors, who may establish, from time to time, the number of
shares to be included in each series, may fix the designation, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof. Any preferred stock so issued by the board
of directors may rank senior to the common stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding up of us, or both.
Moreover, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, under certain circumstances, the
issuance of preferred stock or the existence of the unissued preferred stock
might tend to discourage or render more difficult a merger or other change of
control.
Following the reverse acquisition as of March 26, 2010, we had
10,000 shares of Series A Preferred Stock outstanding. The holders of our Series
A Preferred Stock are entitled to vote on all matters together with all other
classes of stock. Holders of Series A Preferred Stock vote with the holders of
common stock on all matters on an as-converted to common stock basis, based on
an assumed post 1-for-125 reverse split (to retroactively take into account the
Reverse Split). For example, assuming 100 shares of Series A Preferred Stock are
issued and outstanding on the record date for any stockholder vote, such shares,
voting in aggregate, would vote a total of 12,312,500 voting shares. Holders of
Series A Preferred Stock have protective class voting veto rights on certain
matters, such as increasing the authorized shares of Series A Preferred Stock
and modifying the rights of Series A Preferred Stock.
Our Board of Directors authorized the issuance of up to 10,000
shares of our Series A Preferred Stock in connection with the reverse
acquisition and the related Certificate of Designation was filed on March 25,
2010. After giving effect to the 1-for-125 reverse split of our outstanding
common stock which was effected on June 30, 2010, the 10,000 outstanding shares
of our Series A Preferred Stock automatically converted into 9,850,000 shares of
common stock, on the basis of 1 share of Series A Preferred Stock for 985 shares
of common stock.
Warrants Included in the Units
Number of Warrants; Warrant Agent; Duration of Warrants
After consummation of the offering, two shares of common stock
and one warrant to purchase one share of common stock will be outstanding for
each unit issued in the offering. Each warrant entitles the holder to purchase
one share of common stock at an exercise price per share equal to 62.5% of the
public offering price per unit
(or 125% of
the proportionate price per share of common stock underlying the units)
, during the
five-year period commencing on the date of this prospectus. The warrants are being issued pursuant
to a Warrant Agreement entered into between us and Interwest Transfer Company,
Inc., as warrant agent. The warrants will be issued separately from the common
stock included in the units offered hereby and may be transferred separately
immediately thereafter. The warrants may be in certificated form or represented
by one or more book-entry certificates.
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Exercise and Expiration of Warrants
Warrants may be exercised by delivering, not later than 5:00
P.M., New York time, on any business day during the exercise period to the
warrant agent the certificate representing the warrant or, in the case of
book-entry warrants, the warrants being exercised free on the records of the
Depositary Trust Company (DTC) to an account of the warrant agent at DTC along
with a completed election to purchase and the payment of the exercise price for
each warrant to be exercised by certified or official bank check or by bank wire
transfer in immediately available funds.
If we are unable to issue the shares of common stock upon
exercise of the warrants because the registration statement covering the shares
is subject to a stop order or has had its effectiveness suspended or withdrawn
or if we are otherwise unable to issue the shares, and no exemption from
registration is available by virtue of a cashless exercise as described below or
otherwise, the warrants will not be exercisable. In such event, the warrants
will not expire until five days after the date we are first able to issue the
shares of common stock. In no event may the warrants be net cash settled.
Cashless Exercise
If a registration statement, or an exemption from registration,
is not available for the resale of the shares underlying the warrants, the
warrants may also be exercised on a cashless basis pursuant to which the holder
will receive a net number of shares of common stock determined according to the
following formula:
Net number of shares =
(A x B) – (A x
C)
B
where:
A = the total number of shares with respect to which the
warrant is then being exercised;
B = the arithmetic average of the closing sale prices of the
shares of common stock for the five consecutive trading days ending on the date
immediately preceding the date of exercise; and
C = the exercise price then in effect.
Delivery of Shares upon Exercise
Shares of common stock issuable upon exercise of the warrants
will be issued to the holder no later than 5:00 P.M., New York time, on the
third business day after the proper exercise of the warrants. In lieu of
delivering physical certificates representing shares of common stock issuable
upon the exercise of warrants, if our transfer agent is participating in DTC's
Fast Automated Securities Transfer program, we will use our reasonable best
efforts to cause the transfer agent to electronically transmit the shares by
crediting the account of the registered holder's prime broker with DTC or of a
participant through DTC's Deposit Withdrawal Agent Commission system.
Certain Adjustments
The exercise price and number of shares of common stock
issuable on exercise of the warrants is subject to adjustment in the event of
any stock split, reverse stock split, stock dividend, recapitalization,
reorganization or similar transaction. However, the warrants will not be
adjusted for issuances of shares of common stock at a price below their
respective exercise prices. In the event of a fundamental transaction involving
our consolidation or merger with or into another entity where we are not the
surviving entity, the sale or all or substantially all of our properties or
assets or the reorganization, recapitalization or reclassification of our common
stock, it is a condition to such fundamental transaction that any successor to
us whose common stock is traded on an eligible market assume or remain bound by
the warrants to deliver in exchange for the warrants a written instrument
substantially similar to the warrants entitling the holder to acquire the
successor's capital stock at an exercise price that reflects the terms of the
transaction. In the event that the successor does not have common stock traded
on an eligible market, a holder of warrants will be entitled to receive an
instrument substantially similar to the warrants exercisable for the
consideration that would have been issuable in the fundamental transaction had
the warrants been exercised immediately prior thereto.
- 50 -
Limitations on Exercise
The number of shares of common stock that may be acquired by the registered holder upon any exercise of warrants shall be limited to the extent necessary to insure that, following such exercise, the total number of shares of common stock then
beneficially owned by such holder and its affiliates any other persons whose beneficial ownership of common stock would be aggregated with the holder's for purposes of Section 13(d) of the Securities Exchange Act of 1934, does not exceed 9.999%
of the total number of issued and outstanding shares of common stock (including for such purpose the shares of common stock issuable upon such exercise). This restriction may not be waived.
No Rights as Shareholders
Warrant holders do not have the rights or privileges of holders of common stock, including voting rights, until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the
warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.
Amendments
The warrants provide that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity, to cure, correct or supplement any defective provision, or to add or change any other provisions that do not adversely affect
the interest of the warrant holders. All other changes require the written consent of the underwriter and the holders of a majority of the then outstanding warrants.
Fractional Shares
No fractional shares will be issued upon exercise of the warrants. If a holder exercises warrants and would be entitled to receive a fractional interest of a share, we will round up or down the number of common stock to be issued to the warrant
holder to the nearest whole number of shares.
Transfer Taxes
We will not pay any stamp or other tax or governmental charge required to be paid in connection with any transfer involved in the issue of shares of common stock issuable upon the exercise of warrants. In the event of any such transfer, we will not
issue or deliver any shares until such tax or other charge shall have been paid or it has been established to our satisfaction that no such tax or other charge is due.
You should review a copy of the warrant agreement, which will be filed as an exhibit to this registration statement, for a complete description of the terms and conditions of the warrants.
Anti-takeover Effects of Our Articles of Incorporation and By-laws
Our Articles of Incorporation and Bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of the Company or changing its board of directors and
management. According to our Bylaws and Articles of Incorporation, neither the holders of our common stock nor the holders of our preferred stock have cumulative voting rights in the election of our directors. The combination of the present
ownership by a few stockholders of a significant portion of our issued and outstanding common stock and lack of cumulative voting makes it more difficult for other stockholders to replace our board of directors or for a third party to obtain control
of our company by replacing its board of directors.
Anti-takeover Effects of Nevada Law
Business Combinations
The "business combination" provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, prohibit a Nevada corporation with at least 200 stockholders from engaging in various "combination"
transactions with any interested stockholder:
for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status;
or
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after the expiration of the three-year period, unless:
the transaction is approved by the board of directors or a majority of the voting power held by disinterested stockholders, or
if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the
combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the
shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.
A "combination" is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an "interested stockholder"
having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation,
or (c) 10% or more of the earning power or net income of the corporation.
In general, an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation's voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
The "control share" provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, which apply only to Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which
conduct business directly or indirectly in Nevada, prohibit an acquirer, under certain circumstances, from voting its shares of a target corporation's stock after crossing certain ownership threshold percentages, unless the acquirer obtains
approval of the target corporation's disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power.
Once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become "control shares" and such control shares are deprived of the right to vote until disinterested
stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of
authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters' rights. Although we are not currently subject to these
"control share" provisions since we do not conduct business directly or indirectly in Nevada and have less than 100 stockholders of record who are Nevada residents, there can be no assurance that in the future such provisions will not
apply to us.
UNDERWRITING
In accordance with the terms and conditions contained in the underwriting agreement, we have engaged Ladenburg Thalmann & Co. Inc. (the "Underwriters' Representative") to conduct this offering on a best efforts basis. The offering
is being made without a firm commitment by the Underwriters' Representative, which has no obligation or commitment to purchase any of the units.
A copy of the underwriting agreement will be filed as an exhibit to the registration statement of which this prospectus forms a part.
Unless sooner withdrawn or canceled by either us or the Underwriter's Representative, the offering will continue until the earlier of (i)
a date mutually acceptable to us and our Underwriter's Representative or (ii)
October 18, 2010 (the "Offering Termination Date"). The Underwriter's
Representative has agreed in accordance with the provisions of SEC Rule 15c2-4
to cause all funds received by the Underwriter's Representative for the sale of
the units to be deposited by noon of the next business day in an escrow account
maintained by Signature Bank (the "Escrow Agent") as escrow agent for the
investors in the offering. The Escrow Agent will exercise signature control on
the escrow account and will act based on joint instructions from our company and
the Underwriter's Representative. On the closing date for the offering, net
proceeds in the escrow account maintained by the Escrow Agent will be delivered
to our company. We will not be able to use such proceeds in China, however,
until we complete certain remittance procedures in China, which may take as long
as six months in the ordinary course. If we do not complete this offering before
the Offering Termination Date, all amounts will be promptly returned as
described below. If we complete this offering, then on the closing date, we will
issue warrants and shares of common stock to investors and warrants to our
Underwriter's Representative exercisable at a rate of one warrant per share to
purchase up to 4% of the aggregate number of
shares of common stock underlying the
units sold in this offering
not
including any shares of common stock issuable upon exercise of the warrants
underlying the units
. In the event of any dispute between our company and
the Underwriter's Representative, including about whether and how funds are to
be reimbursed, the escrow agent is entitled to petition a court of competent
jurisdiction to resolve any such dispute.
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Investors must pay in full for all units at the time of investment. Payment for the units may be made (i) by check, bank draft or money order made payable to "Signature Bank" and delivered to the Underwriter's Representative no less
than four business days before the date of closing, or (ii) by authorization of withdrawal from securities accounts maintained with the Underwriter's Representative. If payment is made by authorization of withdrawal from securities accounts,
the funds authorized to be withdrawn from a securities account will continue to accrue interest, if any interest is to accrue on such amounts, at the contractual rates until closing or termination of the offering, but a hold will be placed on such
funds, thereby making them unavailable to the investor until closing or termination of the offering. If an investor authorizes the Underwriter's Representative to withdraw the amount of the purchase price from a securities account, such
Underwriter's Representative will do so as of the date of closing. The Underwriter's Representatives will inform prospective investors of the anticipated date of closing. If payment is made by check, investors should make all checks
payable to the Escrow Agent.
Proceeds deposited in escrow with the Escrow Agent may not be withdrawn by investors prior the Offering Termination Date. If the offering is withdrawn or
canceled and proceeds therefrom are not received by us on or prior to the Offering Termination
Date, all proceeds will be promptly returned by the Escrow Agent without interest or deduction to the persons from whom they were received (within one business day) in accordance with applicable securities laws. All such proceeds will be placed in a
non-interest bearing account pending such time.
Pursuant to the placement agreement between the Underwriter's Representative and us, the obligations of the Underwriter's Representative to solicit offers to purchase units and of investors solicited by the Underwriter's
Representative to purchase our units are subject to approval of certain legal matters by counsel to the Underwriter's Representative. The Underwriter's Representative's ability to complete this best efforts transaction is dependent
upon the existence of stable U.S. trading markets. As such, the Underwriter's Representative's obligations under the placement agreement are also subject to various conditions which are customary in transactions of this type, including
that, as of the closing of the offering, there shall not have occurred (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on the NASDAQ Stock Exchange; (ii) a general moratorium on commercial
banking activities in the State of New York or China; (iii) the engagement by the United States or China in hostilities which have resulted in the declaration of a national emergency or war if any such event would have a material adverse effect, in
the Underwriter's Representative's reasonable judgment, as to make it impracticable or inadvisable to proceed with the solicitation of offers to consummate the offering with respect to investors solicited by the Underwriter's
Representative on the terms and conditions contemplated herein.
The Underwriter's Representative is offering the units,
subject to prior sale, when, as and if issued to and accepted by it, subject to
conditions contained in the placement agreement, such as the receipt by the
Underwriter's Representative of officers' certificates and legal opinions. In
addition to the above market-related conditions, the Underwriter's
Representative reserves the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part in the event (i) our
representations or warranties are incorrect or misleading or we fail to fulfill
our agreements with the Underwriter's Representative; (ii) a material adverse
change occurs affecting our business, management, property, assets, results of
operations, condition or prospects; or (iii) any laws, regulations, court or
administrative order or other governmental or agency act causes the
Underwriter's Representative to believe that our business or the U.S. securities
markets will be materially adversely affected. The Underwriter's
Representative's discretion in this regard is broad.
