*Table
        of Contents*







**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-Q**




(Mark
      One)




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




**FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2008**




OR




**o TRANSITION
      REPORT
      UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT** **OF
      1934**




**FOR
      THE TRANSITION FROM _______ TO ________.**




*COMMISSION
      FILE NUMBER 333-114564*




**CHINA
      CARBON GRAPHITE GROUP, INC.**


(Name
      of
      small business issuer as in its charter)





Nevada
            98-0550699(State
                or other jurisdiction of
            (IRS
                Employer Identification No.)incorporation
                or organization)





**China
      Carbon Graphite Group, Inc.**


**c/o
      Xinghe Yongle Carbon Co., Ltd.**


**787
      Xicheng Wai**


**Chengguantown**


**Xinghe
      County**


**Inner
      Mongolia, China**


(Address
      of principal executive offices)





**(86)**  **474-7209723**


(Issuer's
      telephone number)





Copies
      to:


Asher
      S.
      Levitsky PC


Sichenzia
      Ross Friedman Ference LLP


61
      Broadway, 32 nd Floor


New
      York,
      New York 10006


Phone:
      (212) 981-6767


Fax:
      (212) 930 - 9725


E-mail: alevitsky@srff.com




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





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 o
            Accelerated
                filer oNon-accelerated
                filer o
            Smaller
                reporting company x




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




**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS**


**DURING
      THE PRECEDING FIVE YEARS**




Indicate
      by check mark whether the registrant filed all documents and reports required
      to
      be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
      of securities under a plan confirmed by a court. Yes oNo o




**APPLICABLE
      ONLY TO CORPORATE ISSUERS**




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: As of May 13, 2008, there were 17,562,412
      outstanding shares of the Registrant's Common Stock, $.0001 par
      value.













*Table
        of Contents*




**CHINA
      CARBON GRAPHITE GROUP, INC.**


**MARCH
      31, 2008 QUARTERLY REPORT ON FORM 10-Q**




**TABLE
      OF CONTENTS**


**Page****PART
                I - FINANCIAL
                INFORMATION**Item
                1. Financial
                Statements
            F-1Item
                2. Management’s
                Discussion and Analysis or Plan of Operation
            3Item
              4.
              Controls and Procedures
            9**PART
                II - OTHER
                INFORMATION**Item
                6.
                Exhibits
            11**SIGNATURES**
            12





-
          2
          -
 *Table
          of Contents*




**PART
      I**


**FINANCIAL
      INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**




**Index
      to Consolidated Financial Statements**


**Page**Consolidated
                Balance Sheets
            F-2Consolidated
                statements of Operations and Comprehensive
                Income
            F-3Consolidated
                Statements of Cash Flows
            F-4Notes
                to Consolidated Financial Statements
                (unaudited)
            F-5
                - F-15





F-1
 *Table
            of Contents*
 **China
                      Carbon Graphite Group, Inc.****Consolidated
                      Balance
                      Sheets**
  **(US
                      Dollars)****Unaudited**
                  
                  **Audited****March
                      31,2008**
                  
                  **December
                      31, 2007****ASSETS****Current
                      Assets**Cash
                      and cash equivalents
                  
                  $
                  329,197
                  
                  $
                  4,497Trade
                      accounts receivable
                  
                  
                  3,678,032
                  
                  
                  4,868,263Notes
                      receivable
                  
                  
                  170,238
                  
                  
                  243,426Prepaid
                      expenses
                  
                  
                  29,761
                  
                  
                  —Other
                      receivables
                  
                  
                  426,580
                  
                  
                  766,945Advance
                      to suppliers
                  
                  
                  965,048
                  
                  
                  636,660Inventories
                  
                  
                  16,394,081
                  
                  
                  14,626,927**Total
                      current assets**
                  
                  
                  21,992,937
                  
                  
                  21,146,718**Property
                      and equipment, net**
                  
                  
                  20,155,946
                  
                  
                  19,621,611**Land
                      use rights, net**
                  
                  
                  2,944,615
                  
                  
                  2,841,954$
                  45,093,498
                  
                  $
                  43,610,283**LIABILITIES
                      AND STOCKHOLDERS' EQUITY****Current
                      Liabilities**Accounts
                      payable and accrued expenses
                  
                  $
                  437,516
                  
                  $
                  988,470Advance
                      from suppliers
                  
                  
                  851,051
                  
                  
                  2,466,810Taxes
                      payable
                  
                  
                  227,122
                  
                  
                  232,234Notes
                      payable
                  
                  
                  6,615,843
                  
                  
                  6,715,778Convertible
                      note payable
                  
                  
                  —
                  
                  
                  400,000Loan
                      from shareholder
                  
                  
                  4,893,438
                  
                  
                  4,543,648Other
                      payables
                  
                  
                  509,861
                  
                  
                  —**Total
                      current liabilities**
                  
                  
                  13,534,831
                  
                  
                  15,346,940**Stockholders'
                      Equity**Convertible
                      preferred stock, par value $.001 per share,authorized
                      20,000,000 shares, issued 1,200,499 shares,none
                      issued at March 31, 2008; none authorizedat
                      December 31, 2007
                  
                  
                  1,200
                  
                  
                  —Common
                      stock authorized 100,000,000 shares, $0.001 parvalue;
                      issued 12,718,412 shares (2008) and 13,218,412 (2007)
                  
                  
                  12,718
                  
                  
                  13,218Additional
                      paid-in capital
                  
                  
                  8,690,426
                  
                  
                  6,637,326Preferred
                      stock subscription receivable
                  
                  
                  (400,000
                  )
                  
                  —Accumulated
                      other comprehensive income
                  
                  
                  4,200,387
                  
                  
                  2,948,244Retained
                      earnings
                  
                  
                  19,128,786
                  
                  
                  18,814,255Treasury
                      Stock-common at cost - 500,000 and 1,000,000 shares
                  
                  
                  (74,850
                  )
                  
                  (149,700
                  )31,558,667
                  
                  
                  28,263,343**$**
                  **45,093,498**
                  
                  **$**
                  **43,610,283**






F-2
 *Table
          of Contents*




**China
                  Carbon Graphite Group, Inc****Consolidated
                  Statements of operations
                  (Unaudited)**
  **(US
                  Dollars)****Three
                  months ended March 31,****2008**
              
              **2007****Sales**
              
              $
              5,728,002
              
              $
              5,372,706**Cost
                  of Goods Sold**
              
              
              4,366,293
              
              
              4,499,765**Gross
                  Profit**
              
              
              1,361,709
              
              
              872,941**Operating
                  Expenses**Selling
                  expenses
              
              
              20,334
              
              
              13,529General
                  and administrative
              
              
              149,205
              
              
              99,269Depreciation
                  and amortization
              
              
              15,140
              
              
              1,444184,679
              
              
              114,242**Operating
                  Income Before Other Income (Expense)****and
                  Income Tax Expense**
              
              
              1,177,030
              
              
              758,699**Other
                  Income (Expense)**Other
                  income
              
              
              199,196
              
              
              59,747Interest
                  income
              
              
              178
              
              
              177,719Interest
                  expense
              
              
              (133,223
              )
              
              (159,176
              )66,151
              
              
              78,290**Income
                  Before Income Tax Expense**
              
              
              1,243,181
              
              
              836,989**Income
                  tax expense**
              
              
              —
              
              
              —**Net
                  income**
              
              
              1,243,181
              
              
              836,989**Deemed
                  preferred stock dividend**
              
              
              (854,300
              )
              
              —**Net
                  income available to common shareholders**
              
              $
              388,881
              
              $
              836,989**Comprehensive
                  income****Net
                  income**
              
              
              1,243,181
              
              
              836,989**Other
                  comprehensive income**Foreign
                  currency translation gain
              
              
              1,252,143
              
              
              431,610**Comprehensive
                  Income**
              
              $
              2,495,324
              
              $
              1,268,599**Share
                  data**Basic
                  earnings per share
              
              $
              0.03
              
              $
              0.08Diluted
                  earnings per share
              
              $
              0.02
              
              $
              0.08Weighted
                  average common shares outstanding,basic
              
              
              13,218,412
              
              
              10,388,172Weighted
                  average common shares outstanding,diluted
              
              
              18,757,257
              
              
              10,388,172




F-3
 *Table
          of Contents*




**China
                  Carbon Graphite Group, Inc****Consolidated
                  Statements of Cash Flows
                  (Unaudited)**
  **(US
                  Dollars)****Three
                  months ended March 31,****2008**
              
              **2007****Cash
                  flows from operating activities****Net
                  Income**
              
              $
              1,243,181
              
              $
              836,989**Adjustments
                  to reconcile net cash provided by****operating
                  activities**Depreciation
                  and amortization
              
              
              309,846
              
              
              121,256**Change
                  in operating assets and liabilities**Accounts
                  receivable
              
              
              1,392,595
              
              
              1,619,168Notes
                  receivable
              
              
              83,307
              
              
              3,848Prepaid
                  expenses
              
              
              (29,761
              )
              
              (12,210
              )Other
                  receivables
              
              
              372,245
              
              
              (177,504
              )Advance
                  to suppliers
              
              
              (301,925
              )
              
              —Inventory
              
              
              (1,159,142
              )
              
              (417,712
              )Accounts
                  payable and accrued liabilities
              
              
              (592,042
              )
              
              (1,374,815
              )Advances
                  from customers
              
              
              (1,718,299
              )
              
              —Taxes
                  payable
              
              
              (14,766
              )
              
              23,152Other
                  payables
              
              
              509,862
              
              
              —**Net
                  cash provided by operating activities**
              
              
              95,102
              
              
              622,172**Cash
                  flows from investing activities**Acquisition
                  of property and equipment andland
                  use rights
              
              
              (13,073
              )
              
              43,496**Net
                  cash used in investing activities**
              
              
              (13,073
              )
              
              43,496**Cash
                  flows from financing activities**Issuance
                  of preferred stock
              
              
              400,000
              
              
              —Advances
                  from (repayments to) related parties
              
              
              160,921
              
              
              (414,587
              )Repayments
                  on notes payable
              
              
              (379,097
              )
              
              (219,639
              )**Net
                  cash provided by (used in) financing activities**
              
              
              181,824
              
              
              (634,226
              )**Effect
                  of exchange rate changes on cash**
              
              
              60,847
              
              
              197,685**Net
                  increase in cash**
              
              
              324,700
              
              
              229,127**Cash
                  and cash equivalents at beginning of year**
              
              
              4,497
              
              
              45,460**Cash
                  and cash equivalents at end of year**
              
              $
              329,197
              
              $
              274,587**Supplemental
                  disclosure of cash flow information**Interest
                  paid
              
              $
              133,223
              
              $
              159,176Income
                  taxes paid
              
              $
              —
              
              $
              —**Non-cash
                  financing activities:**Deemed
                  preferred dividend reflected in paid-in capital
              
              $
              854,300
              
              $
              —








F-4
 *Table
          of Contents*




**China
      Carbon Graphite Group, Inc.**


**Notes
      to Consolidated Financial Statements
      (Unaudited)**





**1.**
            **Organization
                and Business**





China
      Carbon Graphite Group, Inc., (the “Company”), is a Nevada corporation,
      incorporated on February 13, 2003 under the name Achievers Magazine Inc. In
      connection with the reverse acquisition transaction described below, the
      Company’s corporate name was changed to China Carbon Graphite Group, Inc. on
      January 30, 2008.





