----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-Q**

**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 PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

**Commission      File Number**

**001-33709**

**CHINA      ARCHITECTURAL ENGINEERING, INC.**

*(Exact      name of small business issuer as specified in its charter)*

| **Delaware***(State                or other jurisdiction of incorporation**or                organization)*                                                                  |   | **51-05021250***(I.R.S.                Employer Identification**No.)* |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|
|                                                                                                                                                                         |   |                                                                  |
| **105                Baishi Road, Jiuzhou West Avenue,****Zhuhai,                People’s Republic of China***(Address                of principal executive offices)* |   |  **519070** *(Zip                Code)*                     |

**0086-756-8538908**

*(Registrant’s      telephone number, including area code)*

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer ý                                                   |   | Smaller reporting company o |
|---------------------------|--------|---------------------|--------|--------------------------------------------------------------------------------|--------|-----------------------------|
|                      |   |                |   | *(Do                not check if a smaller**reporting                company)* |   |                        |

----

----

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**CHINA      ARCHITECTURAL ENGINEERING, INC. **

**FORM      10-Q QUARTERLY REPORT**

**TABLE      OF CONTENTS**

|                                          | **Page**                                                                                                                                           |
|-----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| PART                I - FINANCIAL INFORMATION |                                                                                                                                               |
|                                          |                                                                                                                                               |   |
| ITEM                1.                        | FINANCIAL                STATEMENTS                                                                                                                | 1 |
|                                          |                                                                                                                                               |   |
|                                          | Consolidated                Balance Sheet as of March 31, 2008 (unaudited) and December 31,                2007                                    | 2 |
|                                          |                                                                                                                                               |   |
|                                          | Consolidated                Statements of Income for the three months ended March 31, 2008 and                2007                (unaudited)      | 4 |
|                                          |                                                                                                                                               |   |
|                                          | Consolidated                Statements of Cash Flows for the three months ended March 31, 2008                and                2007 (unaudited)  | 5 |
|                                          |                                                                                                                                               |   |
|                                          | Consolidated                Statements of Stockholders’ Equity for the three months ended March 31,                2008 and 2007 (unaudited) | 6 |
|                                          |                                                                                                                                               |   |
|                                          | Notes                to the Consolidated Financial Statements (unaudited)                                                                          | 7 |
|                                          |                                                                                                                                               |   |
| ITEM                2.                        | MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATION                           | 25 |
|                                          |                                                                                                                                               |   |
| ITEM                3.                        | QUANTITATIVE                AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                                           | 30 |
|                                          |                                                                                                                                               |   |
| ITEM                4.                        | CONTROLS                AND PROCEDURES                                                                                                             | 30 |
|                                          |                                                                                                                                               |   |
| PART                II - OTHER INFORMATION    | 31                                                                                                                                                 |
|                                          |                                                                                                                                               |   |
| ITEM                1.                        | LEGAL                PROCEEDINGS                                                                                                                   | 31 |
|                                          |                                                                                                                                               |   |
| ITEM                1A.                       | RISK                FACTORS                                                                                                                        | 31 |
|                                          |                                                                                                                                               |   |
| ITEM                2.                        | UNREGISTERED                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                         | 31 |
|                                          |                                                                                                                                               |   |
| ITEM                3.                        | DEFAULTS                UPON SENIOR SECURITIES                                                                                                     | 31 |
|                                          |                                                                                                                                               |   |
| ITEM                4.                        | SUBMISSION                OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                 | 31 |
|                                          |                                                                                                                                               |   |
| ITEM                5.                        | OTHER                INFORMATION                                                                                                                   | 31 |
|                                          |                                                                                                                                               |   |
| ITEM                6.                        | EXHIBITS                                                                                                                                           | 31 |
|                                          |                                                                                                                                               |   |
| SIGNATURES                                    |                                                                                                                                               | 32 |