We have agreed to
indemnify the Underwriter's Representative against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the Underwriter's Representative may be required to make in respect of
those liabilities.
The Underwriter's
Representative intends to offer our units to its retail customers only in states
in which we are permitted to offer our units. We have relied on an exemption to
the blue sky registration requirements afforded to "covered securities".
Securities listed on the NASDAQ Global Market are "covered securities." If we
were unable to meet the NASDAQ Global Market's listing standards, then we would
be unable to rely on the covered securities exemption to blue sky registration
requirements and we would need to register the offering in each state in which
we planned to sell units. Consequently, we will not complete this offering
unless we meet the NASDAQ Global Market's listing requirements and are notified
that we will be listed on the NASDAQ Global Market upon closing of the offering.
- 53 -
No action has been taken by us or the Underwriter's
Representative that would permit a public offering of the shares of our common
stock included in this offering in any jurisdiction where action for that
purpose is required. None of our securities included in this offering may be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sales of
any of the units be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering of units by us and the distribution of this prospectus. This
prospectus is neither an offer to sell nor a solicitation of any offer to buy
any of the units included in this offering in any jurisdiction where that would
not be permitted or legal.
We have been advised by the Underwriters' Representative that
it proposes to offer units directly to the public at the public offering price
set forth on the cover page of this prospectus. Any units sold by the
Underwriter's Representative to securities dealers will be sold at the public
offering price less a selling concession not in excess of $[_____] per share.
The Underwriter's Representative may allow, and these selected dealers may
re-allow, a concession of not more than $[____] per share to other brokers and
dealers.
In connection with this offering, the Underwriter's
Representative or certain of the securities dealers may distribute prospectuses
electronically. No forms of prospectus other than printed prospectuses and
electronically distributed prospectuses that are printable in Adobe PDF format
will be used in connection with this offering.
The Underwriter's Representative has advised us that they do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
Underwriting discount and expenses
The Underwriter's Representative has advised us that it
proposes to offer the units to the public at the public offering price on the
cover page of this prospectus. The following table shows the public offering
price and Underwriter's Representative fee to be paid by us to the Underwriter's
Representative and the proceeds, before expenses, to us.
Per Unit
Maximum Offering
Assumed public offering price
$
$
Placement discount
$
$
Proceeds to us, before expenses
$
$
We expect our total cash expenses for this offering to be
approximately $[______], exclusive of the above commissions. In addition, we
will pay the Underwriter's Representative a non-accountable expense allowance of
1.5% of the amount of the offering. The Underwriter's Representative is required
to use only its best efforts to sell the securities offered.
We have also agreed to deliver to the Underwriters'
Representative, in connection with the offering, warrants to purchase the number
of units that is equivalent to 4% of
the
aggregate number of shares of common stock underlying the units sold in this
offering, not including any shares of common stock issuable upon exercise of the
warrants underlying the units
.
The warrants will be exercisable at any time, in whole or in part, during the
five-year period commencing on the date of consummation of this offering at an
exercise price equal to 62.5% of the public offering price per unit in this
offering,
or 125% of the proportionate
price per share of common stock underlying the units.
Under FINRA Rule 5110(g)(1), the warrants being issued to the
Underwriters' Representative (and the shares of common stock issuable upon
exercise of the warrants) shall not be sold during the offering, or sold,
transferred, assigned, pledged, or hypothecated, or be the subject of any
hedging, short sale, derivative, put, or call transaction that would result in
the effective economic disposition of the securities by any person for a period
of 180 days immediately following the date of commencement of sales in the
offering, except certain limited transfers, such as transfers to any underwriter
and selected dealer participating in this offering and any of their bona fide
officers or partners (but not directors).
- 54 -
For the life of the Underwriter's Representative's warrants,
the holders thereof are given, at nominal costs, the opportunity to profit from
a rise in the market price of our common shares with a resulting dilution in the
interest of other shareholders. Further, the holders may be expected to exercise
the Underwriter's Representative's warrants at a time when we would, in all
likelihood, be able to obtain equity capital on terms more favorable than those
provided in the Underwriter's Representative's warrants.
We are required for the life of the Underwriter's
Representative's warrants to reserve sufficient common shares to deliver upon
exercise of the warrants and to take all necessary actions to ensure that we may
validly and legally issue fully paid and non-assessable shares on exercise of
the warrants.
The Underwriter's Representative has a right to demand registration of the shares issuable upon exercise of the warrants in the event registered shares are not available at the time of exercise and an exemption from such registration is not
otherwise available. If this happens, we will be required to file the registration statement within ninety (90) days after demand and to pay the costs associated with the registration other than the Underwriter's Representative's counsel
fees and any underwriting or selling commissions. We are required to seek the listing of these shares on the same exchange on which our shares trade, if any.
To the extent we are unable to register the shares, the Underwriter's Representative may exercise the warrant with a cashless exercise, which is designed to give the Underwriter's Representative the economic benefit of exercising the
Underwriter's Representative's warrants. A cashless exercise, however, would not result in the payment of any exercise price to us.
The Underwriter's Representative's warrants also contain anti-dilution provisions, consistent with applicable FINRA rules, to adjust the terms of the Underwriter's Representative's warrants as necessary to protect against
dilution in the event we reorganize, consolidate, merge or subdivide our shares.
Indemnification
We have agreed to indemnify the Underwriter's Representative
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the Underwriter's Representative may be
required to make with respect to any of these liabilities.
- 55 -
CORPORATE STRUCTURE AND HISTORY
Our Corporate Structure
All of our business operations are conducted through our Hong
Kong and Chinese subsidiaries and our VIE. On June 30, 2010, we amended our
Articles of Incorporation to change our name to "Longhai Steel Inc." to reflect
our current business and operations. The following chart reflects our corporate
organizational structure (after giving effect to the name change):
- 56 -
Our Corporate History
We were originally incorporated under the laws of the State of Georgia on December 4, 1995. On March 14, 2008, the Georgia corporation was merged with and into a newly formed Nevada corporation also named Action Industries, Inc., and all of the
outstanding shares of the Georgia corporation were exchanged for shares in the surviving Nevada corporation. Prior to our reverse acquisition of Kalington Limited, or "Kalington", we were primarily in the business of providing prepaid long
distance calling cards and other telecommunication products and had not commenced planned principal operations. As a result of our reverse acquisition of Kalington we are no longer a shell company and active business operations were revived.
On June 30, 2010, we amended our Articles of Incorporation to change our name to "Longhai Steel Inc." to reflect the current business of our company.
Acquisition of Kalington Limited
On March 26, 2010, we completed a reverse acquisition transaction through a share exchange with Kalington and its shareholders, whereby we acquired 100% of the issued and outstanding capital stock of Kalington in exchange for 10,000 shares of our
Series A Preferred Stock which constituted 98.5% of our issued and outstanding capital stock on a as-converted basis as of and immediately after the consummation of the reverse acquisition. As a result of the reverse acquisition, Kalington became
our wholly-owned subsidiary and the former shareholders of Kalington became our controlling stockholders. The share exchange transaction with Kalington was treated as a reverse acquisition, with Kalington as the acquirer and Longhai Steel, Inc. as
the acquired party. Unless the context suggests otherwise, when we refer in this prospectus to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial
information of Kalington and its consolidated subsidiaries.
Immediately prior to the reverse acquisition, the common stock of Kalington was owned by the following persons in the indicated percentages: William Hugh Luckman (3.51%); Wealth Index Capital Group LLC (a US company) (7.3%); K International
Consulting Ltd. (a BVI company) (2.08%); Merrill King International Investment Consulting Ltd. (a BVI company) (0.31%); Shanchun Huang (3.12%); Xiucheng Yang (1.53%); Jianxin Wang (0.92%); Xingfang Zhang (29.45%); and Merry Success Limited (a BVI
company) (51.78%). Our Chief Financial Officer and Director, Eberhard Kornotzki, directly controls the shares held by K International Consulting Ltd. and has a beneficial interest in Wealth Index Capital Group LLC, and Chaojun Wang, our Chief
Executive Officer, serves as a director of Merry Success Limited, our principal stockholder after the reverse acquisition, along with Jinhai Guo, its sole shareholder. Immediately following closing of the reverse acquisition of Kalington, certain
Shareholders transferred 625 of the shares of Series A Convertible Preferred Stock issued to them under the Share Exchange to certain persons who provided services to Kalington's subsidiary and/or controlled affiliate.
Upon the closing of the reverse acquisition, Inna Sheveleva, our sole director and officer, submitted a resignation letter pursuant to which she resigned from all offices that she held effective immediately and from her position as our director that
will become effective on the tenth day following the mailing by us of an information statement, or the Information Statement, to our stockholders that complies with the requirements of Section 14f-1 of the Exchange Act. In addition, our board of
directors on March 25, 2010 increased the size of our board of directors to three directors and appointed Chaojun Wang, Jing Shen and Chaoshui Wang to fill the vacancies created by such increase, which appointments will become effective upon the
effectiveness of the resignation of Inna Sheveleva on the tenth day following the mailing by us of the Information Statement to our stockholders, which was completed on or about March 26, 2010
.
In addition, our executive officers were
replaced by Longhai's executive officers upon the closing of the reverse acquisition as indicated in more detail below. As a result of our acquisition of Kalington, we now own all of the issued and outstanding capital stock of Kalington, which
in turn owns all of the issued and outstanding capital stock of Kalington Consulting. In addition, we effectively and substantially control Longhai through the VIE agreements discussed below.
Kalington was established on November 5, 2009 in Hong Kong to serve as an intermediate holding company. Chaojun Wang and William Luckman currently serve as the directors of Kalington. Kalington Consulting was established in the PRC on March 18,
2010, and is 100% owned by Kalington. On March 5, 2010, the local government of the PRC issued a certificate of approval regarding the foreign ownership of Kalington Consulting. Chaojun Wang serves as the executive director of Kalington Consulting.
Longhai, our operating VIE, was established in the PRC on August 26, 2008, as a result of the division of the Longhai Steel Group, for the purpose of engaging in the production of steel wire. Chaojun Wang serves as the Chairman of the Board of
Directors and General Manager of Longhai and owns 80% of the capital stock in Longhai. Longhai's additional shareholders are Wealth Index International (Beijing) Investment Co., Ltd. (15% owner), an entity owned and controlled by Eberhard Kornotzki, our Chief Financial Officer, and Wenyi Chen
(5% owner). Chaojun Wang also owns 80% of the capital stock of and is the chief
executive officer of the Longhai Steel Group.
- 57 -
On March 19, 2010, prior to the reverse acquisition
transaction, Kalington Consulting and Longhai entered into a series of
agreements, the VIE Agreements, pursuant to which Longhai became Kalington
Consulting's variable interest entity. The use of VIE agreements is a common
structure used to acquire PRC corporations, particularly in certain industries
in which foreign investment is restricted or forbidden by the PRC government.
The VIE Agreements include:
A Consulting Services Agreement through which Kalington Consulting has the
  right to advise, consult, manage and operate Longhai and collect and own all
  of the net profits of Longhai;
an Operating Agreement through which Kalington Consulting has the right to
  recommend director candidates and appoint the senior executives of Longhai,
  approve any transactions that may materially affect the assets, liabilities,
  rights or operations of Longhai, and guarantee the contractual performance by
  Longhai of any agreements with third parties, in exchange for a pledge by
  Longhai of its accounts receivable and assets;
a Proxy Agreement under which the three owners of Longhai have vested
  their collective voting control over Longhai to Kalington Consulting and will
  only transfer their respective equity interests in Longhai to Kalington
  Consulting or its designee(s);
an Option Agreement under which the owners of Longhai have granted to
  Kalington Consulting the irrevocable right and option to acquire all of their
  equity interests in Longhai; and
an Equity Pledge Agreement under which the owners of Longhai have pledged
  all of their rights, titles and interests in Longhai to Kalinton Consulting to
  guarantee Longhai's performance of its obligations under the Consulting
  Services Agreement.
The foregoing description of the terms of the Consulting
Services Agreement, the Operating Agreement, the Proxy Agreement, the Option
Agreement and the Equity Pledge Agreement is qualified in its entirety by
reference to the provisions of the agreements filed as Exhibit 10.4, 10.5, 10.6,
10.7 and 10.8, respectively, to our Current Report on Form 8-K filed on March
26, 2010, which are incorporated by reference herein.
On March 18, 2010, prior to the reverse acquisition
transaction, Mr. Wang entered into a call option agreement, the Merry Success
Option Agreement, with Jinhai Guo, the sole shareholder of Merry Success
Limited, pursuant to which, Mr. Wang has the right to acquire up to 100% or the
shares of Merry Success Limited for fixed consideration within the next three
years. The Merry Success Option Agreement also provides that Mr. Guo shall not
dispose any of the shares of Merry Success Limited without Mr. Wang's consent.
As a result of the Merry Success Option Agreement, Chaojun Wang, our Chief
Executive Officer, beneficially owns a majority of our capital stock and voting
power, as well as of Longhai and the Longhai Steel Group.