On
      December 17, 2007, the Company completed a share exchange pursuant to a share
      exchange agreement, dated as of December 14, 2007, with Sincere Investment
      (PTC), Ltd. (“Sincere”), a British Virgin Islands corporation, which is the sole
      stockholder of Talent International Investment Limited (“Talent”), a British
      Virgin Islands corporation, which is the sole stockholder of Xinghe Yongle
      Carbon Co., Ltd. (“Yongle”), a company organized under the laws of the People’s
      Republic of China (the “PRC”). Pursuant to the share exchange agreement, the
      Company, then known as Achievers Magazine, Inc., issued 9,388,172 shares of
      common stock to Sincere in exchange for all of the outstanding common stock
      of
      Talent, and Talent became the Company’s wholly-owned subsidiary. From and after
      December 17, 2007, the Company’s sole business became the business of Talent,
      its subsidiaries and its affiliated variable interest entities.




In
      connection with the acquisition of Talent, on December 17, 2007:




(a)
            The
                Company entered into a buy-back agreement dated December 14, 2007,
                with
                Arto Tavukciyan and Lyndon Grove pursuant to which the Company purchased
                5,344,000 shares of common stock of the Company from them, of which
                1,000,000 share were placed in escrow as described below. Mr. Tavukciyan
                and Mr. Grove were, at the time of the agreement, the holders of
                65.4% of
                our outstanding common stock. Pursuant to the buy-back
                agreement:




·
            The
                Company agreed to pay a purchase price of $700,000 for the shares,
                for
                which the Company issued its promissory note in the principal amount
                of
                $700,000, payable in installments of $350,000 on each of March 31,
                2008
                and June 30, 2008. The $350,000 payment due March 31, 2008 has been
                made.




·
            The
                Company agreed to pay a finders’ fee of $100,000 to Ventana Capital
                Partners, payable in installments of $50,000 on each of March 31,
                2008 and
                June 30, 2008. The $50,000 payment due March 31, 2008 has been
                made.




·
            The
                Company placed 1,000,000 of the shares of common stock that the Company
                purchased in escrow, and the shares are subject to release from escrow
                under the following conditions:




·
            If
                by March 31, 2008, the Company shall not have made both the first
                $350,000
                payment due pursuant to the note and the first payment of $50,000
                to
                Ventana, the escrow agent shall release 400,000 shares to the Sellers
                and
                100,000 shares to Ventana.




·
            If,
                by March 31, 2008, the Company shall have made both the first $350,000
                payment due pursuant to the note and the first payment of $50,000
                to
                Ventana, the escrow agent shall deliver 500,000 shares to us for
                cancellation. The 500,000 shares have been released to the Company
                and
                cancelled.




·
            If
                by June 30, 2008, the Company shall not have made both the second
                $350,000
                payment due pursuant to the note and the second payment of $50,000
                to
                Ventana, the escrow agent shall release 400,000 shares to the Sellers
                and
                100,000 shares to Ventana.




·
            If,
                by June 30, 2008, the Company shall have made both the second $350,000
                payment due pursuant to the note and the second payment of $50,000
                to
                Ventana, the escrow agent shall deliver 400,000 shares to us for
                cancellation.




·
            If
                the escrow agent is required to deliver some or all of the shares
                from
                escrow to the sellers and Ventana and if the market price for our
                common
                stock during the ten trading days preceding March 31, 2008 or June
                30,
                2008, as the case may be, is less than $.80 per share, the Company
                is
                required to deliver additional shares. The number of additional shares
                shall be determined by multiplying the number of shares to be delivered
                on
                such date by $0.80 per share and dividing the result by the market
                price
                and subtracting from that number the shares held in escrow that are
                to be
                delivered at that time. No additional shares were required at March
                31,
                2008.




·
            If,
                prior to June 30, 2008, the Company issues shares of common stock
                at a
                price which is less than $1.20 per share, the Company is required
                to
                deliver additional shares to the escrow agent. The number of additional
                shares as shall be determined by multiplying the number of shares
                of
                common stock then held in escrow by a fraction, the numerator of
                which is
                the number of shares sold by us at a price which is less than $1.20
                per
                share and the denominator of which is 13,000,000. As of May 15, 2006,
                the
                Company has not issued any shares which would result in an
                adjustment.




F-5
 *Table
          of Contents*


·
            The
                Company transferred all of the stock of its wholly-owned subsidiary,
                Achievers Publishing Inc., a British Columbia corporation, to Mr.
                Tavukciyan.




(b)
            The
                Company entered into a securities purchase agreement dated December
                14,
                2007 with XingGuang Investment Corporation Limited (“XingGuang”) pursuant
                to which XingGuang purchased, the Company’s 3% promissory note in the
                principal amount of $1,200,000, which, upon the filing on January
                22,
                2008, of a restated certificate of incorporation and a statement
                of
                designation for a newly created series of preferred stock designated
                as
                the series A convertible preferred stock automatically became converted
                into 1,200,499 shares of series A convertible preferred stock and
                warrants
                to purchase 3,000,000 shares of common stock at $1.20 per share and
                3,000,000 shares of common stock at $2.00 per share.




The
      purchase price of the note is payable in installments. At the closing, XingGuang
      paid $183,000 to cover closing costs. Prior to the closing, XingGuang had paid
      at least $217,000 of expenses relating to the reverse acquisition on the
      Company’s behalf. XingGuang is to pay a total of $800,000 in two installments of
      $400,000 each, the first being due on March 31, 2008 and the second being due
      on
      June 30, 2008. The payment due March 31, 2008 has been made.




(c)
            Pursuant
                to the securities purchase
                agreement:




·
            Our
                directors approved a restatement of our articles of incorporation
                which
                would change our corporate name to China Carbon Graphite Group, Inc.,
                change our authorized capital stock to 120,000,000 shares of capital
                stock, of which 20,000,000 shares would be shares of preferred stock,
                par
                value $.001 per share, and 100,000,000 shares would be shares of
                common
                stock, par value $.001 per share, and include a statement of designations
                of the rights of the holders of the series A preferred stock. The
                restated
                articles were filed on January 22, 2008.




·
            The
                Company agreed that, within 90 days after the closing on December
                17,
                2007, it would have appointed such number of independent directors
                that
                would result in a majority of our directors being independent directors
                and we would have an audit committee composed solely of at least
                three
                independent directors and a compensation committee would have a majority
                of independent directors. The Company is required to pay liquidated
                damages (i) if the Company fails to have a majority of independent
                directors 90 days after the closing or (ii) thereafter, if the Company
                subsequently fails to meet these requirements for a period of 60
                days for
                an excused reason, as defined in the purchase agreement, or 75 days
                for a
                reason which is not an excused reason. Liquidated damages are payable
                in
                cash or additional shares of series A preferred stock, with the series
                A
                preferred stock being valued at the market price of the shares of
                common
                stock issuable upon conversion of the series A preferred stock. The
                liquidated damages are computed in an amount equal to 12% per annum
                of the
                purchase price, with a maximum of $144,000. The company received
                a waiver
                from XingGuang as to the failure to have independent
                directors.




·
            The
                Company and XingGuang entered into a registration rights agreement
                pursuant to which we are required to have a registration statement
                filed
                with the SEC by March 16, 2008 and declared effective by the SEC
                not later
                than August 13, 2008. We are required to pay liquidated damages at
                the
                rate of 200 shares of series A preferred stock for each day after
                August
                13, 2008 that the registration statement is not declared effective
                or for
                any period that we fail to keep the registration statement effective,
                up
                to a maximum of 100,000 shares. The number of shares of series A
                preferred
                stock issuable pursuant to the liquidated damages provision is subject
                to
                reduction based on the maximum number of shares that can be registered
                under the applicable SEC
                guidelines.




·
            XingGuang
                has a right of refusal on future
                financings.




Contemporaneously
      with the transactions described above, seven investors purchased 2,803,040 shares
      of
      common stock from a group of our stockholders in a private purchase. This
      purchase, while separate from the reverse acquisition, was a condition to the
      Company’s consummation of the exchange agreement.




In
      December 2007, the Company was recapitalized to give effect to the share
      exchange agreement discussed above. Under generally accepted accounting
      principles, the acquisition by the Company of Talent is considered to be capital
      transactions in substance, rather than a business combination. That is, the
      acquisition is equivalent, to the acquisition by Talent of the Company, with
      the
      issuance of stock by Talent for the net monetary assets of the Company. This
      transaction is reflected as a recapitalization, and is accounted for as a change
      in capital structure. Accordingly, the accounting for the acquisition is
      identical to that resulting from a reverse acquisition. Under reverse takeover
      accounting, the comparative historical financial statements of the Company,
      as
      the legal acquirer, are those of the accounting acquirer, Talent. Since Talent
      and Yongle did not have any business activities, the Company’s financial
      statements prior to the closing on the reverse acquisition, reflect only
      business of Xingyong. The accompanying financial statements reflect the
      recapitalization of the stockholders’ equity as if the transactions occurred as
      of the beginning of the first period presented. Thus, the 9,388,172 shares
      of
      common stock issued to Sincere and the 2,803,040 shares purchased by other
      investors are deemed to be outstanding for all periods reported prior to the
      date of the reverse acquisition. The remaining shares are treated as issued
      at
      the closing, other than the 1,000,000 shares which were held in escrow, of
      which
      500,000 shares had been returned to the Company for cancellation as of March
      31,
      2008.