----

**PART      I - FINANCIAL INFORMATION**

**ITEM      1.**
**FINANCIAL      STATEMENTS**

----

| **CHINA                ARCHITECTURAL ENGINEERING, INC.**      |
|---------------------------------------------------------------|
|                                                          |
| **CONSOLIDATED                BALANCE SHEETS**                |
| **AS                OF MARCH 31, 2008 AND DECEMBER 31, 2007** |
| **(STATED                IN US DOLLARS)**                     |

|                                                          |   |                                 |        |                                    |   |
|---------------------------------------------------------------|--------|--------------------------------------|-------------|-----------------------------------------|--------|
|                                                          |   | **March                31,****2008** |        | **December                31,****2007** |   |
| **ASSETS**                                                    |   |                                 |        |                                    |   |
| ***Current                assets***                           |   |                                 |        |                                    |   |
| Cash                and cash equivalents                      |   | $                                    | 5,950,336   |                                    | $      | 4,040,168 |   |
| Restricted                cash                                |   |                                 | 661,340     |                                    |   | 595,016 |   |
| Contract                receivables, net                      |   |                                 | 31,867,941  |                                    |   | 13,047,559 |   |
| Costs                and earnings in excess of billings       |   |                                 | 49,507,336  |                                    |   | 57,488,693 |   |
| Job                disbursements advances                     |   |                                 | 2,218,256   |                                    |   | 2,454,106 |   |
| Tender                and other site deposits                 |   |                                 | 341,950     |                                    |   | 83,046 |   |
| Other                receivables                              |   |                                 | 7,850,316   |                                    |   | 6,640,865 |   |
| Inventories                                                   |   |                                 | 342,088     |                                    |   | 528,743 |   |
| Other                current assets                           |   |                                 | -           |                                    |   | 109,533 |   |
| Total                current assets                           |   |                                 | 98,739,563  |                                    |   | 84,987,729 |   |
|                                                          |   |                                 |        |                                    |   |   |   |
| ***Non-current                assets***                       |   |                                 |        |                                    |   |   |   |
| Plant                and equipment, net                       |   |                                 | 2,859,357   |                                    |   | 2,582,554 |   |
| Intangible                Assets                              |   |                                 | 54,231      |                                    |   | 70,386 |   |
| Organization                cost                              |   |                                 | -           |                                    |   | 92,741 |   |
| Goodwill                                                      |   |                                 | 7,995,896   |                                    |   | 7,995,896 |   |
| Other                non-current asset                        |   |                                 | 7,527       |                                    |   | 7,505 |   |
|                                                          |   |                                 |        |                                    |   |   |   |
| **TOTAL                ASSETS**                               |   | $                                    | 109,656,574 |                                    | $      | 95,736,811 |   |
|                                                          |   |                                 |        |                                    |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS’ EQUITY** |
| ***Current                liabilities***                      |   |                                 |        |                                    |   |   |   |
| Short-term                bank loans                          |   | $                                    | 2,327,595   |                                    | $      | 2,578,550 |   |
| Accounts                payable                               |   |                                 | 22,841,062  |                                    |   | 18,737,771 |   |
| Amount                due to shareholder                      |   |                                 | 1,953,804   |                                    |   | 1,334,856 |   |
| Other                payables                                 |   |                                 | 10,633,862  |                                    |   | 9,193,186 |   |
| Income                tax payable                             |   |                                 | 2,639,710   |                                    |   | 2,673,643 |   |
| Business                and other taxes payable               |   |                                 | 3,503,438   |                                    |   | 3,538,336 |   |
| Customers’                deposits                      |   |                                 | 67,110      |                                    |   | 757,079 |   |
| Other                Accrual                                  |   |                                 | 360,270     |                                    |   | 499,684 |   |
| Total                current liabilities                      |   |                                 | 44,326,851  |                                    |   | 39,313,105 |   |