Because of the common control between Kalington, Kalington
Consulting and Longhai, for accounting purposes, the acquisition of these
entities has been treated as a recapitalization with no adjustment to the
historical basis of their assets and liabilities. The restructuring has been
accounted for using the "as if" pooling method of accounting and the operations
were consolidated as if the restructuring had occurred as of the beginning of
the earliest period presented in our consolidated financial statements and the
current corporate structure had been in existence throughout the periods covered
by our consolidated financial statements.
LEGAL MATTERS
The validity of the securities offered by this prospectus will
be passed upon for us by the Krone Law Group, San Francisco, California.
EXPERTS
Our audited consolidated financial statements as of December
31, 2009
and 2008 and for each of the two years in the period ended
December 31, 2009 included in this prospectus and elsewhere and in the
registration statement have been so included in reliance upon the report of
MaloneBailey LLP, independent auditors, appearing in this registration
statement, and their authority as experts in accounting and auditing.
- 58 -
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having
prepared or certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other legal matters
in connection with the registration or offering of the common stock was employed
on a contingency basis, or had, or is to receive, in connection with the
offering, a substantial interest, direct or indirect, in the Company or any of
its parents or subsidiaries. Nor was any such person connected with the Company
or any of its parents or subsidiaries as a promoter, managing or principal
underwriter, voting trustee, director, officer or employee. However, Crone Law
Group, which has been retained by us, received 50,000 shares as compensation for
legal services provided to us relating to preparation and filing of documents.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Bylaws provide for the indemnification of our directors and
officers, past, present and future, under certain circumstances, against
attorneys' fees, judgments, fines and other expenses incurred by them in any
litigation to which they become a party arising from their association with or
activities on behalf of us. We will also bear expenses of such litigation for
any of our directors, officers, employees or agents upon such persons promise to
repay us therefore if it is ultimately determined that any such person shall not
have been entitled to indemnification. This indemnification policy could result
in substantial expenditure by us, which we may be unable to recoup.
Insofar as indemnification by us for liabilities arising under
the Securities Exchange Act of 1934 may be permitted to our directors, officers
and controlling persons pursuant to provisions of the Articles of Incorporation
and Bylaws, or otherwise, we have been advised that in the opinion of the SEC,
such indemnification is against public policy and is, therefore, unenforceable.
In the event that a claim for indemnification by such director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
At the present time, there is no pending litigation or
proceeding involving a director, officer, employee or other agent of ours in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, a registration statement on Form
S-1 under the Securities Act with respect to the common stock offered in this
offering. This prospectus does not contain all of the information set forth in
the registration statement. For further information with respect to us and the
common stock offered in this offering, we refer you to the registration
statement and to the attached exhibits. With respect to each such document filed
as an exhibit to the registration statement, we refer you to the exhibit for a
more complete description of the matters involved.
You may inspect our registration statement and the attached
exhibits and schedules without charge at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may
obtain copies of all or any part of our registration statement from the SEC upon
payment of prescribed fees. You may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330.
Our SEC filings, including the registration statement and the
exhibits filed with the registration statement, are also available from the
SEC's website at www.sec.gov, which contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.
- 59 -
We have not authorized any dealer, salesperson or other person
to provide any information or make any representations about Longhai Steel, Inc.
except the information or representations contained in this prospectus. You
should not rely on any additional information or representations if made.
This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy any securities:
except the securities offered by this prospectus;
in any jurisdiction in which the offer or solicitation is not authorized;
in any jurisdiction where the dealer or other salesperson is not qualified
  to make the offer or solicitation;
to any person to whom it is unlawful to make the offer or solicitation; or
to any person who is not a United States resident or who is outside the
  jurisdiction of the United States.
The delivery of this prospectus or any accompanying sale does
not imply that:
there have been no changes in the affairs of Longhai Steel, Inc. after the
  date of this prospectus; or
the information contained in this prospectus is correct after the date of
  this prospectus.
Until _______
    ___, 2010 (25 days after the date of this prospectus), all dealers effecting
    transactions in the registered securities, whether or not participating in
    this distribution, may be required to deliver a prospectus. This is in
    addition to the obligation of dealers to deliver a prospectus when acting as
    underwriters.
[___] Units
Each Unit Consisting of
Two
Shares of Common Stock
One Warrant to Purchase One
Share of Common Stock
PROSPECTUS
_______ , 2010
________________
Ladenburg
Thalmann & Co. Inc.
________________
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by us in connection with
the sale of common stock being registered. All amounts, other than the SEC
registration FINRA and NASDAQ fee, are estimates. We will pay all these
expenses.
Amount to be Paid
SEC Registration Fee
$
1,490
FINRA
2,580
NASDAQ Listing Fees
125,000
Printing Fees and Expenses
25,000
Legal Fees and Expenses
50,000
Accounting Fees and Expenses
50,000
Blue Sky Fees and Expenses
5,000
Transfer Agent and Registrar Fees
2,000
Miscellaneous
1,500
Total
$
261,080
Item 14. Indemnification of Directors and Officers
Under Sections 78.751 and 78.752 of the Nevada Revised
Statutes, the registrant has broad powers to indemnify and insure its directors
and officers against liabilities they may incur in their capacities as such. The
registrant's Amended and Restated Bylaws implement the indemnification and
insurance provisions permitted by Chapter 78 of the Nevada Revised Statutes by
providing that:
The registrant must indemnify its directors to the fullest extent
  permitted by Chapter 78 of the Nevada Revised Statutes and may, if and to the
  extent authorized by the registrant's board of directors, so indemnify its
  officers and any other person whom it has power to indemnify against
  liability, reasonable expense or other matter whatsoever.
The registrant may at the discretion of its board of director purchase and
  maintain insurance on behalf of the registrant and any person whom it has
  power to indemnify pursuant to law, its articles of incorporation, its bylaws
  or otherwise.
These indemnification provisions may be sufficiently broad to
permit indemnification of the registrant's directors and officers for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.
The registrant has also undertaken to provide its directors and
officers with indemnity insurance pursuant to which directors and officers are
indemnified or insured against liability or loss under certain circumstances
which may include liability, or related loss under the Securities Act and the
Exchange Act.
Insofar as indemnification by us for liabilities arising under
the Exchange Act may be permitted to our directors, officers and controlling
persons pursuant to provisions of the Articles of Incorporation and Bylaws, or
otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Exchange Act and will be
governed by the final adjudication of such issue.
At the present time, there is no pending litigation or
proceeding involving a director, officer, employee or other agent of ours in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
Item 15. Recent Sales of Unregistered Securities
On March 26, 2010, we issued 10,000 shares of our Series A
Preferred Stock to the shareholders of Kalington in exchange for 10,000 ordinary
shares of Kalington, which is all the issued and outstanding capital stock of
Kalington. The number of our shares issued to the shareholders of Kalington was
determined based on arms-length negotiations with the Kalington shareholders.
All 10,000 outstanding shares of our Series A Preferred Stock have automatically
converted into 9,850,000 shares of common stock, constituting 98.5% of our outstanding common
stock, after giving effect to a 1-for-125 reverse split that was effected on June
22, 2010, on the basis of one share of Series A Preferred Stock for 985 shares
of common stock. The issuance of our shares to the shareholders of Kalington was
made in reliance on the exemption provided by Section 4(2) of the Securities Act
for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder.
II-1
On March 26, 2010, we issued 7,450,000 shares of our Common
Stock to Goodwin Ventures, Inc. (equivalent to 59,600 shares of common stock on
a post split basis)  in consideration for Goodwin Ventures, Inc.
paying off approximately $90,000 in liabilities of the Company immediately prior
to the reverse acquisition. The issuance of our shares to Goodwin Ventures, Inc.
was made in reliance on the exemption provided by Section 4(2) of the Securities
Act for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder.
We issued securities in reliance upon Rule 506 of Regulation D
of the Securities Act. These shareholders who received the securities in such
instances made representations that (a) the shareholder is acquiring the
securities for his, her or its own account for investment and not for the
account of any other person and not with a view to or for distribution,
assignment or resale in connection with any distribution within the meaning of
the Securities Act, (b) the shareholder agrees not to sell or otherwise transfer
the purchased shares unless they are registered under the Securities Act and any
applicable state securities laws, or an exemption or exemptions from such
registration are available, (c) the shareholder has knowledge and experience in
financial and business matters such that he, she or it is capable of evaluating
the merits and risks of an investment in us, (d) the shareholder had access to
all of our documents, records, and books pertaining to the investment and was
provided the opportunity ask questions and receive answers regarding the terms
and conditions of the offering and to obtain any additional information which we
possessed or were able to acquire without unreasonable effort and expense, and
(e) the shareholder has no need for the liquidity in its investment in us and
could afford the complete loss of such investment. Management made the
determination that the investors in instances where we relied on Regulation D
are accredited investors (as defined in Regulation D) based upon management's
inquiry into their sophistication and net worth. In addition, there was no
general solicitation or advertising for securities issued in reliance upon
Regulation D.
In instances described above where we indicate that we relied
upon Section 4(2) of the Securities Act in issuing securities, our reliance was
based upon the following factors: (a) the issuance of the securities was an
isolated private transaction by us which did not involve a public offering; (b)
there were only a limited number of offerees; (c) there were no subsequent or
contemporaneous public offerings of the securities by us; (d) the securities
were not broken down into smaller denominations; and (e) the negotiations for
the sale of the stock took place directly between the offeree and us.
Item 16. Exhibits and Financial Statement Schedules
The following exhibits are included as part of this Form
S-1:
Exhibit
Description
No.
1.1**
Form of Underwriting
      Agreement
2.1
Share Exchange Agreement, dated as of March 26,
      2010, among Action Industries, Inc., Kalington Limited, the shareholders
      of Kalington Limited, Goodwin Ventures, Inc. and Xingtai Longhai Wire Co.,
      Ltd.  [incorporated by reference to Exhibit 2.1 of the Form 8-K filed
    by the Company March 26, 2010]
3.1
Articles of Incorporation
    [incorporated by reference to Exhibit 3.1 of the Form SB-2 filed by the
    Company on February 8, 2007]
3.2
Amended and Restated Certificate of Incorporation
    [[incorporated by reference to Exhibit 3.2 of the Form SB-2 filed by the
    Company on February 8, 2007]
3.3*
Certificate of Amendment
3.4
Bylaws, as amended [incorporated by reference to
    Exhibit 3.2 of the Form SB-2 filed by the Company on February 8, 2007, as
    amended by Exhibit 3.2 to the current report on Form 8-K filed by the
    Company on March 25, 2010]
3.5
Certificate of Designation of Series A Convertible
    Preferred Stock, as filed with the Nevada Secretary of State on March 25,
    2010 [incorporated by reference to Exhibit 3.3 of the Current Report on Form
    8-K, as filed by the Company March 26, 2010]
4.5**
Form of Underwriter's unit purchase
      warrant
4.6**
Specimen common stock
      certificate
4.7**
Warrant Agreement with attached form of
      warrant
5.1**
Opinion of Counsel
10.1
Purchase Agreement for Steel Billet by and
      between Xingtai Longhai Steel Wire Ltd. and Xingtai Longhai Steel Group
      Ltd., dated October 1, 2008 [incorporated by reference to Exhibit 10.1 of
      the Current Report on Form 8-K, as filed by the Company March 26, 2010]
10.2
Lease Agreement, as amended, between Xingtai Longhai
      Steel Wire Co. Ltd and Xingtai Longhai Steel Group Co. Ltd., dated October
      1, 2008, as amended [incorporated by reference to Exhibit 10.2 of the
      Current Report on Form 8-K, as filed by the Company March 26, 2010]
10.3
Form of Wire Purchase and Sales Contract [incorporated by
      reference to Exhibit 10.3 of the Current Report on Form 8-K, as filed by
      the Company March 26, 2010]
10.4
Consulting Services Agreement dated March 19, 2010
      between Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai
      Wire Co., Ltd. [incorporated by reference to Exhibit 10.4 of the Current
      Report on Form 8-K, as filed by the Company March 26, 2010]
10.5
Operating Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.5 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010]
10.6
Proxy Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.6 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010]
10.7
Option Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.7 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010]
10.8
Equity Pledge Agreement dated March 19, 2010 between
      Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire
      Co., Ltd. [incorporated by reference to Exhibit 10.8 of the Current Report
      on Form 8-K, as filed by the Company March 26, 2010]
10.9*
Employment Agreement, between
      Longhai Steel, Inc. (formerly, Action Industries, Inc.) and Dr. Eberhard
      Kornotzki
10.10*
Form of Independent Director Agreement
14
Code of Ethics, adopted on July 19, 2010 [incorporated by
      reference to Exhibit 14 of the current report on Form 8-K filed by the
      Company on July 20, 2010].
21
Subsidiaries of the Company [incorporated by reference to
      Exhibit 21 of the Current Report on Form 8-K, as filed by the Company
      March 26, 2010]
23.1*
Consent of MaloneBailey LLP
23.2
Consent of Counsel, included in Exhibit 5
24
Power of Attorney (included on the signature page of this
      registration statement)
_____________________
* Filed herewith
** To be filed by amendment
II-2
Item 17. Undertakings
The undersigned registrant hereby undertakes:
1.