Talent
      owns 100% of the stock of Yongle, which is a wholly foreign-owned enterprise
      under the laws of the PRC. Yongle is a party to a series of contractual
      arrangements with Xinghe Xingyong Carbon Co., Ltd. (“Xingyong”), a corporation
      organized under the laws of the PRC, and its sole stockholder. These agreements
      give the Company the ability to operate and manage the business of Xingyong
      and
      to derive the profit (or




F-6
 *Table
          of Contents*


sustain
      the loss) from Xingyong’s business. As a result, the operations of Xingyong are
      consolidated with those of the Company for financial reporting purposes. The
      relationship among the above companies as follows:









The
      Company manufactures graphite electrodes, fine grain graphite, high purity
      graphite and other carbon derived products.





**Share
      Distribution**





On
      January 22, 2008, the Company affected a 1.6-for-one stock distribution whereby
      each share of common stock became converted into 1.6 shares of common stock.
      All
      references to share and per share information in these financial statements
      reflect this stock distribution.





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





Management
      acknowledges its responsibility for the preparation of the accompanying interim
      consolidated financial statements which reflect all adjustments, consisting
      of
      normal recurring adjustments, considered necessary in its opinion for a fair
      statement of its consolidated financial position and the results of its
      operations for the interim period presented. These consolidated financial
      statements should be read in conjunction with the summary of significant
      accounting policies and notes to consolidated financial statements included
      in
      the Company’s Form 10-KSB annual report for the year ended December 31, 2007.





The
      accompanying unaudited consolidated financial statements for China Carbon
      Graphite Group, Inc., its subsidiaries and variable interest entities, have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and with the
      instructions to Form 10-Q and Article
      8-03 of Regulation S-X .
      Operating results for interim periods are not necessarily indicative of results
      that may be expected for the fiscal year as a whole.





The
      Company maintains its books and accounting records in Renminbi (“RMB”), and its
      reporting currency is United States dollars.





The
      financial statements have been prepared in order to present the financial
      position and results of operations of the Company, its subsidiaries and
      Xingyong, which is an affiliated company whose financial condition is
      consolidated with the Company pursuant to FIN 46R, in accordance with accounting
      principles generally accepted in the United States of America (“US
      GAAP”).





Under generally accepted accounting principles, the acquisition by the Company of
      Talent is considered to be a capital transaction in substance, rather than
      a
      business combination. That is, the acquisition is equivalent, in the acquisition
      by Talent of the Company, then known as Achievers Magazine, Inc., with the
      issuance of stock by Talent for the net monetary assets of the Company. This
      transaction is accompanied by a recapitalization, and is accounted for as a
      change in capital structure. Accordingly, the accounting for the acquisition
      is
      identical to that resulting from a reverse acquisition, except that no goodwill
      is recorded. Under reverse takeover accounting, the comparative historical
      financial statements of the Company, as the legal acquirer, are those of the
      accounting acquirer, Talent. Since Talent and Yongle did not have any business
      activities, the Company’s financial statements prior to the closing on the
      reverse acquisition, reflect the only business of Xingyong. The accompanying
      financial statements reflect the recapitalization of the stockholders’ equity as
      if the transactions occurred as of the beginning of the first period presented.
      Thus, the 9,388,172 shares of common stock issued to Sincere and the 2,803,040
      shares purchased by other investors are deemed to be outstanding for all period
      covered by these financial staetments.


F-7
 *Table
          of Contents*


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





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





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





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





**Use
      of estimates** - The
      preparation of these financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affected the reported amounts
      of assets and liabilities and disclosure of contingent assets and liabilities
      at
      the dates of the financial statements and the reported amounts of net sales
      and
      expenses during the reported periods.





Significant
      estimates included values and lives assigned to acquired property, equipment
      and
      intangible assets, reserves for customer returns and allowances, uncollectible
      accounts receivable, slow moving, obsolete and/or damaged inventory and stock
      warrant valuation. Actual results may differ from these estimates.





**Cash
      and cash equivalents -** The
      Company considers all highly liquid debt instruments purchased with maturity
      period of three months or less to be cash equivalents. The carrying amounts
      reported in the accompanying balance sheet for cash and cash equivalents
      approximate their fair value. Substantially all of the Company’s cash is held in
      bank accounts in The People’s Republic of China and is not protected by FDIC
      insurance or any other similar insurance.





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





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





**Accounts
      receivable -** The
      Company uses the allowance method to account for uncollectible accounts
      receivable. As of March 31, 2008 all accounts receivable, advances to suppliers
      and other receivables were considered collectible and there was no allowance
      for
      bad debts required.




**Property
      and equipment** -
      Property and equipment is stated at the historical cost, less accumulated
      depreciation. Land use rights are being amortized to expense on a straight
      line
      basis over the life of the rights. Depreciation on property, plant and equipment
      is provided using the straight-line method over the estimated useful lives
      of
      the assets for both financial and income tax reporting purposes as
      follows:





Buildings
            
            
            25
                - 40 yearsMachinery
                and equipment
            
            
            10
                - 20 yearsMotor
                vehicles
            
            
            5
                years





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





Upon
      sale
      or disposal of an asset, the historical cost and related accumulated
      depreciation or amortization of such asset were removed from their respective
      accounts and any gain or loss is recorded in the Statements of
      Operations.


F-8
 *Table
          of Contents*


The
      Company reviews the carrying value of property, plant, and equipment for
      impairment whenever events and circumstances indicate that the carrying value
      of
      an asset may not be recoverable from the estimated future cash flows expected
      to
      result from its use and eventual disposition. In cases where undiscounted
      expected future cash flows are less than the carrying value, an impairment
      loss
      is recognized equal to an amount by which the carrying value exceeds the fair
      value of assets. The factors considered by management in performing this
      assessment include current operating results, trends and prospects, the manner
      in which the property is used, and the effects of obsolescence, demand,
      competition, and other economic factors. Based on this assessment there was
      no
      impairment recorded during the three months ended at March 31, 2008 and 2007.





**Land
      Use Rights** -
      There
      is no private ownership of land in the PRC. The Company has acquired land use
      rights totaling to 2,356,209 square feet, on which a 290,626 square feet
      facility is located. The land use right has a term of 50 years, commencing
      in
      the year 2002. The cost of the land use rights is amortized over the 50-year
      term of the land use agreement. The Company evaluates the carrying value of
      intangible assets during the fourth quarter of each year and between annual
      evaluations if events occur or circumstances change that would more likely
      than
      not reduce the fair value of the intangible asset below its carrying amount.
      There were no impairments recorded during the three months ended March 31,
      2008
      or 2007.





**Foreign
      Currency** -
      The
      Company’s principal country of operations is in the PRC. The financial position
      and results of operations of the Company are determined using the local currency
      (“Renminbi” or “Yuan”) as the functional currency. The results of operations
      denominated in foreign currency are translated at the average rate of exchange
      during the reporting period.





Assets
      and liabilities denominated in foreign currencies at the balance sheet date
      are
      translated at the market rate of exchange ruling at that date. The registered
      equity capital denominated in the functional currency is translated at the
      historical rate of exchange at the time of capital contribution. All translation
      adjustments resulting from the translation of the financial statements into
      the
      reporting currency (“US Dollars”) are dealt with as a separate component within
      stockholders’ equity. Translation adjustments for the three months ended
      March 31, 2008 and the year ended December 31, 2007 are $1,252,143 and
      $1,794,923, respectively. As of March 31, 2008 and December 31, 2007, the
      exchange rate was 7 Yuan and 7.3 Yuan per U.S. Dollar,
      respectively.





**Income
      recognition** -
      Revenue
      is recognized in accordance with Staff Accounting Bulletin No. 104, Revenue
      Recognition, which states that revenue should be recognized when the following
      criteria are met: (1) persuasive evidence of an arrangement exists; (2) the
      service has been rendered; (3) the selling price is fixed or determinable;
      and
      (4) collection of the resulting receivable is reasonably assured. The Company
      believes that these criteria are satisfied when the goods are shipped pursuant
      to a purchase order.





Interest
      income is recognized when earned, taking into account the average principal
      amounts outstanding and the interest rates applicable





**Taxation
      -** Taxation
      on profits earned in the PRC has been calculated on the estimated assessable
      profits for the year at the rates of taxation prevailing in the PRC where the
      Company operates after taking into effect the benefits from any special tax
      credits or “tax holidays” allowed in the county of operations.





The
      Company does not accrue United States income tax since it has no significant
      operating income in the United States. Its operating subsidiaries are organized
      and located in the PRC and do not conduct any business in the United States.





In
      2006,
      the Financial Accounting Standards Board (FASB) issued FIN 48, which clarifies
      the application of SFAS 109 by defining a criterion that an individual income
      tax position must meet for any part of the benefit of that position to be
      recognized in an enterprise’s financial statements and provides guidance on
      measurement, recognition, classification, accounting for interest and penalties,
      accounting in interim periods, disclosure and transition. In accordance with
      the
      transition provisions, the Company adopted FIN 48 effective January 1,
      2007.





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





Based
      on
      all known facts and circumstances and current tax law, the Company believes
      that
      the total amount of unrecognized tax benefits as of March 31, 2008 is not
      material to its results of operations, financial condition or cash flows. The
      Company also believes that the total amount of unrecognized tax benefits as
      of
      March 31, 2008, if recognized, would not have a material effect on its effective
      tax rate. The Company further believes that there are no tax positions for
      which
      it is reasonably possible, based on current Chinese tax law and policy, that
      the
      unrecognized tax benefits will significantly increase or decrease over the
      next
      12 months producing, individually or in the aggregate, a material effect on
      the
      Company’s results of operations, financial condition or cash flows.





**Enterprise
      income tax**





Under
      the
      Provisional Regulations of The People’s Republic of China Concerning Income Tax
      on Enterprises promulgated by the PRC, income tax is payable by enterprises
      at a
      rate of 33% of their taxable income. Preferential tax treatment may, however,
      be
      granted pursuant to any law or regulations from time to time promulgated by
      the
      State Council.


F-9
 *Table
          of Contents*


The
      Company has been granted a tax holiday from 100% of the Enterprises Income
      Tax
      from the Xing He District Local Tax Authority in the Nei Monggol province for
      the five years 2003 through 2007.





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





The Company
      has been recognized as a high technology and science company by the Ministry
      of
      Science and Technology of the People’s Republic of China therefore, Xing
      He
      District Local Tax Authority in the Nei Monggol province granted tax holiday
      from 100% of Enterprises Income Tax for additional three years 2008 through
      2010. Afterwards, based on the present tax law, the Company will be subject
      to a
      corporation income tax rate of 15% effective in 2011.