To file, during any period in which offers or sales are
      being made, a post-effective amendment to this Registration Statement:
(a)
To include any Prospectus required by Section 10(a)(3) of
      the Securities Act of 1933, as amended (the "Securities Act");
(b)
To reflect in the Prospectus any facts or events arising
      after the effective date of this Registration Statement, or most recent
      post-effective amendment, which, individually or in the aggregate,
      represent a fundamental change in the information set forth in this
      Registration Statement; and notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
      the total dollar value of securities offered would not exceed that which
      was registered) and any deviation from the low or high end of the
      estimated maximum offering range may be reflected in the form of prospects
      filed with the SEC pursuant to Rule 424(b) under the Securities Act if, in
      the aggregate, the changes in the volume and price represent no more than
      a 20% change in the maximum aggregate offering price set forth in the
      "Calculation of Registration Fee" table in the effective registration
      statement; and
(c)
To include any material information with respect to the
      plan of distribution not previously disclosed in this Registration
      Statement or any material change to such information in the registration
      statement.
II-3
2.
That, for the purpose of determining any liability under
      the Securities Act , each such post-effective amendment shall be deemed to
      be a new registration statement relating to the securities offered herein,
      and the offering of such securities at that time shall be deemed to be the
      initial bona fide offering thereof.
3.
To remove from registration by means of a post-effective
      amendment any of the securities being registered hereby which remain
      unsold at the termination of the offering.
4.
For determining liability of the undersigned small
      business issuer under the Securities Act to any purchaser in the initial
      distribution of the securities, the undersigned small business issuer
      undertakes that in a primary offering of securities of the undersigned
      small business issuer pursuant to this Registration Statement, regardless
      of the underwriting method used to sell the securities to the purchaser,
      if the securities are offered or sold to such purchaser by means of any of
      the following communications, the undersigned small business issuer will
      be a seller to the purchaser and will be considered to offer or sell such
      securities to such purchaser:
(a)
Any preliminary Prospectus or Prospectus of the
      undersigned small business issuer relating to the offering required to be
      filed pursuant to Rule 424 of the Securities Act;
(b)
Any free writing Prospectus relating to the offering
      prepared by or on behalf of the undersigned small business issuer or used
      or referred to by the undersigned small business issuer;
(c)
The portion of any other free writing Prospectus relating
      to the offering containing material information about the undersigned
      small business issuer or its securities provided by or on behalf of the
      undersigned small business issuer; and
(d)
Any other communication that is an offer in the offering
      made by the undersigned small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions above, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by one of our directors, officers, or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by one of our directors, officers, or controlling persons in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
is against public policy as expressed in the Securities Act, and we will be
governed by the final adjudication of such issue.
Each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B of the Securities Act or other than prospectuses
filed in reliance on Rule 430A of the Securities Act, shall be deemed to be part
of and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Xingtai City, Hebei
Province, China, on the 20
th
day of July, 2010.
LONGHAI STEEL,
    INC.
By:
/s/ Chaojun Wang
Chaojun Wang
Chief Executive Officer
      (Principal Executive Officer)
By:
/s/ Dr. Eberhard Kornotzki
Dr. Eberhard Kornotzki
Chief Financial Officer (Principal Financial
      and Accounting Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
constitutes and appoints Chaojun Wang and Eberhard Kornotzki, and each of them
individually, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature
Title
Date
/s/ Chaojun Wang
Chairman and Chief Executive Officer
July 20, 2010
Chaojun Wang
(Principal Executive Officer)
/s/ Dr. Eberhard Kornotzki
Chief Financial Officer
July 20, 2010
Dr. Eberhard Kornotzki
(Principal Financial and Accounting
      Officer)
INDEX TO FINANCIAL STATEMENTS
Page
CONSOLIDATED FINANCIAL STATEMENTS OF LONGHAI STEEL, INC.
    AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
F-1
Consolidated Balance Sheets
    as of March 31, 2010 (unaudited) and December 31, 2009
F-2
Consolidated Statements of Income and Other Comprehensive Income for the
    three months ended March 31, 2010 and 2009 (unaudited)
F-3
Consolidated Statements of
    Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)
F-4
Notes to
    the Consolidated Financial Statements (unaudited)
F-5
AUDITED FINANCIAL
    STATEMENTS OF ACTION INDUSTRIES, INC AS OF DECEMBER 31, 2009 AND 2008
F-11
Report of
    Independent Registered Public Accounting Firm
F-12
Consolidated Balance Sheets
F-13
Consolidated Statements of Operations
F-14
Consolidated Statements of
    Changes in Owners' Equity and Comprehensive Income
F-15
Consolidated Statements of Cash Flows
F-16
Notes to Consolidated
    Financial Statements
F-17
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONHTS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)
F-1
LONGHAI STEEL, INC.
                (Formerly Action Industries, Inc.)
CONSOLIDATED
      BALANCE SHEETS
AS
      OF MARCH 31, 2010 AND DECEMBER 31, 2009
(UNAUDITED)
March
      31, 2010
December
      31, 2009
ASSETS
Current
      assets
Cash
      and cash equivalents
$
211,416
$
115,510
Notes
      receivable
737,262
-
Accounts
      receivable
16,056,171
19,009
Other
      receivables, net of allowance for doubtful accounts
8,351,773
2,799
Advance
      to suppliers
29,941,660
15,663,763
Inventory,
      net
14,380,945
2,393,159
VAT
      receivable
-
1,579,933
Income
      tax receivable
150,337
-
Due
      from related parties
-
42,290,438
Total
      current assets
69,829,564
62,064,611
Property,
      plant and equipment, net
25,983,643
26,680,244
TOTAL
      ASSETS
$
95,813,207
$
88,744,855
LIABILITIES
      AND STOCKHOLDERS' EQUITY
Current
      liabilities
Accounts
      payable
$
7,647,490
$
15,536,226
Advance
      from customers
41,431,780
33,245,360
Income
      tax payable
-
2,325,984
VAT
      payable
3,142,355
-
Current
      deferred tax liabilities
4,214,814
1,172,181
Accrued
      expenses and other payables
5,143,374
5,169,708
Due
      to related parties
90,026
-
Total
      current liabilities
61,669,839
57,449,459
Non-current
      deferred tax liabilities
184,058
190,351
TOTAL
      LIABILITIES
61,853,897
57,639,810
STOCKHOLDERS'
      EQUITY
Preferred
Stock, .001 par value, 10,000,000 shares authorized,
                        none issued and outstanding
-
-
Common
      Stock, .001 par value, 100,000,000 shares authorized, 10,000,000
and
                        9,850,000
      shares issued and outstanding, respectively
10,000
9,850
Additional
      paid-in capital
2,624,390
2,655,041
Statutory
      surplus reserves
288,163
-
Accumulated
      other comprehensive income
811,795
806,818
Retained
      earning
30,224,962
27,633,336
TOTAL
      STOCKHOLDERS' EQUITY
33,959,310
31,105,045
TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
$
95,813,207
$
88,744,855
The
accompanying notes are an integral part of these consolidated financial
statements.
F-2
LONGHAI STEEL, INC.
                (Formerly Action Industries, Inc.)
CONSOLIDATED
      STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
FOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)
Three
      Months Ended March 31
2010
2009
Revenues
$
105,976,651
$
89,061,713
Cost
      of revenues
(101,932,251
)
(84,552,382
)
Gross
      profit/(loss)
4,044,400
4,509,331
General
      and administrative expenses
(151,281
)
(76,303
)
Operating
      income
3,893,119
4,433,028
Other
      income (expense)
Interest
      income
620
521
Interest
      expense
(52,331
)
(9,436
)
Other
      expenses
(1,076
)
(8,581
)
Income
      before income tax
3,840,332
4,415,532
Income
      tax expense
(960,543
)
(1,104,911
)
Net
                              income
$
2,879,789
$
3,310,621
Other
      comprehensive income
4,977
24,792
Comprehensive
      income
$
2,884,766
$
3,335,413
Earnings
      per share – basic and diluted (assuming the completion of
the
      1 to 125 reverse stock split and the conversion of the Series
      A
Preferred
      Stock).  See Footnote 8
$
0.29
$
0.34
Weighted
      average shares outstanding - basic and diluted (assuming
the
      completion of the 1 to 125 reverse stock split and the conversion
      of
the
      Series A Preferred Stock) . See Footnote 8
9,860,000
9,850,000
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
LONGHAI
                              STEEL, INC. (Formerly Action Industries, Inc.)
CONSOLIDATED
      STATEMENTS OF CASH FLOWS
THREE
      MONTHS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)
Three
      Months Ended March 31
2010
2009
Cash
      flows from operating activities:
Net
      income
$
2,879,789
$
3,310,621
Adjustments
      to reconcile net income to cash provided (used) by operating
      activities:
Depreciation
      expense
749,831
741,379
Deferred
      tax assets
3,036,120
(272,251
)
Changes
      in operating assets and liabilities:
Accounts
      receivable
(16,037,159
)
(2,600
)
Inventory
(11,985,713
)
(1,104,141
)
Advances
      to suppliers
(14,275,377
)
(1,061,777
)
Prepaid
      expenses and other current assets
(8,348,974
)
(65,086
)
Accounts
      payable
(7,902,762
)
7,613,623
Advance
      from customers
8,181,070
3,708,354
Accrued
      expenses and other current liabilities
3,091,327
1,440,799
VAT
      receivable
1,580,187
-
Income
      tax payable
(2,476,695
)
893,607
Cash
      provided by (used in) operating activities
(41,508,356
)
15,202,528
Cash
      flows from investing activities:
Advance
      to others
(737,262
)
-
Proceeds
      from (payments to) related parties
42,387,269
(10,073,990
)
Purchase
      of property and equipment and other long-term assets
(46,761
)
(18,111
)
Net
      cash provided by (used in)  investing activities
41,603,246
(10,092,101
)
Cash
      flows from financing activities:
payments
      to related parties
-
(4,220,053
)
Financing
      cost on fixed assets purchase
-
7,595
Net
      cash used in financing activities
-
(4,212,458
)
Effect
      of exchange rate changes on cash
(14
)
5,082
Net
      increase in cash and cash equivalents
94,876
903,051
Cash
      and cash equivalents, beginning balance
116,540
363,903
Cash
      and cash equivalents, ending balance
$
211,416
$
1,266,954
SUPPLEMENTARY DISCLOSURE:
Interest
      paid
$
51,053
$
9,436
Income
      tax paid
$
401,113
$
617,295
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Longhai Steel, Inc (formerly Action Industries, Inc.) was
originally incorporated under the laws of the State of Georgia on December 4,
1995. On March 14, 2008, the Georgia corporation was merged with and into a
newly formed Nevada corporation also named Action Industries, Inc. and all of
the outstanding shares of the Georgia corporation were exchanged for shares in
the surviving Nevada corporation.
On March 26, 2010, the Company completed a reverse acquisition
transaction through a share exchange with Kalington Limited (hereafter referred
to as "Kalington"), a Hong Kong entity established on November 5, 2009, and its
shareholders, whereby the Company acquired 100% of the issued and outstanding
capital stock of Kalington in exchange for 10,000 shares of our Series A
Preferred Stock which constituted 98.5% of the Company's issued and outstanding
capital stock on an as-converted basis as of and immediately after the
consummation of the reverse acquisition. On June 22, 2010, the Company effected
a 1-for-125 reverse stock split of our issued and outstanding Common Stock (the
"Reverse Stock Split"). Upon the date of the Reverse Stock Split all of the
issued and outstanding shares of Series A Preferred Stock automatically
converted into 9,850,000 shares of common stock. Following the effectiveness of
the Reverse Stock Split and conversion of Series A Preferred Stock into common
stock, there were approximately 10,000,000 shares of our common stock issued and
outstanding and no shares of preferred stock issued and outstanding. As a result
of the reverse acquisition, Kalington became the Company's wholly-owned
subsidiary and the former shareholders of Kalington became our controlling
stockholders. The share exchange transaction with Kalington and the
Shareholders, was treated as a reverse acquisition for accounting and financial
reporting purposes, with Kalington as the acquirer and the Company as the
acquired party. After the reverse acquisition, the Company changed its name to
Longhai Steel, Inc.
As a result of our acquisition of Kalington, the Company now owns all of the
issued and outstanding capital stock of Kalington.
By virtue of its ownership in Kalington, the Company also owns Kalington
Consulting, which is a wholly owned foreign subsidiary of Kalington and
effectively and substantially controls Longhai, a leading producer of steel wire
products in eastern China, through a series of captive agreements known as
variable interest agreements (the "VIE Agreements") with Kalington Consulting.
Prior to the reverse acquisition of Kalington, the Company was primarily in the
business of providing prepaid long distance calling cards and other
telecommunication products and was in the development stage and had not
commenced planned principal operations. As a result of our reverse acquisition
of Kalington, the Company is no longer a shell company and active business
operations were revived.
All of the Company's business operations are now conducted through its Hong Kong
and Chinese subsidiaries, Kalington and Kalington Consulting, respectively, and
controlled affiliate, Longhai. The Company's principal business is the
production of steel wire ranging from 6mm to 10mm in diameter. The Company
operates two wire production lines which have a combined annual capacity of
approximately nine hundred thousand tons per year. The Company's products are
sold to a number of distributors who transport the wire to nearby wire
processing facilities. The Company's wire is then further processed by third
party wire refiners into a variety of products such as nails, screws, and wire
mesh for use in reinforced concrete and fencing. The Company's facilities and
head offices are located in the town of Xingtai in southern Hebei Province.
Kalington was established in Hong Kong on November 5, 2009 to serve as an
intermediate holding company. Chaojun Wang and William Hugh Luckman currently
serve as the directors of Kalington. Kalington Consulting was established in the
PRC on March 18, 2010.
Longhai was originally formed on August 26, 2008 as a carve-out from the Longhai
Steel Group. Chaojun Wang serves as the Chairman of the Board of Directors and
General Manager of Longhai and owns 80% of the capital stock in Longhai.
Longhai's additional shareholders are Wealth Index International (Beijing)
Investment Co., Ltd. (15% owner) and Wenyi Chen (5% owner). Chaojun Wang also
owns 80% of the capital stock of and is the chief executive officer of the
Longhai Steel Group.
F-5
Longhai leases five stories of office space and the building
which houses our production facilities from the Longhai Steel Group. Until 2008,
Longhai purchased 100% of its steel billet from the Longhai Steel Group. Since
2009, Longhai has purchased steel billet from third party vendors. Steel billet
is the principal raw material used in our production of steel wire. Longhai also
purchases production utilities from the Longhai Steel Group.
Since there is common control between the Company and Longhai,
for accounting purposes, the acquisition of Longhai has been treated as a
recapitalization with no adjustment to the historical basis of the assets and
liabilities of the consolidated company. The restructuring has been accounted
for using the "as if" pooling method of accounting and the operations were
consolidated as if the restructuring had occurred as of the beginning of the
earliest period presented in our consolidated financial statements and the
current corporate structure had been in existence throughout the periods covered
by our consolidated financial statements.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial
statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP") and
the rules of the U.S. Securities and Exchange Commission ("SEC"), and should be
read in conjunction with the December 31, 2009 audited financial statements of
the Company and the notes thereto as set forth below. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for fair presentation of financial
position and results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes to
the consolidated financial statements, which would substantially duplicate the
disclosure required in the Company's December 31, 2009 annual financial
statements have been omitted.
All significant inter-company balances and transactions have
been eliminated in consolidation. Certain prior period numbers are reclassified
to conform to current period presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its 100%-owned subsidiary Kalington for the period
from March 26 to 31, 2010, and its affiliate Longhai for the three
months ended March 31, 2010. All significant inter-company accounts and
transactions were eliminated in consolidation.
Basis of Presentation
The financial statements reflect the financial position,
results of operations and cash flows of the Company and all of its wholly owned
and majority owned subsidiaries as of March 31, 2010 and December 31, 2009 and
for the three months ended March 31, 2010 and 2009. All intercompany items are
eliminated during consolidation.
Use of Estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the consolidated financial
statements and the amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those results.
Accounts Receivable
The Company's policy is to maintain reserves for potential
credit losses on 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. Accounts are
written off against the allowance when it becomes evident collection will not
occur. As of March 31, 2010 and December 31, 2009, accounts receivable was
$16,056,171 and $19,009, respectively.
F-6
Foreign Currency Transactions
The reporting currency of the Company is the U.S. dollar. The
functional currency of our PRC subsidiaries is the Chinese Renminbi ("RMB"). The
financial statements of our PRC subsidiaries are translated to U.S. dollars
using year-end exchange rates as to assets and liabilities and average exchange
rates as to revenues, expenses and cash flows. Capital accounts are translated
at their historical exchange rates when the capital transaction occurred.
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.
The balance sheet amounts, with the exception of stockholders'
equity at March 31, 2010, were translated using the exchange rate of 6.8361 RMB
to $1.00 as compared to 6.8376 RMB at December 31, 2009. The stockholders'
equity accounts were stated at their historical exchange rate. The average
translation rates applied to the income and cash flow statement amounts for the
three months ended March 31, 2010 and 2009 were 6.83604 RMB and 6.84659 RMB to
$1.00, respectively.
Translation adjustments resulting from this process are
included in "accumulated other comprehensive income" in the consolidated
statement of stockholders' equity and were $811,795 and $806,818  as of March 31,
2010 and December 31, 2009, respectively.
Earnings Per Share
The Company reports earnings per share in accordance with the
provisions of ASC 260 "Earnings Per Share". ASC 260 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
is computed by dividing income available to common stockholders by the weighted
average common shares outstanding during the period, excluding shares issuable
pursuant to outstanding options, warrants and other contracts to issue common
stock. Diluted earnings per share takes into account the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised and converted into common stock using the treasury method.
Common stock equivalents represent the dilutive effect of the
assumed exercise of the outstanding options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or the
date of issuance, whichever is later, and only if the common stock equivalents
are considered dilutive based upon the Company's net income (loss) position at
the calculation dates. As of March 31, 2010 and 2009, the Company did not have
any dilutive securities.
NOTE 3 - INVENTORY
Inventory as of March 31, 2010 and December 31, 2009 were as
follows:
March 31,
December 31,
2010
2009
Raw material
$
110,935
$
27,292
Finished goods
12,489,060
849,000
Auxiliary inventory (spare parts)
1,780,950
1,516,867
Total inventory
$
14,380,945
$
2,393,159
F-7
NOTE 4 - ACCOUNTS PAYABLE, UNEARNED REVENUE AND ACCRUED
LIABILITIES
As of March 31, 2010 and December 31, 2009, accounts payable,
unearned revenue and accrued liabilities of the Company were summarized as
follows:
March 31,
December 31,
2010
2009
Accounts payable
$
7,647,490
$
15,536,226
Unearned revenue
41,431,780
33,245,360
Accrued liabilities and other
      payables:
– payroll payable
178,498
97,894
– VAT payable
3,142,355
-
– customer deposits
4,853,282
2,923,634
– payable for equipment purchased
-
2,119,889
– other
111,594
28,291
Subtotal of accrued expenses and
      other payables
$
8,285,729
$
5,169,708
NOTE 5 - RELATED PARTY BALANCE AND TRANSACTIONS
Due from related parties
As of March 31, 2010 and December 31, 2009, due from related
parties was summarized as follows:
March 31,
December 31,
2010
2009
Xingtai Longhai Steel Group Co.,
      Ltd.
$
-
$
42,047,673
Xingtai Longhai Steel Group Metal Product Co., Ltd.
-
242,765
Total
$
-
$
42,290,438
Due to related parties
As of March 31, 2010 and December 31, 2009, due to related
parties was summarized as follows:
March 31,
December 31,
2010
2009
Xingtai Longhai Steel Group Co.,
      Ltd.
$
90,026
$
-
The Company loaned cash deposits received from third party
customers to Longhai Group, a related party. As of March 31, 2010 and December
31, 2009, the outstanding balance of this loan was Nil and $42,047,673,
respectively.
The Company earned finance income for loaning prepayments received from trading
company for steel wire to Longhai Group from Longhai Group amounting to
$1,527,203 and $947,865 for the three months ended March 31, 2010 and March 31,
2009 respectively, which is included in the Company's revenue.
The Company sells steel wire to Xingtai Longhai Steel Group Metal Product Co.,
Ltd. ("Longhai Metal"), a related party. As of March 31, 2010 and December 31,
2009, the balance due from Longhai Metal related to such sales was Nil and
$242,765 respectively.
F-8
Related party transactions
For the three months ended March 31, 2010, the Company
purchased production utilities from the Longhai Group amounting to $2,573,640.
In addition, in the three months ended March 31, 2010, the Company received
$1,128,405 from the Longhai Group from sales of scrap metal.
In the three months ended March 31, 2010, the Company also received $1,527,203
from the Longhai Group as interest for loaning prepayments received from trading
companies for steel wire to the Group.
For the three months ended March 31, 2009, the Company purchased production
utilities from Longhai Group amounted to $2,202,917. In addition, the amount of
$958,828 scrape metal was sold to Longhai Group for the three months ended March
31, 2009. The Company provided financing service to Longhai Group amounted to
$947,865 for the three months ended March 31, 2009.
In addition, Longhai Group rents office building and workshop to the Company.
The rent expense for the three months ended March 31, 2010 and 2009 was $7,089
and $7,078, respectively.
The amount of steel wire sold to Longhai Steel Group Metal Products was Nil and
$3,563,149 for the three months ended March 31, 2010 and 2009 respectively.
NOTE 7 - INCOME TAX
Longhai is governed by the Income Tax Law of the PRC applied to
private-run enterprises, and is generally subject to tax at a statutory rate of
25% on income reported in its statutory financial statements filed with the PRC
regulatory authorities after appropriate tax adjustments.
The following table summarizes the temporary differences which
result in deferred tax assets and liabilities as of March 31, 2010 and December
31, 2009:
March 31,
December 31,
2010
2009
Current deferred tax assets:
Cost of un-invoiced goods delivery
2,209,290
161,673
Expenses deductible in next year
72,523
31,547
Total current deferred tax assets
2,281,813
193,220
Total deferred tax assets
$
2,281,813
$
193,220
March 31,
December 31,
2010
2009
Current deferred tax liabilities:
Sales of uninvoiced goods delivery
      (net of output VAT)
6,496,627
1,365,401
Non-current deferred tax
      liabilities:
Depreciation of fixed assets
$
184,058
$
190,351
Total deferred tax
      liabilities
$
6,680,685
$
1,555,752
Net current deferred tax
      liabilities
4,214,814
1,172,181
Net non-current deferred tax liabilities
184,058
190,351
F-9
The following table reconciles the U.S. statutory rates to the
Company's effective tax rate for the three months ended March 31, 2010 and 2009:
2010
2009
US statutory rates
34.0%
34.0%
Tax rate difference
(9.0%
)
(9.0%
)
Tax per financial statements
25.0%
25.0%
NOTE 8 – SHAREHOLDERS' EQUITY
Series A Convertible Preferred Stock
The Company issued 10,000 shares of Series A Preferred Stock.
The Certificate of Designation was filed on March 25, 2010.
Shares of Series A Preferred Stock automatically converted
into shares of common stock on the basis of one share of Series A Preferred
Stock for 985 shares of common stock immediately subsequent to the effectiveness
of a 1-for-125 reverse split of our outstanding common stock, which
became effective on June 30, 2010 (the "Reverse Stock Split"). As a
result, the 10,000 outstanding shares of Series A Preferred Stock

automatically converted into 9,850,000 shares of common stock, which constitute
98.5% of our outstanding common stock.
Following the effectiveness of the Reverse Stock Split and
conversion of Series A Preferred Stock into common stock, there are
approximately 10,000,000 shares of our common stock issued and outstanding and
no shares of preferred stock issued and outstanding.
For accounting purposes, all shares are retroactively restated
to reflect the reverse stock split.
F-10
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,
2009 AND 2008 Index to Financial Statements
Page
CONSOLIDATED FINANCIAL STATEMENTS
      FOR THE YEARS ENDED DECEMBER 31, 2009
AND 2008
Report of Independent Registered
      Public Accounting Firm
F-13
Consolidated Balance Sheets as of December 31, 2009
      and 2008
F-14
Consolidated Statements of Operations and
      Comprehensive Income for the Years Ended December 31, 2009, 2008 and 2007
F-15
Consolidated Statements of Stockholders' Equity for
      the Years Ended December 31, 2009, 2008 and 2007
F-16
Consolidated Statements of Cash
      Flows for the Years Ended December 31, 2009, 2008 and 2007
F-16
Notes to Consolidated Financial Statements
F-17
F-11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
Longhai
Steel, Inc.
We have audited the accompanying balance sheets of Longhai
Steel, Inc. (the "Company") as of December 31, 2009 and 2008, and the related
statements of operations and comprehensive income, changes in shareholders'
equity and cash flows for the years ended December 31, 2009, 2008 and 2007.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, 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 financial statements of the Company
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2009 and 2008 and the results of its
operations and its cash flows for the years ended December 31, 2009, 2008 and
2007 in conformity with accounting principles generally accepted in the United
States of America.