The
      enterprise income tax is calculated on the basis of the statutory profit for
      financial reporting purposes, adjusted for income and expense items that are
      not
      assessable or deductible for income tax purposes.





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





**Value
      added tax**





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




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





The
      Company has been granted an exemption from VAT by the Xing He County People’s
      Government and Xing He Tax Authority on some products in which an exchange
      agreement is in place for raw materials and fuel.





**Contingent
      liabilities and contingent assets -** A
      contingent liability is a possible obligation that arises from past events
      and
      whose existence will only be confirmed by the occurrence or non-occurrence
      of
      one or more uncertain future events not wholly within the control of the
      Company. It can also be a present obligation arising from past events that
      is
      not recognized because it is not probable that the Company will incur a
      liability or obligations as a result. A contingent liability, which might occur
      but is not probable, is not recorded but is disclosed in the notes to the
      financial statements. The Company will recognize a liability or obligation
      when
      it is probable that the Company will incur it.





A
      contingent asset is an asset, which could possibly arise from past events and
      whose existence will be confirmed only by the occurrence or non-occurrence
      of
      one or more uncertain events not wholly within the control of the Company.
      Contingent assets are not recorded but are disclosed in the notes to the
      financial statements when it is likely that the Company will recognize an
      economic benefit. When the benefit is virtually certain, the asset is
      recognized.





**Related
      companies -** A
      related
      company is a company in which a director or an officer has beneficial interests
      in and in which the Company has significant influence.





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




F-10
 *Table
          of Contents*





**Fair
      value of financial instruments**




In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS
      157”). SFAS No. 157 defines fair value, establishes a framework for measuring
      fair value in accordance with generally accepted accounting principles, and
      expands disclosures about fair value measurements. This statement does not
      require any new fair value measurements; rather, it applies under other
      accounting pronouncements that require or permit fair value measurements. The
      provisions of this statement are to be applied prospectively as of the beginning
      of the fiscal year in which this statement is initially applied, with any
      transition adjustment recognized as a cumulative-effect adjustment to the
      opening balance of retained earnings. The provisions of SFAS 157 are effective
      for the fiscal years beginning after November 15, 2007.


Effective
      January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements (SFAS
      157). The adoption of SFAS No. 157 did not have a material impact on the
      Company’s fair value measurements. The carrying amounts of certain financial
      instruments, including cash, accounts receivable, notes receivable, other
      receivables, accounts payable, commercial notes payable, accrued expenses,
      and
      other payables approximate their fair values as of March 31, 2008 and December
      31, 2007 because of the relatively short-term maturity of these
      instruments.





Foreign
      currency translation





The
      reporting currency of the Company is the U.S. dollar. The functional currency
      of
      the Company is the local currency, the Chinese Renminbi (“RMB”). Results of
      operations and cash flows are translated at average exchange rates during the
      period, assets and liabilities are translated at the unified exchange rate
      at
      the end of the period, and equity is translated at historical exchange rates.
      Translation adjustments resulting from the process of translating the local
      currency financial statements into U.S. dollars are included in determining
      comprehensive income. The cumulative translation adjustment and effect of
      exchange rate changes on cash for the three months ended March 31, 2008 and
      2007
      was $120,480 and $9,311, respectively. 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.





Asset
      and
      liability accounts at March 31, 2008 and December 31, 2007 were translated
      at
      7.0222 RMB to $1.00 USD and at 7.3141 RMB to $1.00 USD, respectively. Equity
      accounts were stated at their historical rate. The average translation rates
      applied to income statements for the three months ended March 31, 2008 and
      2007
      were 7.177 RMB and 7.77136 RMB to $1.00 USD, respectively. In accordance with
      Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows,"
      cash flows from the Company's operations are calculated based upon the local
      currencies using the average translation rate. As a result, amounts related
      to
      assets and liabilities reported on the statement of cash flows will not
      necessarily agree with changes in the corresponding balances on the balance
      sheet.





Income
      per share





Basic
      income per share is computed by dividing net income by the weighted average
      number of shares of common stock outstanding during the period. Diluted income
      per share is computed by dividing net income by the weighted average number
      of
      shares of common stock, common stock equivalents and potentially dilutive
      securities outstanding during each period. Potentially dilutive shares of common
      stock consist of the common stock issuable upon the conversion of convertible
      debt and preferred stock (using the if-converted method). The following table
      presents a reconciliation of basic and diluted earnings per share


For
                the three months ended March 31,2008
            
            2007Net
                income (loss) available to common shareholders for basic and diluted
                earnings per share
            
            $
            388,881
            
            $
            836,989Weighted
                average shares outstanding - basic
            
            
            13,218,412
            
            
            10,388,172Weighted
                average shares outstanding - diluted
            
            
            18,757,257
            
            
            10,388,172Earnings
                per share - basic
            
            
            0.03
            
            
            0.08Earnings
                per share - diluted
            
            $
            0.02
            
            $
            0.08




Accumulated
      other comprehensive income





The
      Company follows Statement of Financial Accounting Standards No. 130 (SFAS
      130) " *Reporting
      Comprehensive Income* "
      to
      recognize the elements of comprehensive income. Comprehensive income is
      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. For the Company, comprehensive income
      for the three months ended March 31, 2008 and 2007 included net income and
      foreign currency translation adjustments,





Related
      parties





Parties
      are considered to be related to the Company if the parties that, directly or
      indirectly, through one or more intermediaries, control, are controlled by,
      or
      are under common control with the Company. Related parties also include
      principal owners of the Company, its management, members of the immediate
      families of principal owners of the Company and its management and other parties
      with which the Company may deal if one party controls or can significantly
      influence the management or operating policies of the other to an extent that
      one of the transacting parties might be prevented from fully pursuing its own
      separate interests.


F-11
 *Table
          of Contents*


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





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




The
      Company is operating in the PRC, which may give rise to significant foreign
      currency risks from fluctuations and the degree of volatility of foreign
      exchange rates between U.S. dollars and the Chinese RMB.





Financial
      instruments that potentially subject the Company to concentration of credit
      risk
      consist principally of cash, trade accounts receivables and inventories, the
      balances of which are stated on the balance sheet. The Company places its cash
      in banks located in China.. Concentration of credit risk with respect to trade
      accounts receivables is limited due to the Company's large number of diverse
      customers in different locations in China. The Company does not require
      collateral or other security to support financial instruments subject to credit
      risk.





For
      the
      periods ended March 31, 2008 and 2007 no single customer accounted for 10%
      or
      more of sales revenues.





As
      of
      March 31, 2008 and 2007 the Company had no insurance coverage of any kind.
      Accrual for losses is not recognized until such time a loss has
      occurred.





**5.**
            **Income
                Taxes**





Under
      the
      Provisional Regulations of The People’s Republic of China Concerning Income Tax
      on Enterprises promulgated by the PRC, income tax is payable by enterprises
      at a
      rate of 33% of their taxable income. Preferential tax treatment may, however,
      be
      granted pursuant to any law or regulations from time to time promulgated by
      the
      State Council.





The
      Company has been granted a 100% tax holiday from Enterprises Income Tax Policy
      from the Xing He District Local Tax Authority for the five years 2003 through
      2007. This tax holiday could be challenged by higher taxing authorities in
      the
      PRC, which could result in taxes and penalties owed for those years. For the
      periods ended March 31, 2008 and 2007, the enterprise income tax at the
      statutory rates would have been approximately $410,250 and $ 276,206,
      respectively.




A
      reconciliation of the provision for income taxes with amounts determined by
      the
      PRC statutory income tax rate to income before income taxes is as
      follows:





2008
            
            2007Computed
                tax at the PRC statutory rate of 33%
            
            $
            410,250
            
            $
            276,206Benefit
                of tax holiday
            
            
            (410,250
            )
            
            (276,206
            )Income
                tax expenses per books
            
            $
            —
            
            $
            —





**6.**
            **Inventories**





As
      of
      March 31, 2008 and December 31, 2007, inventory consisted of the
      following:





2008
            
            2007Raw
                materials
            
            $
            1,349,346
            
            $
            1,198,174Work
                in process
            
            
            11,297,842
            
            
            10,119,774Finished
                goods
            
            
            3,705,402
            
            
            3,270,125Repair
                Parts
            
            
            41,491
            
            
            38,854$
            16,394,081
            
            $
            14,626,927





**7.**
            **Property
                and Equipment; Land Use Right**





As
      of
      March 31, 2008 and December 31, 2007, property and equipment consist of the
      following:





2008
            
            2007Building
            
            $
            6,583,148
            
            $
            6,320,420Machinery
                and equipment
            
            
            19,005,342
            
            
            18,234,302Motor
                vehicles
            
            
            39,874
            
            
            38,28225,628,364
            
            
            24,593,004Less:
                Accumulated depreciation
            
            
            5,472,418
            
            
            4,971,393$
            20,155,946
            
            $
            9,621,611




F-12
 *Table
          of Contents*




For
      the
      three months ended March 31, 2008 and 2007, depreciation expense was $294,373
      and $119,812, all of which was included as a component of cost of goods
      sold.





As
      of
      March 31, 2008 and December 31, 2007, land use rights consist of the
      following:





2008
            
            2007Land
                Use Right
            
            $
            3,062,202
            
            $
            2,944,401Less:
                Accumulated amortization
            
            
            (117,587
            )
            
            (102,447
            )$
            2,944,615
            
            $
            2,841,954




For
      the
      three months ended March 31, 2008 and 2007, amortization expenses were $15,474
      and $1,444 respectively.





**8.**
            **Stockholders’
                equity**





(a)
            Restated
                Certificiate of Incorporation





On
      January 22, 2008, the Company changed its authorized capital stock to
      120,000,000 shares of capital stock, of which 20,000,000 shares are shares
      of
      preferred stock, par value $.001 per share, and 100,000,000 shares are shares
      of
      common stock, par value $.001 per share. The restated certificate of
      incorporation included a statement of designations of the rights, preferences,
      privileges and limitation of the holders of the series A preferred stock. The
      terms of the statement of designations is set forth under “Conversion of
      Convertible Notes.”





(b)
            Conversion
                of Convertible Notes.





On
      January 22, 2008, upon the filing of a restated certificate of incorporation
      and
      a statement of designation for a newly created series of preferred stock
      designated as the series A convertible preferred stock, outstanding convertible
      notes in the principal amount of $1,200,000 were automatically converted into
      1,200,499 shares of series A convertible preferred stock and warrants to
      purchase 3,000,000 shares of common stock at $1.20 per share and 3,000,000
      shares of common stock at $2.00 per share. The statement of designation for
      the
      series A preferred stock provides the following:




·
            Each
                share of series A preferred stock is convertible into one share of
                common
                stock, at a conversion price of $1.00, subject to
                adjustment.