/s/ MALONEBAILEY, LLP
www.malone-bailey.com
Houston, Texas
March 26, 2010
F-12
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 &
2008
2009
2008
ASSETS
Current assets
Cash and cash equivalents
$
115,510
$
363,903
Accounts receivable, net
19,009
-
Inventory, net
2,393,159
2,107,701
Advance to suppliers
15,663,763
23,873,721
Tax receivable
1,579,933
-
Other current assets
2,799
64,194
Due from related parties
42,290,438
-
Total current assets
62,064,611
26,409,519
Property, plant and equipment, net
26,680,244
29,355,329
Other assets
-
30,343
TOTAL ASSETS
$
88,744,855
$
55,795,191
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
$
15,536,226
$
6,128,116
Unearned revenue
33,245,360
17,913,926
Income tax payable
2,325,984
656,972
Accrued liabilities
5,169,708
7,245,557
Current deferred tax liabilities
1,172,181
169,639
Short-term debt - related party
-
4,214,758
Total current liabilities
57,449,459
36,328,968
Non-current deferred tax liabilities
190,351
113,272
TOTAL LIABILITIES
57,639,810
36,442,240
STOCKHOLDERS' EQUITY
Preferred stock, .001 par value, 10,000,000 shares
      authorized none issued and outstanding
-
-
Common Stock, .001 par value, 100,000,000
      shares authorized, 9,850,000 shares issued and outstanding, respectively
9,850
9,850
Additional paid-in capital
2,655,041
2,655,041
Accumulated other comprehensive
      income
806,818
752,334
Retained earnings
27,633,336
15,935,726
TOTAL STOCKHOLDERS' EQUITY
31,105,045
19,352,951
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
88,744,855
$
55,795,191
The accompanying notes are an integral part of these
consolidated financial statements
F-13
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 & 2007
The Year Ended December 31
2009
2008
2007
Revenue
$
373,660,461
$
511,487,983
$
238,644,939
Cost of revenue
(356,833,041
)
(492,792,919
)
(234,180,486
)
Gross profit
16,827,420
18,695,064
4,464,453
Operating expenses:
General and administrative expenses
(1,114,016
)
(798,083
)
(476,507
)
Impairment loss on assets
-
(20,632
)
Income from operations
15,713,404
17,896,981
3,967,314
Interest income
3,301
806
-
Interest expense
(85,422
)
(84,199
)
(121,417
)
Other expenses
(34,470
)
(27,768
)
(22,456
)
Total other income and expenses
(116,591
)
(111,161
)
(143,873
)
Income before income taxes
15,596,813
17,785,820
3,823,441
Income tax expense
(3,899,203
)
(4,446,455
)
(1,227,080
)
Net income
$
11,697,610
$
13,339,365
$
2,596,361
Net Income per share – basic and
      diluted
$
1.19
$
1.35
$
0.26
Weighted average shares outstanding – basic and
      diluted
9,850,000
9,850,000
9,850,000
Comprehensive Income
Net income
$
11,697,610
$
13,339,365
$
2,596,361
Other comprehensive income
54,484
521,483
230,851
Comprehensive income
$
11,752,094
$
13,860,848
$
2,827,212
The accompanying notes are an integral part of these
consolidated financial statements.
F-14
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS
ENDED DECEMBER 31, 2009, 2008 & 2007
Additional
Other
Common
Paid-in
comprehensive
Retained
Shares
Stock
Capital
income
earnings
Total
Balance January 1,
      2007
9,850,000
$
9,850
1,781,004
$
-
$
-
$
1,790,854
Foreign Currency Translation
-
230,851
-
230,851
Net income
-
-
2,596,361
2,596,361
Balance December 31, 2007
9,850,000
$
9,850
$
1,781,004
$
230,851
$
2,596,361
$
4,618,066
Contributed capital
874,037
874,037
Foreign Currency Translation
-
521,483
-
521,483
Net income
-
-
13,339,365
13,339,365
Balance December 31, 2008
9,850,000
$
9,850
$
2,655,041
$
752,334
$
15,935,726
$
19,352,951
Foreign Currency
      Translation
54,484
54,484
Net income
11,697,610
11,697,610
Balance December 31,
      2009
9,850,000
$
9,850
$
2,655,041
$
806,818
$
27,633,336
$
31,105,045
The accompanying notes are an integral part of these
consolidated financial statements.
F-15
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER
31, 2009, 2008 & 2007
2009
2008
2007
Cash flows from
      operating activities:
Net income
$
11,697,610
$
13,339,365
$
2,596,361
Adjustments to reconcile net income to
      cash provided by operating activities:
Depreciation and
      amortization
2,990,846
2,884,014
2,280,177
Provision for inventory obsolescence
-
-
20,632
Deferred tax assets /
      liabilities
1,078,918
162,556
112,787
Changes in operating assets and
      liabilities:
Accounts receivable
(19,009
)
6,083,087
(5,700,591
)
Inventory
(280,217
)
1,620,193
(3,493,489
)
Advance to suppliers
8,280,771
(23,873,721
)
-
Prepaid expenses and other assets
50,102
(64,194
)
-
Due to / from related
      parties
(17,194,469
)
(12,811,436
)
948,571
Accounts payable
9,392,873
4,229,366
1,779,359
Accrued expenses and
      other current liabilities
(2,175,127
)
2,184,788
1,359,937
Advance from customers
15,286,893
9,439,401
7,941,659
Income tax payable
1,667,379
(586,349
)
1,165,143
CASH PROVIDED BY OPERATING ACTIVITIES
30,776,570
2,607,070
9,010,546
Cash flows from investing
      activities:
Advances to affiliates
(29,321,207
)
-
-
Purchase of property and equipment and
      other long-term assets
(244,267
)
-
-
CASH USED IN INVESTING
      ACTIVITIES
(29,565,474
)
-
-
Cash flows from
      financing activities:
Contributed capital
-
874,037
-
Repayments on
      borrowings from related parties
(1,498,671
)
(2,535,072
)
(8,210,997
)
Financing cost on fixed assets purchase
30,418
85,527
126,449
Principal payments on
      long-term loan
-
(874,037
)
(1,107,452
)
CASH USED IN FINANCING ACTIVITIES
(1,468,253
)
(2,449,545
)
(9,192,000
)
Effect of exchange rate changes on cash
8,764
206,378
181,454
Net (decrease) increase in cash and
      cash equivalents
(248,393
)
363,903
-
Cash and cash equivalents, beginning
      balance
363,903
-
-
Cash and cash
      equivalents, ending balance
$
115,510
$
363,903
$
-
NON-CASH
      TRANSACTIONS
Fixed assets purchased
      on credit
$
-
$
1,550,886
$
7,566,360
Raw materials purchased on credit
4,214,758
15,955,612
Financing service and
      sales of products to related parties
12,969,231
-
-
SUPPLEMENTARY
      DISCLOSURE:
Interest paid
$
85,422
$
-
$
-
Income tax paid
$
1,154,400
$
-
$
1,227,080
The accompanying notes are an integral part of these
consolidated financial statements.
F-16
LONGHAI STEEL, INC. (Formerly Action Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Longhai Steel, Inc. (formerly Action Industries, Inc.) was
originally incorporated under the laws of the State of Georgia on December 4,
1995. On March 14, 2008, the Georgia corporation was merged with and into a
newly formed Nevada corporation also named Action Industries, Inc. and all of
the outstanding shares of the Georgia corporation were exchanged for shares in
the surviving Nevada corporation.
On March 26, 2010, the Company completed a reverse acquisition
transaction through a share exchange with Kalington Limited (hereafter referred
to as "Kalington"), a Hong Kong entity established on November 5, 2009, and its
shareholders, or the Shareholders, whereby the Company acquired 100% of the
issued and outstanding capital stock of Kalington in exchange for 10,000 shares
of our Series A Preferred Stock which constituted 98.5% of the Company's issued
and outstanding capital stock on a as-converted basis as of and immediately
after the consummation of the reverse acquisition. As a result of the reverse
acquisition, Kalington became the Company's wholly-owned subsidiary and the
former shareholders of Kalington became our controlling stockholders. The share
exchange transaction with Kalington and the Shareholders, or Share Exchange, was
treated as a reverse acquisition, with Kalington as the acquirer and the Company
as the acquired party for accounting and financial reporting purposes. After the
reverse acquisition, the Company changed its name to Longhai Steel, Inc.
As a result of our acquisition of Kalington, the Company now
owns all of the issued and outstanding capital stock of Kalington.
By virtue of its ownership in Kalington, the Company also owns
Kalington Consulting, which is a wholly owned foreign subsidiary of Kalington
and effectively and substantially controls Longhai, a leading producer of steel
wire products in eastern China, through a series of captive agreements known as
variable interest agreements (the "VIE Agreements") with Kalington Consulting.
Prior to the reverse acquisition of Kalington, the Company was
primarily in the business of providing prepaid long distance calling cards and
other telecommunication products and was in the development stage and had not
commenced planned principal operations. As a result of our reverse acquisition
of Kalington, the Company no longer a shell company and active business
operations were revived.
All of the Company's business operations are now conducted
through its Hong Kong and Chinese subsidiaries, Kalington and Kalington
Consulting, respectively, and controlled affiliate, Longhai. The Company's
principal business is the production of steel wire ranging from 6mm to 10mm in
diameter. The Company operates two wire production lines which have a combined
annual capacity of approximately nine hundred thousand tons per year. The
Company's products are sold to a number of distributors who transport the wire
to nearby wire processing facilities. The Company's wire is then further
processed by third party wire refiners into a variety of products such as nails,
screws, and wire mesh for use in reinforced concrete and fencing. The Company's
facilities and head offices are located in the town of Xingtai in southern
Hebei.
Kalington was established in Hong Kong on November 5, 2009 to
serve as an intermediate holding company. Chaojun Wang and William Hugh Luckman
currently serve as the directors of Kalington. Kalington Consulting was
established in the PRC on March 18, 2010.
Longhai was established in the PRC on August 26, 2008 as a
result of the division of the Longhai Steel Group for the purpose of engaging in
the production of steel wire. Chaojun Wang serves as the Chairman of the Board
of Directors and General Manager of Longhai and owns 80% of the capital stock in
Longhai. Longhai's additional shareholders are Wealth Index International
(Beijing) Investment Co., Ltd. (15% owner) and Wenyi Chen (5% owner). Chaojun
Wang also owns 80% of the capital stock of and is the chief executive officer of
the Longhai Steel Group.
Longhai leases a five-story office space and the building which
houses our production facilities from the Longhai Steel Group. Until 2008,
Longhai purchased 100% of its steel billet from the Longhai Steel Group. Since
2009, Longhai has purchased steel billet from third party vendors. Steel Billet
is the principal raw material used in our production of steel wire. Longhai also
purchases production utilities from the Longhai Steel Group.
F-17
Since the common control between Action Industries, Inc. and
Longhai for accounting purposes, the acquisition of Longhai has been treated as
a recapitalization with no adjustment to the historical basis of their assets
and liabilities. The restructuring has been accounted for using the "as if"
pooling method of accounting and the operations were consolidated as if the
restructuring had occurred as of the beginning of the earliest period presented
in our consolidated financial statements and the current corporate structure had
been in existence throughout the periods covered by our consolidated financial
statements.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The financial statements reflect the financial position,
results of operations and cash flows of the Company and all of its wholly owned
and majority owned subsidiaries as of December 31, 2009 and 2008 and for the
years ended December 31, 2009 and the period from August 26, 2008 to December
31, 2008, and of carve-out financial statements of Longhai as of December 31,
2007 and for the period from January 1, 2008 to August 25, 2008 and for the year
ended December 31, 2007. All intercompany items are eliminated during
consolidation.
The carve-out financial statements include the assets,
liabilities and results of operations of Longhai that were "carved-out" from
Xingtai Longhai Steel Group Co., Ltd. (the "Group"). The operating expenses
included in the "carve-out") financial statements include proportional
allocations of various common costs of the Group because specific identification
of the expenses was not practicable. The common costs include expenses from the
Group related to various common costs, including executive, finance and
accounting, human resources, legal, marketing, and information technology.
The Company believes that the assumptions underlying the
carve-out financial statements are reasonable. The cost allocation methods
applied to certain common costs include the following:
Specific identification. Where the amounts were specifically identified to
  the Division, they were classified accordingly.
Reasonable allocation. Where the amounts were not clearly or specifically
  identified, management determined if a reasonable allocation method could be
  applied. For example, proportionally allocated general and administrative
  expenses based on production costs.
The Consolidated Financial Statements are prepared in
accordance with generally accepted accounting principles in the United States of
America ("US GAAP"). The Company's functional currency is the Chinese Renminbi
("RMB"); however the accompanying financial statements have been translated and
presented in United States Dollars ("$").
Use of Estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the consolidated financial
statements and the amount of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. However, actual results could differ materially
from those results.
Risks and Uncertainties
The Company is subject to substantial risks from, among other
things, intense competition associated with the industry in general, other risks
associated with financing, liquidity requirements, rapidly changing customer
requirements, limited operating history, foreign currency exchange rates and the
volatility of public markets.
Concentration of Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and trade and bills receivables. As of December 31, 2009 and 2008,
substantially all of the Company's cash and cash equivalents were held by major
financial institutions located in the PRC, which management believes are of high
credit quality. With respect to trade receivables, the Company extends credit
based on an evaluation of the customer's financial condition. The Company generally does not
require collateral for trade receivables and maintains an allowance for doubtful
accounts of trade receivables.
F-18
The Company operates principally in the PRC and grants credit
to its customers in this geographic region. Although the PRC is economically
stable, it is always possible that unanticipated events in foreign countries
could disrupt the Company's operations.
Comprehensive Income
Comprehensive income consists of two components, net income and
other comprehensive income/(loss). Other comprehensive income refers to revenue,
expenses, gains and losses that under generally accepted accounting principles
are recorded as an element of stockholders' equity but are excluded from net
income. During the periods presented, other comprehensive income (loss) includes
cumulative translation adjustment from foreign currency translation.
Foreign Currency Transactions
The reporting currency of the Company is the US dollar. The
functional currency of PRC subsidiaries is RMB. The financial statements of PRC
subsidiaries are translated to United States Dollars using year-end exchange
rates as to assets and liabilities and average exchange rates as to revenues,
expenses and cash flows. Capital accounts are translated at their historical
exchange rates when the capital transaction occurred. 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.
The balance sheet amounts with the exception of equity at
December 31, 2009 were translated 6.8376 RMB to $1.00 as compared to 6.8542 RMB
at December 31, 2008. The equity accounts were stated at their historical
exchange rate. The average translation rates applied to the income and cash flow
statement amounts for the years ended December 31, 2009, 2008 and 2007 was
6.84092 RMB, 6.96225 RMB and 7.6172 RMB to $1.00, respectively..
Translations adjustments resulting from this process are
included in accumulated other comprehensive income in the consolidated statement
of stockholders' equity and were $806,818 and $752,334 as of December 31, 2009
and 2008, respectively.
Cash and Cash Equivalents
For Statement of Cash Flows purposes, the Company considers all
cash on hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with original
maturity of three months or less, when purchased, to be cash and cash
equivalents. The Company maintains cash with various banks and trust companies
located in China. Cash accounts are not insured or otherwise protected. Should
any bank or trust company holding cash deposits become insolvent, or if the
Company is otherwise unable to withdraw funds, the Company would lose the cash
on deposit with that particular bank or trust company.
Accounts Receivable
The Company's policy is to maintain reserves for potential
credit losses on 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. Accounts are
written off against the allowance when it becomes evident collection will not
occur. As of December 31, 2009 and 2008, the accounts receivable was $19,009 and
Nil, respectively.
Inventory
Inventory is stated at the lower of cost or market. Cost is
determined on a weighted average basis and includes all expenditures incurred in
bringing the goods to the point of sale and putting them in a saleable
condition. In assessing the ultimate realization of inventories, the management
makes judgments as to future demand requirements compared to current or
committed inventory levels. The Company estimates the demand requirements
based on market conditions, forecasts prepared by its customers, sales contracts
and orders in hand.
F-19
In addition, the Company estimates net realizable value based
on intended use, current market value and inventory ageing analyses. The Company
writes down inventories for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventories and their estimated
market value based upon assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Gains or
losses on disposals are reflected as gain or loss in the year of disposal. All
ordinary repair and maintenance costs are expensed as incurred. Expenditures for
maintenance and repairs are expensed as incurred. Major renewals and betterments
are charged to the property accounts while replacements, maintenance and
repairs, which do not improve or extend the lives of the respective assets, are
expensed in the current period.
Depreciation for financial reporting purposes is provided using
the straight-line method over the estimated useful lives of assets as set out
below.
Estimated Useful Life
Plant and building
20 years
Machinery and equipment
10 years
Office furniture and equipment
5 years
Transportation equipment
5 years
Impairment of Long-Lived Assets
In accordance with ASC 360, "Property, Plant and Equipment",
the Company reviews the carrying values of long-lived assets, including
property, plant and equipment, land use right and other intangible assets,
whenever facts and circumstances indicate the assets may be impaired.
Recoverability of assets to be held and used is measured by comparing the
carrying amount of an asset to future net undiscounted cash flows expected to be
generated by the asset. If an asset is considered impaired, the impairment is
measured by the amount by which the carrying amount the asset exceeds the fair
value. Assets to be disposed of are reported at the lower of the carrying amount
or fair value, less costs of disposal.
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 years ended
December 31, 2009, 2008 and 2007.
Revenue Recognition
The Company recognizes sales in accordance with United SEC
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" and SAB No. 104, "Revenue Recognition." The Company recognizes
revenue when the following criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or services were rendered, (iii)
the price to the customer is fixed or determinable and (iv) collection of the
resulting receivable is reasonably assured. After the customers of the Company
taking the goods and signing on the shipping order, the Company considers the
signed shipping order as customer acceptance and the risk of goods is
transferred, as the price in invoice or sales contract with customers is fixed,
the Company recognize revenue accordingly. Revenue is not recognized until title
and risk of loss is transferred to the customer, which occurs upon delivery of
goods, and objective evidence exists that customer acceptance provisions have
were met. Provisions for discounts and returns are provided for at the time the
sale is recorded, and are recorded as a reduction of sales. The Company bases
its estimates on historical experience taking into consideration the type of
products sold, the type of customer, and the type of specific transaction in
each arrangement. Revenues represent the invoiced value of goods, net of value
added tax ("VAT").
F-20
The Company provides a product warranty to customers;
meanwhile, as an assembling company, all parts are purchased from related
suppliers, suppliers provide a same terms warranty to the Company as that the
Company provides to customers. In case customers claim problem products to the
Company, the Company will claim the related parts to suppliers accordingly.
Further more, the labor costs and overheads related to the problem products are
not material compared to the parts cost, so the company do not accrue any
warranty liabilities in financial statements.
The Company does not offer promotional payments, customer
coupons, rebates or other cash redemption offers to its customers. Deposits or
advance payments from customers prior to delivery of goods and passage of title
of goods are recorded as unearned revenue.
Income Taxes
The Company accounts for income taxes in accordance with ASC
740 "Income Taxes". Under this method, deferred income taxes are recognized for
the estimated tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts and each
year-end based on enacted tax laws and statutory rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized when, in management's opinion; it is more likely than not that
some portion of the deferred tax assets will not be realized. The provision for
income taxes represents current taxes payable net of the change during the
period in deferred tax assets and liabilities.
Earnings (loss) Per Share
The Company reports earnings per share in accordance with the
provisions of ASC 260 "Earnings Per Share." ASC 260 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised and converted into common stock using the treasury method.
Common stock equivalents represent the dilutive effect of the
assumed exercise of the outstanding stock options and warrants, using the
treasury stock method, at either the beginning of the respective period
presented or the date of issuance, whichever is later, and only if the common
stock equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation dates. As of December 31, 2009, 2008 and
2007, the Company does not have any dilutive securities. The Company does not
have shares outstanding. As a result, earnings per share are not presented.
Fair Value of Financial Instruments
ASC 820 "Fair Value Measurements and Disclosures," adopted
January 1, 2008, defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure
requirements for fair value measures. The carrying amounts reported in the
balance sheets for current receivables and payables qualify as financial
instruments. Management concluded the carrying values are a reasonable estimate
of fair value because of the short period of time between the origination of
such instruments and their expected realization and if applicable, their stated
interest rate approximates current rates available. The three levels are defined
as follows:
Level 1 - inputs to the valuation methodology are quoted prices
  (unadjusted) for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for
  similar assets and liabilities in active markets, and inputs that are
  observable for the assets or liability, either directly or indirectly, for
  substantially the full term of the
financial instruments.
F-21
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value.
It is management's opinion that as of December 31, 2009, 2008 and 2007, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheet. This is attributed to the
short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates. The carrying amounts of
short-term and long-term loans approximate their fair values because the applicable interest rates approximate current market rates.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R (Now included in ASC 805), "Business Combinations," which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any non-controlling  interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and for disclosure to enable evaluation of
the nature and financial effects of the business combination. The Company adopted this standard as of January 1, 2009 and does not expect it to have an impact on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 160 (Now ASC 810-10), "Non-controlling Interests in Consolidated Financial Statements," an amendment of ARB No. 51. ASC 810-10 introduces significant changes in the accounting and reporting for business
acquisitions and non-controlling  interest in a subsidiary. ASC 810-10 also changes the accounting and reporting for the deconsolidation of a subsidiary. Companies are required to adopt the new standard for fiscal years beginning after January 1,
2009. The Company adopted this standard effectively January 1, 2009 and does not expect it to have an impact on the Company's financial statements.
Effective July 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (Now ASC 820), which provides guidance on how to measure assets and liabilities that use fair value. ASC 820 applies whenever another U.S. GAAP standard requires (or
permits) measurement of assets or liabilities at fair value, but does not expand the use of fair value to any new circumstances. The Company also adopted FASB Staff Position ("FSP") No. FAS 157-2, which allows the Company to partially defer the
adoption of ASC820. This FSP defers the effective date of ASC 820 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually),
to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or
financial liability as defined in paragraph 6 of Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The adoption of ASC 820 had no impact on our financial statements.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" (Now ASC 855), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. This disclosure should alert all users
of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. ASC 855 is effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 855
did not have a material impact on the Company's financial position, results of operations or cash flows.
In June 2009, the FASB issued Update No. 2009-01, Generally Accepted Accounting Principles (ASU 2009-01). ASU 2009-01 establishes "The FASB Accounting Standards Codification," or Codification, which became the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non grandfathered non-SEC accounting literature not included
in the Codification will become non authoritative. ASU 2009-01 is effective for interim and annual periods ending after September 15, 2009. The Company will adopt the provisions of ASU 2009-01 for the period ended September 30, 2009. There will be
no impact on the Company's operating results, financial position or cash flows.
The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position or cash flows.
F-22
NOTE 3 - INVENTORY
Inventory as of December 31, 2009 and 2008 were as follows:
December
December
31, 2009
31, 2008
Raw material
$
27,292
$
875,282
Finished goods
849,000
314,847
Auxiliary inventory (spare parts)
1,516,867
917,572
Total inventory
$
2,393,159
$
2,107,701
NOTE 4 - ADVANCE TO SUPPLIERS
December
December
31, 2009
31, 2008
Advance to suppliers
$
15,663,763
$
23,873,721
Advance to suppliers represents amounts prepaid for raw
materials. The advances are applied against amounts due to the supplier as the
materials are received
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2009 and 2008, property, plant and equipment
consisted of the following:
December
December
31, 2009
31, 2008
Plant and building
$
7,467,107
$
7,448,587
Machinery and equipment
19,209,690
18,936,343
Office furniture and equipment
8,398,072
8,359,152
Transportation equipment
74,914
74,728
Total property, plant and equipment
35,149,783
34,818,810
Less: accumulated depreciation
(8,469,539
)
(5,463,481
)
Total property, plant and
      equipment, net
$
26,680,244
$
29,355,329
Depreciation expense for the years ended December 31, 2009,
2008 and 2007 was $2,990,846, $2,884,014 and $2,280,177, respectively.
NOTE 6 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER
PAYABLES
As of December 31, 2009 and December 31, 2008, the accounts
payable, unearned revenue and accrued liabilities of the Company were summarized
as follows:
F-23
December
December
31, 2009
31, 2008
Accounts payable
$
15,536,226
$
6,128,116
Unearned revenue
33,245,660
17,913,926
Accrued liabilities and other
      payables:
– payroll payable
97,894
104,793
– taxes payable
-
1,328,830
– customer deposits
2,923,634
2,190,881
– payable for equipment purchased
2,119,889
3,609,584
– others
28,291
11,469
Total accrued expenses and other payables
$
5,169,708
$
7,245,557
NOTE 7 - RELATED PARTY BALANCE AND TRANSACTIONS
Due to related party
As of December 31, 2009 and December 31, 2008, due to related
party was summarized as follows:
December
December
31, 2009
31, 2008
Xingtai Longhai Steel Group Co.,
      Ltd. (" Longhai Group")
$
-
$
4,214,758
The Company purchased the raw material and utilities for
production from Longhai Group, which is controlled by Mr. Wang, the majority
owner of the Company. As of December 31, 2009 and 2008, the outstanding balance
of this purchase was Nil and $4,214,758, respectively.
Due from related parties
As of December 31, 2009 and December 31, 2008, due from related
parties was summarized as follows:
December
December
31, 2009
31, 2008
Xingtai Longhai Steel Group Co.,
      Ltd.
$
42,047,673
$
-
Xingtai Longhai Steel Group Metal Product Co., Ltd.
242,765
-
Total
$
42,290,438
The Company provided cash advances to Longhai Group. As of
December 31, 2009 and 2008, the outstanding balance of this service was
$42,047,673 and Nil respectively. The Company sells steel wire to Xingtai
Longhai Steel Group Metal Product Co., Ltd. ("Longhai Metal") As of December 31,
2009 and 2008, the balance of due from Longhai Metal related to such sales was
$242,765 and Nil, respectively. As of the date of this filing, in anticipation
of being a U.S. public company, all balances have been repaid and no loans to
the Longhai Steel Group are outstanding. See Note 12 for subsequent event
related to the settlement of related party receivable.
REFER TO SUBSEQUENT EVENT RELATED TO THE SETTLEMENT OF RELATED
PARTY RECEIVABLE
Related party transactions
In 2009, the Company purchased production utilities from
Longhai Group amounted to $11,661,547. In addition, the amount of $3,688,573
steel scrape and $71,595 steel wire were sold to Longhai Group during 2009. The
Company provided cash advances to Longhai Group and earned finance income
amounted to $8,360,120 in 2009, which is included in the Company's revenue.
F-24
In 2008, the Company purchased billet and production utilities
from the Group amounted to $488,908,517 and $9,111,397, respectively. In
addition, the amount of $5,159,081 steel scrape and $1,604,785 steel wire were
sold to the Group during 2008.
In 2007, the Company purchased billet and production utilities
from the Group amounted to $222,561,569 and $5,409,213, respectively. In
addition, the amount of $3,091,358 steel scrape was sold to the Group during
2007.
Since the Company purchased almost all of its raw materials
from the Group during 2008 and 2007, which is an entity under common control
with the Company, the cost of purchases, the gross margin and net income of the
Company might be different from a similar company that purchases raw materials
from an independent third party.
In addition, Longhai Group rents office building and workshop
to the Company. The lease term is month by month. The rent expense for the years
ended December 31, 2009, 2008 and 2007 was $28,334, $128,604 and $25,447,
respectively.
The amount of steel wire sold to Longhai Steel Group Metal
Products was $3,955,563 for the year of 2009 and Nil for the years of 2008 and
2007.