·
            While
                the series A preferred stock is outstanding, if we issue common stock
                at a
                price or warrants or other convertible securities at a conversion
                or
                exercise price which is less then the conversion price then in effect,
                the
                conversion price shall be adjusted on a formula
                basis.




·
            While
                the Series A Preferred Stock is outstanding, without the approval
                of the
                holders of 75% of the outstanding shares of Series A Preferred Stock,
                we
                may not pay cash dividends or other distributions of cash, property
                or
                evidences of indebtedness, and we shall not redeem any shares of
                Common
                Stock.




·
            No
                dividends are payable with respect to the series A preferred
                stock.




·
            Upon
                any voluntary or involuntary liquidation, dissolution or winding-up,
                the
                holders of the series A preferred stock are entitled to a preference
                of
                $1.00 per share before any distributions or payments may be made
                with
                respect to the common stock or any other class or series of capital
                stock
                which is junior to the series A preferred stock upon voluntary or
                involuntary liquidation, dissolution or winding-up. In the event
                that the
                XingGuang fails to make any of the payments due pursuant to the securities
                purchase agreement, the amount of the total liquidation payments
                shall be
                reduced by the amount of the
                shortfall.




·
            The
                holders of the series A preferred stock have no voting rights. However,
                so
                long as any shares of series A preferred stock are outstanding, we
                shall
                not, without the affirmative approval of the holders of 75% of the
                outstanding shares of series A preferred stock then outstanding,
                (a) alter
                or change adversely the powers, preferences or rights given to the
                series
                A preferred stock or alter or amend the certificate of designation,
                (b)
                authorize or create any class of stock ranking as to dividends or
                distribution of assets upon liquidation senior to or otherwise pari
                passu
                with the series A preferred stock, or any of preferred stock possessing
                greater voting rights or the right to convert at a more favorable
                price
                than the series A preferred stock, (c) amend our articles of incorporation
                or other charter documents in breach of any of the provisions thereof,
                (d)
                increase the authorized number of shares of series A preferred stock,
                or
                (e) enter into any agreement with respect to the
                foregoing




F-13
 *Table
          of Contents*




(c)
            Warrants





The
      warrants have terms of five years, and expire December 3, 2012. The warrants
      provide a cashless exercise feature; however, the holders of the warrants may
      not make a cashless exercise prior to December 17, 2008 and thereafter the
      holders may make a cashless exercise only if the underlying shares are not
      covered by an effective registration statement.




(d)
            Securities
                Purchase Agreement





Pursuant
      to the securities purchase agreement relating to the issuance of the 3%
      convertible notes, in addition to the foregoing:




·
            On
                January 22, 2008, we restates our articles of incorporation to change
                our
                corporate name to China Carbon Graphite Group, Inc., change our authorized
                capital stock to 120,000,000 shares of capital stock, of which 20,000,000
                shares are shares of preferred stock, par value $.001 per share,
                and
                100,000,000 shares are shares of common stock, par value $.001 per
                share.
                The restated articles included a statement of designations of the
                rights,
                preferences, privileges and limitations of the holders of the series
                A
                preferred stock.




·
            The
                Company agreed that, within 90 days after the closing on December
                17,
                2007, it would have appointed such number of independent directors
                that
                would result in a majority of our directors being independent directors
                and we would have an audit committee composed solely of at least
                three
                independent directors and a compensation committee would have a majority
                of independent directors. The Company is required to pay liquidated
                damages (i) if the Company fails to have a majority of independent
                directors 90 days after the closing or (ii) thereafter, if the Company
                subsequently fails to meet these requirements for a period of 60
                days for
                an excused reason, as defined in the purchase agreement, or 75 days
                for a
                reason which is not an excused reason. Liquidated damages are payable
                in
                cash or additional shares of series A preferred stock, with the series
                A
                preferred stock being valued at the market price of the shares of
                common
                stock issuable upon conversion of the series A preferred stock. The
                liquidated damages are computed in an amount equal to 12% per annum
                of the
                purchase price, with a maximum of $144,000. Liquidated damages through
                March 31, 2008 have been waived.




·
            The
                Company and XingGuang entered into a registration rights agreement
                pursuant to which we are required to have a registration statement
                filed
                with the SEC by March 16, 2008 (subsequently extended to June 16,
                2008)
                and declared effective by the SEC not later than August 13, 2008.
                We are
                required to pay liquidated damages at the rate of 200 shares of series
                A
                preferred stock for each day after August 13, 2008 (subsequently
                extended
                to November 13, 2008) that the registration statement is not declared
                effective or for any period that we fail to keep the registration
                statement effective, up to a maximum of 100,000 shares. The number
                of
                shares of series A preferred stock issuable pursuant to the liquidated
                damages provision is subject to reduction based on the maximum number
                of
                shares that can be registered under the applicable SEC
                guidelines.




·
            XingGuang
                has a right of refusal on future
                financings.





(e)
            Cancellation
                of common stock





In
      connection with the acquisition of Talent, the company entered buy-back
      agreement, see Note 1 (a). The Company agreed to pay a purchase price of
      $700,000 for the shares, payable in installments of $350,000 on each of March
      31, 2008 and June 30, 2008. The Company placed 1,000,000 of the shares of common
      stock in escrow, and the shares are subject to release from escrow. If, by
      March
      31, 2008, the Company shall have made both the first $350,000 payment due
      pursuant to the note and the first payment of $50,000 to Ventana, the escrow
      agent shall deliver 500,000 shares to us for cancellation. As of March 31,
      2008,
      the first installment of $400,000 was paid, therefore, the 500,000 shares have
      been released to the Company and cancelled.




(f)
            Deemed
                Preferred Stock Dividend




Upon
      filing of the Company’s amended and restated articles of incorporation on
      January 22, 2008, $1,200,000 of convertible notes were automatically converted
      to 1,200,499 shares of preferred stock convertible into 1,200,499 shares of
      common stock at a conversion price of $1.00 per share and included detachable
      warrants to purchase 3,000,000 shares of the common stock at $1.20 and 3,000,000
      shares at $2.00 per share. At December 17, 2007, the fair value of the warrants
      used to calculate the intrinsic value of the conversion option was estimated
      at
      $3,831,900 and was computed using the Black-Scholes option-pricing model based
      on the assumed issuance of the warrants on the date the notes were issued.
      Variables used in the option-pricing model include (1) risk-free interest
      rate at the date of grant (3.5%), (2) expected warrant life of
      5 years, (3) expected volatility of 100%, and (4) 0% expected
      dividend.   The Company used the market price of its common stock at
      December 17, 2007, $0.95 per share, and computed the effective preferred stock
      conversion price to be $0.24 per share.   The resulting intrinsic
      value of the conversion feature was $854,300 reported as a dividend.




As
      the
      series A preferred stock does not provide for redemption by the Company or
      have
      a finite life, upon the conversion to preferred stock, a one-time preferred
      stock deemed dividend of $854,300 was recognized immediately as a non-cash
      charge during the three months ended March 31, 2008. The deemed preferred stock
      dividend of $854,300 has been recorded as additional paid-in capital and a
      reduction to retained earnings.




F-14
 *Table
          of Contents*




**9.**
            **Notes
                Payable**





As
      of
      March 31, 2008 and December 31, 2007, notes payable consist of the
      following:




2008
            
            2007Bank
                loans dated June 12, 2007, due June 10, 2008 with an interest rate
                of
                8.541%, interest payable monthly, secured by property and equipment
                and
                land use rights
            
            $
            5,553,815
            
            $
            5,332,167Other
                loan dated June 22, 2007, due June 20, 2008 with an interest rate
                of
                7.227%, interest payable quarterly, secured by equipment and land
                use
                rights
            
            
            712,028
            
            
            683,611Notes
                payable to former principal shareholders pursuant to buy-back agreements
                in relation to the reverse acquisition, see Note 1.
            
            
            350,000
            
            
            700,000$
            6,615,843
            
            $
            6,715,778




**10.**
            **Loans
                from Shareholder**





On
      March
      31, 2008 and December 31, 2007, the Company had loans from a shareholder
      amounting to $4,893,438
      and $4,543,648, respectively. The advances do not bear interest and are due
      on
      demand.




F-15
 *Table
            of Contents*




**ITEM
                2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION.**




**Forward
      Looking Statements**





Statements
      contained in this Form 10-Q include forward-looking statements that are subject
      to risks and uncertainties. In particular, statements in this Form 10-Q that
      state our intentions, beliefs, expectations, strategies, predictions or any
      other statements relating to our future activities or other future events or
      conditions are “forward-looking statements.” Forward-looking statements are
      subject to risks, uncertainties and other factors, including, but not limited
      to, those identified under “Risk Factors,” in our Form 10-KSB for the year ended
      December 31, 2007 and those described in “Management's Discussion and Analysis
      of Financial Conditions and Results of Operations” in the Form 10-KSB and this
      Form 10-Q, and those described in any other filings by us with the Securities
      and Exchange Commission, as well as general economic conditions and economic
      conditions affecting the electronics and consumer electronics industry, any
      one
      or more of which could cause actual results to differ materially from those
      stated in such statements. In addition, such statements could be affected by
      risks and uncertainties related to the ability to conduct business in China,
      product demand, our ability to develop products using the most current
      technology, our ability to raise any financing which we may require for our
      operations, competition, government regulations and requirements, pricing and
      development difficulties, as well as general industry and market conditions
      and
      growth rates, and general economic conditions. Any forward-looking statements
      speak only as of the date on which they are made, and we do not undertake any
      obligation to update any forward-looking statement to reflect events or
      circumstances after the date of this Form 10-Q.





**Overview**





Prior
      to
      December 17, 2007, we were a pubic reporting blind pool company. On December
      17,
      2007, we executed and completed the transactions contemplated by the agreement
      with Sincere Investment (PTC) Ltd. whereby Talent International Investment
      Limited (“Talent”), a British Virgin Islands corporation, became our
      wholly-owned subsidiary. Talent is the sole stockholder of Xinghe Yongle Carbon
      Co., Ltd. (“Yongle”), a company organized under the laws of the PRC. Yongle is a
      party to a series of contractual arrangements with Xinghe Xingyong Carbon Co.,
      Ltd. (“Xingyong”), as described below.




Xingyong
      was organized under the laws of the PRC in 2002. Xingyong’s business was
      formerly operated as a state-owned enterprise. The business was reorganized
      under the laws of the PRC as a limited liability company named Xinghe Xingye
      Carbon Co., Ltd. In December 2001, Mr. Jin organized Xingyong to acquire the
      business of Xinghe Xingye Carbon Co., Ltd. by paying RMB 55,600,000
      (approximately US$7,900,000). Mr. Jin funded RMB 33,750,000 (approximately
      US$4,800,000) and the company obtained bank loans in the amount of RMB
      21,950,000 (approximately US$3,100,000).




From
      December 2001 until the reverse acquisition on December 17, 2007, our business
      was conducted by Xingyong, and this discussion relates to the business,
      financial condition and results of operations of Xingyong. We develop,
      manufacture and market graphite products. Our main products include graphite
      electrode, fine grain graphite and high purity graphite. We produce all of
      our
      products in China. Our products are generally used either as a component in
      other products, as an element of a facility or in the manufacturing process
      of
      other products. We sell our products to distributors who sell to producers
      of in
      both the domestic Chinese market and the international market. We do not sell
      products directly to the end users.




Although
      our products are sold in the international market, substantially all of our
      sales are to Chinese firms that may, in turn, sell the products in the
      international market. We believe that our products are not subject to export
      restrictions.




In
      accordance with the relevant Chinese rules and regulations on management of
      foreign exchange, the foreign currency generated from sales of our products
      outside of China is brought into China and sold to designated banks instead
      of
      depositing it in banks out of the PRC without authorization. In addition, we
      have to buy foreign currency from designated banks upon the strength of
      commercial bills when paying current expenditures with foreign currency. In
      addition, all of our transactions undertaken in the PRC are denominated in
      RMB,
      which must be converted into other currencies before remittance out of China.
      Both the conversion of RMB into foreign currencies and the remittance of foreign
      currencies abroad require the approval of the Chinese government.




Our
      principal raw materials are coal asphalt, asphalt coke, metallurgy coke, needle
      coke, metallurgy coke power, quartzose sand, coal, petroleum coke and calcined
      coke, all of which are carbon rich and used in manufacturing graphite with
      a
      high degree of purity. We purchase most of our raw materials from domestic
      Chinese suppliers. Because we do not have any long-term contracts for raw
      materials, any increase in prices of raw material will affect the price at
      which
      we can sell our product. If we are not able to raise our prices to pass on
      increased costs, we would be unable to maintain our margins. The laws of the
      PRC
      give the government broad power to fix and adjust prices. Although the
      government has not imposed price controls on our raw materials such as coal,
      gas, oil, electricity and/or water or on our products, it is possible that
      such
      controls may be implemented in the future. Since most of our sales are made
      to
      domestic companies, our gross margins can be affected by any price controls
      imposed by the government of the PRC.




-
            3 -
 *Table
            of Contents*





The
      transaction whereby we acquired Talent is accounted for as a reverse
      acquisition. The exchange of our stock for the stock of Talent is considered
      to
      be capital transactions in substance, rather than a business combination. That
      is, the acquisition is equivalent to the acquisition by Talent of us, with
      the
      issuance of stock by Talent for the net monetary assets of Achievers. This
      transaction is accompanied by a recapitalization, and is accounted for as a
      change in capital structure. Accordingly, the accounting for the acquisition
      is
      identical to that resulting from a reverse acquisition. Under reverse takeover
      accounting, our historical financial statements are those of Talent, which
      is
      treated as the acquiring party for accounting purposes. Since Talent and Yongle
      were not engaged in any business activities, our financial statements for
      periods prior to the closing of the reverse acquisition reflect only business
      of
      Xingyong. The financial statements reflect the recapitalization of the
      stockholders’ equity as if the transactions occurred as of the beginning of the
      first period presented.





Reference
      in this Form 10-Q to “we,” “us,” “our” and words of like import refer to the
      Company, its subsidiaries and its variable interest entity, Xingyong. For period
      prior to December 17, 2007, these terms refer to Xingyong.





Prior
      to
      December 17, 2007, we did not have the expenses of a public company. As a
      result, since December 17, 2007 we have incurred, and we are continuing to
      incur, significantly greater legal, accounting and other professional expenses
      relating to our status as a public company and compliance with SEC rules,
      including the development and implementation of internal controls.




For
      the
      five years from 2003 through 2007, we received a 100% tax holiday from the
      regional government for enterprise income tax. As a result, we paid no
      enterprise income tax for those years. In 2008, Xing He District Local Tax
      Authority in the Nei Monggol province granted tax holiday from 100% of
      Enterprises Income Tax for additional three years 2008 through 2010. Following
      expiration fo that period, based on the present tax law, we will be subject
      to a
      corporation income tax rate of 15% effective in 2011.




Our
      internal financial statements are maintained in RMB. The financial statements
      included in this Form 10-Q are expressed in United States dollars. The
      translation adjustments in expressing the financial statements in United States
      dollars is shown on the statements of operation as a translation adjustment,
      and
      the cumulative translation adjustment is shown as an element of stockholders’
equity.





**Critical
      Accounting Policies and Estimates**





*Use
      of Estimates*





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




*Variable
      Interest Entity*





Pursuant
      to Financial Accounting Standards Board Interpretation No. 46 (Revised),
“Consolidation of Variable Interest Entities - an Interpretation of ARB No.
      51”
(“FIN 46R”) we are required to include in our consolidated financial statements
      the financial statements of variable interest entities. FIN 46R requires a
      variable interest entity to be consolidated by a company if that company is
      subject to a majority of the risk of loss for the variable interest entity
      or is
      entitled to receive a majority of the variable interest entity’s residual
      returns. Variable interest entities are those entities in which we, through
      contractual arrangements, bear the risk of, and enjoy the rewards normally
      associated with ownership of the entity, and therefore we are the primary
      beneficiary of the entity.





Xingyong
      is considered a variable interest entity (“VIE”), and we are the primary
      beneficiary. On December 17, 2007, we entered into agreements with the
      Xingyong pursuant to which we shall receive the benefit of the
      Xingyong’s net income. In accordance with these agreements, Xingyong
      shall pay consulting fees equal to 80% to 100% of its net income to our
      wholly-owned foreign subsidiary, Yongle, and Yongle shall supply the technology
      and administrative services needed to service Xingyong.  Xingyong
      is owned by Mr. Jin, who is Yongle’s and our chief executive
      officer.




The
      accounts of Xingyong are consolidated in the accompanying financial statements
      pursuant to FIN 46R. As a VIE, Xingyong’s sales are included in our total sales,
      its income from operations is consolidated with our, and our net income includes
      all of Xingyong net income. We do not have any non-controlling interest and
      accordingly, did not subtract any net income in calculating the net income
      attributable to us. Because of the contractual arrangements, we have pecuniary
      interest in Xingyong that require consolidation of our financial statements
      and
      Xingyong’s financial statements.




-
          4 -
 *Table
          of Contents*





*Revenue
      Recognition*




We
      recognize revenue in accordance with Staff Accounting Bulletin No. 104,
      Revenue Recognition, which states that revenue should be recognized when the
      following criteria are met: (1) persuasive evidence of an arrangement
      exists; (2) the service has been rendered; (3) the selling price is
      fixed or determinable; and (4) collection of the resulting receivable is
      reasonably assured. Sales represent the invoiced value of goods, net of value
      added tax (“VAT”), if any, and are recognized upon delivery of goods and passage
      of title. Pursuant to China’s VAT rules and regulations, as an ordinary VAT
      taxpayer we are subject to a tax rate of 17% (“output VAT”). The output VAT is
      payable after offsetting VAT paid by us on purchases (“input VAT”). We have been
      granted an exemption from VAT by the Xinghe County People’s Government and
      Xinghe Tax Authority on some products for which an exchange agreement is in
      place for raw materials and fuel.





*Comprehensive
      Income*





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




*Income
      Taxes*





We
      account for income taxes under the provisions of SFAS No. 109, “Accounting for
      Income Taxes,” which requires recognition of deferred tax assets and liabilities
      for the expected future tax consequences of events that have been included
      in
      the consolidated financial statements or tax returns. Deferred tax assets and
      liabilities are recognized for the future tax consequence attributable to the
      difference between the tax bases of assets and liabilities and their reported
      amounts in the financial statements. Deferred tax assets and liabilities are
      measured using the enacted tax rate expected to apply to taxable income in
      the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the enactment date.
      With the approvals of the Xinghe County Government, we received a 100% tax
      holiday from enterprise income taxes from 2003 through and including 2007.




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





We
      have
      been recognized as a high technology and science company by the Ministry of
      Science and Technology of the People’s Republic of China therefore, Xing He
      District Local Tax Authority in the Nei Monggol province granted tax holiday
      from 100% of Enterprises Income Tax for additional three years 2008 through
      2010. Following expiration of the three year period, based on the present tax
      law, we will be subject to a corporation income tax rate of 15% effective in
      2011.




*Inventories*





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




*Property,
      Plant and Equipment*





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




There
      is
      no private ownership of land in China. All land ownership is held by the
      government of China, its agencies and collectives. Land use rights are obtained
      from government, and are typically renewable. Land use rights can be transferred
      upon approval by the land administrative authorities of China (State Land
      Administration Bureau) upon payment of the required transfer fee. We own the
      land use right for 2,356,209 **** square
      feet, of which 290,626 square is occupied by our facilities, for a term of
      50
      years, beginning from issuance date of the certificates granting the land use
      right. We record the property subject to land use rights as intangible property.




Each
      intangible assets are reviewed periodically or more often if circumstances
      dictate, to determine whether its carrying value has become impaired. We
      consider assets to be impaired if the carrying value exceeds the future
      projected cash flows from related operations. We also re-evaluate the
      amortization periods to determine whether subsequent events and circumstances
      warrant revised estimates of useful lives.




-
          5 -
 *Table
          of Contents*




*Research
      and development*




Research
      and development costs are expensed as incurred, and are included in general
      and
      administrative expenses. These costs primarily consist of cost of material
      used
      and salaries paid for the development of our products and fees paid to third
      parties. Our total research and development expense through March 31, 2008
      has
      not been significant.