NOTE 8 - INCOME TAX
The Company is governed by the Income Tax Law of the PRC
concerning the private-run enterprises, which are generally subject to tax at a
statutory rate of 25% on income reported in the statutory financial statements
after appropriate tax adjustments in 2009 and 2008.
The following table summarizes the temporary differences which
result in deferred tax assets and liabilities as of December 31, 2009 and
December 31, 2008:
December
December
31, 2009
31, 2008
Current deferred tax assets:
Cost of uninvoiced goods delivery
161,673
2,107,242
Expenses deductible in next year
31,547
26,198
Total current deferred tax assets
193,220
2,133,440
Non-current deferred tax assets
Amortization of long-term prepaid
      expenses
-
109,422
Total deferred tax assets
$
193,220
$
2,242,862
December
December
31, 2009
31, 2008
Current deferred tax liabilities:
Sales of uninvoiced goods delivery (net of output
      VAT)
1,365,401
2,303,079
Non-current deferred tax liabilities:
Depreciation of fixed assets
$
190,351
$
222,694
Total deferred tax liabilities
$
1,555,752
$
2,525,773
Net current deferred tax liabilities
1,172,181
169,639
Net non-current deferred tax
      liabilities
190,351
113,272
F-25
The following table reconciles the U.S. statutory rates to the
Company's effective tax rate for the years ended December 31, 2009 and 2008:
2009
2008
US statutory rates
34.0%
34.0%
Tax rate difference
(9.0
)%
(9.0
)%
Tax per financial statements
25.0%
25.0%
NOTE 9 - EQUITY
The Company's equity is comprised of the common stock,
additional paid-in capital plus retained earnings of the Company and the
carved-out Division. As of December 31, 2009 and 2008, the initial capital
contribution of fixed assets totaled to $1,781,004 (at shareholders' cost basis)
was recorded in additional paid-in capital. On August 21, 2008, the Company
received cash contribution totaling $874,037 from the major shareholders as
additional paid-in capital.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Social insurance for employees
According to the prevailing laws and regulations of the PRC,
the Company is required to cover its employees with medical, retirement and
unemployment insurance programs. Management believes that due to the transient
nature of its employees, the Company does not need to provide all employees with
such social insurances, and has paid the social insurances for the Company's
employees who have completed three months' continuous employment with the
Company.
In the event that any current or former employee files a
complaint with the PRC government, the Company may be subject to making up the
social insurances as well as administrative fines. As the Company believes that
these fines would not be material, no provision has been made in this regard.
Tax issues
The tax authority of the PRC Government conducts periodic and
ad hoc tax filing reviews on business enterprises operating in the PRC after
those enterprises had completed their relevant tax filings, hence the Company's
tax filings may not be finalized. It is therefore uncertain as to whether the
PRC tax authority may take different views about the Company's tax filings which
may lead to additional tax liabilities.
Value Added Tax
The Company is subject to value added tax ("VAT") for
manufacturing products. The applicable VAT tax rate is 17% for products sold in
the PRC. The amount of VAT liability is determined by applying the applicable
tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on
purchases made with the relevant supporting invoices (input VAT). Under the
commercial practice of the PRC, the Company paid value added taxes ("VAT") based
on tax invoices issued. The tax invoices may be issued subsequent to the date on
which revenue is recognized, and there may be a considerable delay between the
date on which the revenue is recognized and the date on which the tax invoice is
issued. In the event that the PRC tax authorities dispute the date of which
revenue is recognized for tax purposes, the PRC tax office has the right to
assess a penalty, which can range from zero to five times the amount of the
taxes which are determined to be late or deficient. According to the PRC tax
laws, any potential tax penalty payable on late or deficient payments of this
tax could be between zero and five times the amount of the late or deficient tax
payable, and will be expensed as a period expense if and when a determination
has been made by the taxing authorities that a penalty is due. At December 31,
2009 and 2008, the Company accrued Nil and $1,328,829, respectively, of unpaid
value-added taxes.
F-26
NOTE 11 - OPERATING RISKS
(a)
Country risk
Currently, the Company's revenues are primarily derived from the sale of agriculture tractors to customers in the People's Republic of China ("PRC"). The Company hopes to expand its operations to other countries, however, such
expansion has not commenced and there is no assurance that the Company will be able to achieve such expansion. Therefore, a downturn or stagnation in the economic environment of the PRC could have a material adverse effect on the Company's
financial condition.
(b)
Products risk
In addition to competing with other manufacturers of steel wires, the Company competes with larger PRC companies which have greater funds available for expansion, marketing, research and development and the ability to attract more qualified
personnel. These PRC companies may be able to offer products at a lower price. There can be no assurance the Company will remain competitive should this occur.
(c)
Exchange risk
The Company can not guarantee the Renminbi, US dollar exchange rate will remain steady, therefore the Company could post the same profit for two comparable periods and post higher or lower profit depending on exchange rate of Renminbi and US
dollars. The exchange rate could fluctuate depending on changes in the political and economic environments without notice.
(d)
Political risk
Currently, PRC is in a period of growth and is openly promoting business development in order to bring more business into PRC. Additionally PRC currently allows a Chinese corporation to be owned by a United States corporation. If the laws or
regulations relating to ownership of a Chinese corporation are changed by the PRC government, the Company's ability to operate the PRC subsidiaries could be affected.
(e)
Interest risk
The Company is exposed to interest rate risk arising from short-term variable rate borrowings from time to time. The Company's future interest expense will fluctuate in line with any change in borrowing rates. The Company does not have any
derivative financial instruments as of December 31, 2009 and 2008 and believes its exposure to interest rate risk is not material.
NOTE 12 - MAJOR CUSTOMERS AND MAJOR VENDORS
The Company generated 39.0 percent, 51.0 percent and 49.0 percent of its revenues from five customers during the years ended December 31, 2009, 2008 and 2007, respectively.
The Company incurred 91.0 percent of its cost of revenues to three vendors during the year ended December 31, 2009. The Company incurred 99.0 percent of its cost of revenues to one vendor during the year ended December 31, 2008. The Company incurred
100 percent of its cost of revenues to one vendor during the year ended December 31, 2007.
NOTE 13 - SUBSEQUENT EVENTS
On March 26, 2010, Longhai entered into and closed an Agreement and Plan of Reorganization with Action Industries, Inc. ("Action"), a Delaware public shell company. Upon closing, the equity owners of Longhai delivered all of their equity
interests in Longhai to Action in exchange for 10,000 shares of Action's Series A Preferred Stock which constituted 98.5% of Action's issued and outstanding capital stock on an as-converted basis as of and immediately after the
consummation of the reverse acquisition. As a result of the reverse acquisition, the Company became Action's wholly-owned subsidiary and the former shareholders of the Company became Action's controlling stockholders. The share exchange
transaction with Longhai and the shareholders of Action, or Share Exchange, was treated as a reverse acquisition, with the Longhai as the acquirer and Action as the acquired party. Acton changed its name to Longhai Steel, Inc after the reverse
acquisition.
F-27
On March 25, 2010 the Company settled and received payments for all outstanding balances due from Xingtai Longhai Steel Group, in accordance with the anticipated related party policies and procedures associated with being a public reporting company.
Series A Convertible Preferred Stock
The Company issued 10,000 shares of Series A Preferred Stock. The Certificate of Designation was filed on March 25, 2010.
Shares of Series A Preferred Stock will automatically convert into shares of common stock on the basis of one share of Series A Preferred Stock for 985 shares of common stock immediately subsequent to the effectiveness of a planned 1-for-125 reverse
split of our outstanding common stock, which will become effective on the effective date (the "Reverse Stock Split"). Upon the Reverse Stock Split the 10,000 outstanding shares of Series A Preferred Stock will automatically convert into
9,850,000 shares of common stock, which will constitute 98.5% of the outstanding common stock of Action Industries, Inc. subsequent to the Reverse Stock Split.
Holders of Series A Preferred Stock vote with the holders of common stock on all matters on an as-converted to common stock basis, based on an assumed post 1-for-125 reverse split (to retroactively take into account the Reverse Stock Split).
The holders of our Series A Preferred Stock are entitled to vote on all matters together with all other classes of stock. Holders of Series A Preferred Stock have protective class voting veto rights on certain matters, such as increasing the
authorized shares of Series A Preferred Stock and modifying the rights of Series A Preferred Stock.
Following the effectiveness of the Reverse Stock Split and conversion of Series A Preferred Stock into common stock, there will be approximately 10,000,000 shares of our common stock issued and outstanding and no shares of preferred stock issued and
outstanding.
The reverse stock split went effective on June 22, 2010 and all shares of Series A preferred stock are automatically converted into common stock. For accounting purposes, we treated the series A convertible preferred stock as being converted fully
to common stock on the post reverse split basis for all periods presented.
The 1-for-125 Reverse Stock Split
The Company's Board of Directors unanimously approved, subject to Stockholder approval, the 1-for-125 Reverse Stock Split of our issued and outstanding Common Stock. The Reverse Stock Split will reduce the number of issued and outstanding
shares of our Common Stock outstanding prior to the split. The Reverse Stock Split will trigger the automatic conversion of our Series A Preferred Stock into 9,850,000 shares of Common Stock. The Reverse Stock Split went effective on June 30,
2010.
For accounting purposes, all shares are retroactively restated to reflect the reverse stock split.
F-28
EXHIBIT INDEX
Exhibit
Description
No.
1.1**
Form of Underwriting
      Agreement
2.1
Share Exchange Agreement, dated as of March 26,
      2010, among Action Industries, Inc., Kalington Limited, the shareholders
      of Kalington Limited, Goodwin Ventures, Inc. and Xingtai Longhai Wire Co.,
      Ltd. [incorporated by reference to Exhibit 2.1 of the Form 8-K filed by
    the Company March 26, 2010]
3.1
Articles of Incorporation
    [incorporated by reference to Exhibit 3.1 of the Form SB-2 filed by the
    Company on February 8, 2007]
3.2
Amended and Restated Certificate of Incorporation
    [[incorporated by reference to Exhibit 3.2 of the Form SB-2 filed by the
    Company on February 8, 2007]
3.3*
Certificate of Amendment
3.4
Bylaws, as amended [incorporated by reference to
    Exhibit 3.2 of the Form SB-2 filed by the Company on February 8, 2007, as
    amended by Exhibit 3.2 to the current report on Form 8-K filed by the
    Company on March 25, 2010]
3.5
Certificate of Designation of Series A Convertible
    Preferred Stock, as filed with the Nevada Secretary of State on March 25,
    2010 [incorporated by reference to Exhibit 3.3 of the Current Report on Form
    8-K, as filed by the Company March 26, 2010]
4.5**
Form of Underwriter's unit purchase
      warrant
4.6**
Specimen common stock
      certificate
4.7**
Warrant Agreement with attached form of
      warrant
5.1**
Opinion of Counsel
10.1
Purchase Agreement for Steel Billet by and
      between Xingtai Longhai Steel Wire Ltd. and Xingtai Longhai Steel Group
      Ltd., dated October 1, 2008 [incorporated by reference to Exhibit 10.1 of
      the Current Report on Form 8-K, as filed by the Company March 26, 2010]
10.2
Lease Agreement, as amended, between Xingtai Longhai
      Steel Wire Co. Ltd and Xingtai Longhai Steel Group Co. Ltd., dated October
      1, 2008, as amended [incorporated by reference to Exhibit 10.2 of the
      Current Report on Form 8-K, as filed by the Company March 26, 2010]
10.3
Form of Wire Purchase and Sales Contract [incorporated by
      reference to Exhibit 10.3 of the Current Report on Form 8-K, as filed by
      the Company March 26, 2010]
10.4
Consulting Services Agreement dated March 19, 2010
      between Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai
      Wire Co., Ltd. [incorporated by reference to Exhibit 10.4 of the Current
      Report on Form 8-K, as filed by the Company March 26, 2010]
10.5
Operating Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.5 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010]
10.6
Proxy Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.6 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010]
10.7
Option Agreement dated March 19, 2010 between Xingtai
      Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire Co., Ltd.
      [incorporated by reference to Exhibit 10.7 of the Current Report on Form
      8- K, as filed by the Company March 26, 2010]
10.8
Equity Pledge Agreement dated March 19, 2010 between
      Xingtai Kalington Consulting Service Co., Ltd. and Xingtai Longhai Wire
      Co., Ltd. [incorporated by reference to Exhibit 10.8 of the Current Report
      on Form 8-K, as filed by the Company March 26, 2010]
10.9*
Employment Agreement, between Longhai Steel, Inc.
      (formerly, Action Industries, Inc.) and Dr. Eberhard Kornotzki
10.10*
Form of Independent Director Agreement
14
Code of Ethics, adopted on July 19, 2010 [incorporated by
      reference to Exhibit 14 of the current report on Form 8-K filed by the
      Company on July 20, 2010].
21
Subsidiaries of the Company [incorporated by reference to
      Exhibit 21 of the Current Report on Form 8-K, as filed by the Company
      March 26, 2010]
23.1*
Consent of MaloneBailey LLP
23.2
Consent of Counsel, included in Exhibit 5
24
Power of Attorney (included on the signature page
      of this registration statement)
____________________
* Filed herewith
** To be filed by amendment