*Value
      added tax*





Enterprises
      or individuals who sell products, engage in repair and maintenance or import
      and
      export goods in the PRC are subject to a value added tax in accordance with
      Chinese laws. The value added tax standard rate is 17% of the gross sales price.
      A credit is available whereby VAT paid on the purchases of semi-finished
      products, raw materials used in the production of the Company’s finished
      products, and payment of freight expenses can be used to offset the VAT due
      on
      sales of the finished product. 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 **** VAT
      and
      business tax 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 that are determined to be late or
      deficient. In the event that a tax penalty is assessed on late or deficient
      payments, the penalty will be expensed as a period expense if and when a
      determination has been made by the taxing authorities that a penalty is
      due.





**RESULTS
      OF OPERATIONS**





**Three
      months ended March 31, 2008 and 2007.**





The
      following table sets forth information from our statements of operations for
      the
      three months ended March 31, 2008 and 2007, in dollars (in thousands) and
      as a percentage of sales:




**Three
                months ended March 31,****2008**
            
            
            **2007****US
                Dollars**
            
            
            **Percentage**
            
            
            **US
                Dollars**
            
            
            **Percentage**Sales
            
            $
            5,728
            
            
            100
            %
            $
            5,373
            
            
            100
            %Cost
                of sales
            
            
            4,366
            
            
            76.23
            %
            
            4,500
            
            
            83.75
            %Gross
                profit
            
            
            1,362
            
            
            23.77
            %
            
            873
            
            
            16.25
            %Operating
                expenses
            
            
            (185
            )
            
            (3.22
            )%
            
            (114
            )
            
            (2.13
            )%Income
                from operations
            
            
            1,177
            
            
            20.55
            %
            
            759
            
            
            14.12
            %Interest
                expense
            
            
            (133
            )
            
            (2.33
            )%
            
            (159
            )
            
            (2.96
            )%Other
                income
            
            
            199
            
            
            3.48
            %
            
            237
            
            
            4.42
            %Income
                before provision for income taxes
            
            
            1,243
            
            
            21.70
            %
            
            837
            
            
            15.58
            %Provision
                for income taxes
            
            
            —
            
            
            0.00
            %
            
            —
            
            
            0.00
            %Net
                income
            
            
            1,243
            
            
            21.70
            %
            
            837
            
            
            15.58
            %Other
                comprehensive incomeForeign
                currency translation adjustment
            
            
            1,252
            
            
            21.86
            %
            
            431
            
            
            8.02
            %Comprehensive
                income
            
            $
            2,495
            
            
            43.56
            %
            $
            1,269
            
            
            23.62
            %




*Sales.* During
      the three months ended March 31, 2008, we had sales of $5.7 million, as
      compared to sales of $5.4 million for the three months ended March 31,
      2007, an increase of $355,000 or approximately 6.61%. This increase resulted
      from our marketing efforts both to develop new customers and make follow-on
      sales to existing customers.





*Cost
      of sales; gross margin* .
      During
      the three months ended March 31, 2008, our cost of sales was $4.4 million,
      as compared to cost of sales of $4.5 million during the three months ended
      March 31, 2007, a decrease of $133,000, or approximately 2.97 %. The sales
      increased while the cost of sales decreased. As a result, our gross profit
      increased by $489,000, or approximately 55.99%, our gross margin increased
      from
      16.25 % in the three months ended March 31, 2007 to 23.77 % in the three
      months ended March 31, 2008. The increase in gross profit resulted from a
      shift of our production focus from low margin graphite electrodes to fine grain
      graphite and high purity graphite which has higher gross margin.





*Depreciation
      and amortization expense* .
      Depreciation amounted to $309,846 in the three months ended March 31, 2008
      and $121,256 in the three months ended March 31, 2007, of which $294,706
      for the 2008 quarter and $119,812 for the 2007 quarter is included in cost
      of
      sales and $15,140 for 2008 and $1,444 for 2007 is included in operating
      expenses.


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          6 -
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*Selling,
      general and administrative expenses.* Selling,
      general and administrative expenses totaled $169,538 for the three months ended
      March 31, 2008, as compared to $112,798 for the three months ended
      March 31, 2007, an increase of $56,740 or approximately 50.3 %. Selling
      expenses increased from $13,529 in the three months ended March 31, 2007 to
      $20,334 in the three months ended March 31, 2007. General and
      administrative expense increased from $99,269 in the three months ended
      March 31, 2007 to $149,204 in the three months ended March 31, 2008.





*Income
      from operations.* For
      the
      three months ended March 31, 2008, income from operations amounted to
      $1,177,030 as compared to $758,699 for three months ended March 31, 2007,
      an increase of $418,331 or approximately 55.14%. The increase was primarily
      due
      to shift of production focus to fine grain graphite and high purity graphite
      which has higher gross profit margin.





*Other
      income (expense)* .
      For the
      three months ended March 31, 2008, other income amounted to $199.196 as
      compared to $59,747 for the three months ended March 31, 2007. Other income
      is government
      grant received from the PRC government for the
      recognition of high technology and science companies.




During
      the three months ended March 31, 2008 and 2007, other expenses consisted of
      interest expense of $133,223 and $159,176, respectively and interest income
      of
      $178 and $177,179, respectively.





*Deemed
      preferred stock dividend.*





Upon
      filing of our amended and restated articles of incorporation on January 22,
      2008, our 3% convertible notes were automatically converted into 1,200,499
      shares of series A preferred stock and warrants to purchase 3,000,000 shares
      of
      the common stock at $1.20 per share and 3,000,000 shares of common stock at
      $2.00 per share. As a result of the issuance of the warrants to the holders
      of
      the series A preferred stock, we computed the effective preferred stock
      conversion price to be $.24 per share, with the result that the intrinsic value
      of the conversion feature was $854,300. The deemed preferred stock dividend
      is a
      non-cash charge which does not affect our operations or cash flow.





*Net
      income.* As a
      result of the factors described above, our net income available to common
      shareholders is $388,881, or $.03 per share (basic) and $0.02 per share
      (diluted) for the three months ended March 31, 2008, as compared with
      $836,989, or $0.08 per share (basic and diluted) for the three months ended
      March 31, 2007.





*Foreign
      currency translation adjustment.* The
      Company’s principal country of operations is in the PRC. The financial position
      and results of operations of the Company are determined using the local currency
      (“Renminbi” or “Yuan”) as the functional currency. Translation adjustments for
      the three months ended March 31, 2008 and 2007 are $1,252,143 and $431,610,
      respectively. As of March 31, 2008 and December 31, 2007, the exchange rate
      was
      7 Yuan and 7.3 Yuan per U.S. Dollar, respectively.




*Comprehensive
      income.* For
      the
      three months ended March 31, 2008, comprehensive income of $2,495,324 is derived
      from the sum of our net income of $1,243,181 (before deduction of the deemed
      preferred stock dividend) and foreign currency translation gains of
      $1,252,143.




**Liquidity
      and Capital Resources**




Liquidity
      is the ability of a company to generate funds to support its current and future
      operations, satisfy its obligations and otherwise operate on an ongoing basis.
      At March 31, 2008, we had a cash balance of $329,197 as compared to $274,587
      on
      March 31, 2007. These funds are on deposit with financial institutions located
      in the PRC.




Our
      working capital position increased $3.4 million to $8.5 million at March 31,
      2008 from a working capital of $5.1 million at March 31, 2007.





We
      have
      financed our operations principally through short term bank loans and, to a
      lesser extent, loans from Mr. Jin. At March 31, 2008, we had two bank loans
      outstanding, totaling $6.2 million, which mature in June 2008. A bank loan
      in
      the amount of $5.5 million is due on June 10, 2008, bears interest at 8.541%
      per
      annum and is secured by a security interest on our fixed assets and land use
      rights. Another loan, in the amount of $712,000 is due June 20, 2008, and bears
      interest at 7.227% per annum and is guaranteed by Inner Mongolia Yuansheng
      Investment Guarantee Corporation. No payment has been made for the guarantee.
      Although we believe that we will be able to obtain extensions of these loans
      when they mature, we cannot assure you that such extensions will be granted.




At
      March
      31, 2008, Mr. Jin has advances to us in the amount of $4.9 million, as compared
      with $4.5 million at December 31, 2007. These advances did not bear interest
      and
      are due on demand.




In
      December 2007, in connection with the reverse acquisition, we issued 3%
      convertible notes in the principal amount of $1,200,000 to the investor. This
      note was automatically converted into 1,200,499 shares of series A convertible
      preferred stock and warrants to purchase 3,000,000 shares of common stock at
      $1.20 per share and 3,000,000 shares of common stock at $2.00 per share on
      January 22, 2008, when we filed restated articles of incorporation that included
      a statement of designation for the series A convertible preferred stock. The
      purchase price of the note is payable in installments. At the closing, XingGuang
      paid $183,000 to cover closing costs. Prior to the closing, the investor had
      paid at least $217,000 of expenses relating to the reverse acquisition on our
      behalf. The investor was to pay a total of $800,000 in two


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          7 -
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installments
      of $400,000 each, the first being due on March 31, 2008 and the second being
      due
      on June 30, 2008. The payment due March 31, 2008 has been made, leaving an
      outstanding balance of $400,000.





In
      connection with the reverse acquisition, we issued our promissory note for
      $700,000 and we owe a $100,000 finders’ fee in connection with the reverse
      acquisition. These payments are due in two installments totaling $400,000 each,
      which are due on March 31, 2008 and June 30, 2008. These payments are secured
      by
      1,000,000 of the share of common stock that we purchased from the former
      principal stockholders of Achievers. These shares are held in escrow, and if
      we
      fail to make the required payments, the escrow agent will release the shares
      to
      the sellers and the finder. As of March 31, 2008, we made the first installment
      payment of $400,000, of which $350,000 was paid to the sellers and $50,000
      was
      paid to the finder, and 500,000 shares of common stock were removed from escrow
      and cancelled.




We
      require funds for working capital for our operations, in addition to the
      payments due in connection with the reverse acquisition as well as the purchase
      of additional equipment for our operations. We believe that our working capital,
      together with the cash flow from our ongoing business will be sufficient to
      enable us to meet our cash requirements for the next 12 months. However, we
      need
      additional funding in order to enable develop an enhanced product which may
      have
      use in the nuclear power industry, although we cannot assure you that, even
      if
      we have sufficient financing, we will be able to develop a product acceptable
      to
      the nuclear power industry.





Although
      we do not have any current plans to make any acquisitions, it is possible that
      we may seek to acquire one or more businesses in a related field, and we may
      require financing for that purpose. We cannot assure you that funding will
      be
      available if and when we require funding. Further, in the event that any of
      our
      lenders demand payment at the time the loans are due, in June 2008, we would
      require additional financing in order to repay those loans, and we cannot be
      sure that we will be able to obtain the necessary funding either from another
      bank or from other sources.





Net
      cash
      provided by operating activities was $95,102 in the three months ended March
      31,
      2008 as compared to $622,172 in the three months ended March 31, 2007, a
      decrease of $527,070. Net cash provided by operating activities in the three
      months ended March 31, 2008 was mainly due to our net income of $1,243,181,
      a
      decrease in accounts receivable of $1,392,595, the increase in inventory of
      $1,159,142 and the decrease in advances from suppliers of $1,718,299. Net cash
      provided by operating activities in the three months ended March 31, 2007 was
      mainly due to our net income of $836,989, a decrease in accounts receivable
      of
      $1,619,168, an increase in income taxes payable of $23,152 and the add-back
      of
      non-cash items of depreciation and amortization of $121,314.





Net
      cash
      used in investing activities was $13,073 for the three months ended March 31,
      2008 as compared to $43,496 provided in the three months ended March 31,
      2007.





Net
      cash
      provided by financing activities was $181,824 in the three months ended March
      31, 2008 as compared to $634,226 for the three months ended March 31, 2007.
      For
      the three months ended March 31, 2008, we received advances from related parties
      $160,921 and repaid notes payable $379,097. For the three months ended March
      31,
      2007, we repaid advances from related parties of $414,587 and advances on notes
      payable of $219,639.




The
      purchase agreement pursuant to which we issued the notes includes the following
      provisions.




•
            We
                agreed that, within 90 days after the closing on December 17, 2007,
                we
                would have appointed such number of independent directors that would
                result in a majority of our directors being independent directors
                and we
                would have an audit committee composed solely of at least three
                independent directors and a compensation committee would have a majority
                of independent directors. We are required to pay liquidated damages
                (i) if
                we fail to have a majority of independent directors 90 days after
                the
                closing or (ii) thereafter, if we subsequently fail to meet these
                requirements for a period of 60 days for an excused reason, as defined
                in
                the purchase agreement, or 75 days for a reason which is not an excused
                reason. Liquidated damages are payable in cash or additional shares
                of
                series A preferred stock, with the series A preferred stock being
                valued
                at the market price of the shares of common stock issuable upon conversion
                of the series A preferred stock. The liquidated damages are computed
                in an
                amount equal to 12% per annum of the purchase price, with a maximum
                of
                $144,000. We received a waiver from XingGuang as to the failure to
                have
                independent directors.




•
            We
                and the investor entered into a registration rights agreement pursuant
                to
                which we are required to have a registration statement filed with
                the SEC
                by March 16, 2008 (subsequently extended to June 16, 2008) and declared
                effective by the SEC no later than August 13, 2008 (subsequently
                extended
                to November 13, 2008). We are required to pay liquidated damages
                at the
                rate of 200 shares of series A preferred stock for each day after
                November
                13, 2008 that the registration statement is not declared effective
                or for
                any period that we fail to keep the registration statement effective,
                up
                to a maximum of 100,000 shares. The number of shares of series A
                preferred
                stock issuable pursuant to the liquidated damages provision is subject
                to
                reduction based on the maximum number of shares that can be registered
                under the applicable SEC
                guidelines.




•
            The
                investor has a right of first refusal on future
                financings.




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          8 -
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**Contractual
      Obligations and Off-Balance Sheet Arrangements**




***Contractual
      Obligations***




We
      have
      certain fixed contractual obligations and commitments that include future
      estimated payments. Changes in our business needs, cancellation provisions,
      changing interest rates, and other factors may result in actual payments
      differing from the estimates. We cannot provide certainty regarding the timing
      and amounts of payments. We have presented below a summary of the most
      significant assumptions used in our determination of amounts presented in the
      tables, in order to assist in the review of this information within the context
      of our consolidated financial position, results of operations, and cash
      flows.





The
      following table summarizes our contractual obligations as of March 31,
      2008.




**Payments
                Due by Period****Total**
            
            **Less than 1**
              **year**
            
            **1-3**
              **Years**
            
            **3-5**
              **Years**
            
            **5 Years**
              **+**Contractual
                Obligations :Bank
                indebtedness (1)
            
            $
            6,265,843
            
            $
            6,265,843
            
            $
            —
            
            $
            —
            
            $
            —Notes
                payable
            
            
            350,000
            
            
            350,000
            
            
            —
            
            
            —
            
            
            —Total
                Contractual Obligations:
            
            $
            6,615,843
            
            $
            6,615,843
            
            $
            —
            
            $
            —
            
            $
            —





**Off
      Balance Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.





**Foreign
      Currency Exchange Rate Risk**





Our
      sales
      are primarily through distributors in China and we are paid in RMB. Thus, most
      of our revenues and operating results is not impacted by exchange rate
      fluctuations between RMB and US dollars. However, our reporting currency is
      the
      U.S. dollar and the functional currency of the Company is the RMB. Therefore,
      translation adjustments arise from the process of translating the local currency
      financial statements into U.S. dollars. For the three months ended March 31,
      2008, we had foreign currency translation gain of $1,252,143, because of the
      change in the exchange rate.




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




**Evaluation
      of Disclosure Controls and Procedures**





Disclosure
      controls and procedures refer to controls and other procedures designed to
      ensure that information required to be disclosed in the reports we file or
      submit under the Securities Exchange Act of 1934, as amended, is recorded,
      processed, summarized and reported within the time periods specified in the
      rules and forms of the SEC and that such information is accumulated and
      communicated to our management, including our chief executive officer and chief
      financial officer, as appropriate, to allow timely decisions regarding required
      disclosure. In designing and evaluating our disclosure controls and procedures,
      management recognizes that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving the
      desired control objectives, and management is required to apply its judgment
      in
      evaluating and implementing possible controls and procedures.




Management
      conducted its evaluation of disclosure controls and procedures under the
      supervision of our chief executive officer and our chief financial officer.
      Based on that evaluation, our chief executive and financial officers concluded
      that because of the significant deficiencies in internal control over financial
      reporting described below, our disclosure controls and procedures were not
      effective as of March 31, 2008.




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





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Securities Exchange Act.  Our management is also required to
      assess and report on the effectiveness of our internal control over financial
      reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
      (“Section 404”).   Management assessed the effectiveness of our
      internal control over financial reporting as of December 31, 2007.  In
      making this assessment, we used the criteria set forth


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by
      the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
      Internal Control - Integrated Framework.  During our assessment of the
      effectiveness of internal control over financial reporting as of
      December 31, 2007, management identified significant deficiencies related
      to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our
      internal audit functions and, and (iii) a lack of segregation of duties within
      accounting functions.





A
      material weakness (within the meaning of PCAOB Auditing Standard No. 5) is
      a
      deficiency, or a combination of deficiencies, in internal control over financial
      reporting, such that there is a reasonable possibility that a material
      misstatement of our annual or interim financial statements will not be prevented
      or detected on a timely basis. A significant deficiency is a deficiency, or
      a
      combination of deficiencies, in internal control over financial reporting that
      is less severe than a material weakness, yet important enough to merit attention
      by those responsible for oversight of the company's financial
      reporting.





We
      became
      a reporting company in December 2007.  Prior to December 2007, our
      operations were conducted by Xingyong, which is a company organized under the
      laws of the PRC and owned by our chief executive officer. We began preparing
      to
      be in compliance with the internal control obligations, including Section 404,
      for our fiscal year ending December 31, 2007. During almost all of 2007 our
      internal accounting staff was primarily engaged in ensuring compliance with
      PRC
      accounting and reporting requirements for our operating affiliates and was
      not
      required to meet or apply U.S. GAAP requirements.  As a result, with the
      exception of certain additional persons hired at the end of 2007 to address
      these deficiencies, our current internal accounting department responsible
      for
      financial reporting of the Company, on a consolidated basis, is relatively
      new
      to U.S. GAAP and the related internal control procedures required of U.S. public
      companies. Although our accounting staff is professional and experienced in
      accounting requirements and procedures generally accepted in the PRC, management
      has determined that they require additional training and assistance in U.S.
      GAAP
      matters.  Management has determined that our internal audit function is
      also significantly deficient due to insufficient qualified resources to perform
      internal audit functions.  Finally, management determined that the lack of
      an Audit Committee of the board of directors of the Company also contributed
      to
      insufficient oversight of our accounting and audit functions.





In
      order
      to correct the foregoing deficiencies, we are seeking to engage an experienced
      accountant or firm to assist us in establishing procedures that will enable
      us
      to have, on an ongoing basis, personnel who understand US GAAP and the
      disclosure obligations under the Securities Exchange Act. We are committed
      to
      the establishment of effective internal audit functions, however, due to the
      scarcity of qualified candidates with extensive experience in U.S. GAAP
      reporting and accounting in the region, we were not able to hire sufficient
      internal audit resources in order to enable us to have such procedures and
      controls established by the end of March 31, 2008.





We
      also
      intend to elect additional directors, who will be independent and one of whom
      could serve as the audit committee financial expert. We believe that the
      appointment of such directors will strongly influence our management in
      establishing the necessary controls.





However,
      due to our size and nature, the segregation of all conflicting duties may not
      always be possible and may not be economically feasible.  However, to
      the extent possible, we will implement procedures to assure that the initiation
      of transactions, the custody of assets and the recording of transactions will
      be
      performed by separate individuals.





We
      believe that the foregoing steps will remediate the significant deficiency
      identified above, and we will continue to monitor the effectiveness of these
      steps and make any changes that our management deems appropriate.





The
      certification of our chief executive and chief financial officer, which is
      included as Exhibits 31.1 and 31.2 to this quarterly report on Form 10-Q,
      include, in paragraph 4 of such certification, information concerning our
      disclosure controls and procedures and internal control over financial
      reporting. Such certifications should be read in conjunction with the
      information contained in this Item 4 - Controls and Procedures for a more
      complete understanding of the matters covered by such
      certification.








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            10 -
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**PART
      II - OTHER INFORMATION**






**ITEM
      6 - EXHIBITS**





**Exhibit
                Number**
            
            **Description**31.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act.31.2
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act.32.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code.






-
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**SIGNATURES**


Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  **DATE:
        May 20, 2008**
  **CHINA
                  CARBON GRAPHITE GROUP, INC.**By:
              /s/ Dengyong
                  JinDengyong
                  Jin
                Chief
                  Executive Officer(principal
                  executive officer)
 
 By:
              /s/ Donghai
                  YuDonghai
                  Yu
                Chief
                  Financial Officer(principal
                  financial and accounting officer)
 -
          12
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