----

| **CHINA                ARCHITECTURAL ENGINEERING, INC.**      |
|---------------------------------------------------------------|
|                                                          |
| **CONSOLIDATED                BALANCE SHEETS (Continued)**    |
| **AS                OF MARCH 31, 2008 AND DECEMBER 31, 2007** |
| **(STATED                IN US DOLLARS)**                     |

|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **March                31,****2008** |        | **December                31,****2007** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|-----------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                 |        |                                    |   |
| ***Non-current                liabilities***                                                                                                                                                                                                                                                                                                                                                                                    |   |                                 |        |                                    |   |
| Long                term bank loans                                                                                                                                                                                                                                                                                                                                                                                             |   | $                                    | 1,977,700   |                                    | $      | 443,881 |   |
| Convertible                bond payable, net                                                                                                                                                                                                                                                                                                                                                                                    |   |                                 | 5,871,428   |                                    |   | 3,465,741 |   |
| Minority                interest                                                                                                                                                                                                                                                                                                                                                                                                |   |                                 | 37,264      |                                    |   | 49,482 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                 |        |                                    |   |   |   |
| **TOTAL                LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                    | 52,213,243  |                                    | $      | 43,272,209 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                 |        |                                    |   |   |   |
| **STOCKHOLDERS’                EQUITY**                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 |        |                                    |   |   |   |
| Preferred                stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued                and                outstanding at March 31, 2008 and December 31, 2007; Common stock,                $0.001                par value, 100,000,000 shares authorized, 51,783,416 shares issued                and                outstanding at March 31, 2008 and December 31, 2007,                respectively |   | $                                    | 51,784      |                                    | $      | 51,784 |   |
| Additional                paid in capital                                                                                                                                                                                                                                                                                                                                                                                       |   |                                 | 21,594,712  |                                    |   | 23,665,558 |   |
| Statutory                reserves                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 | 3,040,595   |                                    |   | 3,040,595 |   |
| Accumulated                other comprehensive income                                                                                                                                                                                                                                                                                                                                                                           |   |                                 | 3,768,686   |                                    |   | 1,892,829 |   |
| Retained                earnings                                                                                                                                                                                                                                                                                                                                                                                                |   |                                 | 28,987,554  |                                    |   | 23,813,836 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                 | 57,443,331  |                                    |   | 52,464,602 |   |
| **TOTAL                LIABILITIES AND**                                                                                                                                                                                                                                                                                                                                                                                        |   |                                 |        |                                    |   |   |   |
| **STOCKHOLDERS’                EQUITY**                                                                                                                                                                                                                                                                                                                                                                                   |   | $                                    | 109,656,574 |                                    | $      | 95,736,811 |   |

----

| **CHINA                ARCHITECTURAL ENGINEERING, INC.**                                    |
|---------------------------------------------------------------------------------------------|
|                                                                                        |
| **CONSOLIDATED                STATEMENTS OF INCOME**                                        |
| **FOR                THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND                2007** |
| **(STATED                IN US DOLLARS)**                                                   |

|                                                        |   | **Three                Months Ended March 31,** |        |
|-------------------------------------------------------------|--------|-------------------------------------------------|-------------|
|                                                        |   | **2008**                                        |        | **2007** |   |
|                                                        |   |                                            |        |   |   |
|                                                        |   |                                            |        |   |   |
| Contract                revenues earned                     |   | $                                               | 25,349,306  |   | $ | 14,430,092 |   |
|                                                        |   |                                            |        |   |   |   |   |
| Cost                of contract revenues earned             |   |                                            | (16,903,754 | ) |   | (11,532,607 | ) |
|                                                        |   |                                            |        |   |   |   |   |
| Gross                profit                                 |   | $                                               | 8,445,552   |   | $ | 2,897,485 |   |
|                                                        |   |                                            |        |   |   |   |   |
| Selling,                general and administrative expenses |   |                                            | (3,000,425  | ) |   | (874,375 | ) |
|                                                        |   |                                            |        |   |   |   |   |
| Income                from operations                       |   | $                                               | 5,445,127   |   | $ | 2,023,110 |   |
|                                                        |   |                                            |        |   |   |   |   |
| Interest                income                              |   |                                            | 6,963       |   |   | 3,637 |   |
| Interest                expense                             |   |                                            | (334,137    | ) |   | (4,080 | ) |
| Other                income                                 |   |                                            | 111,162     |   |   | - |   |
|                                                        |   |                                            |        |   |   |   |   |
| Income                before taxation                       |   | $                                               | 5,229,115   |   | $ | 2,022,667 |   |
|                                                        |   |                                            |        |   |   |   |   |
| Income                tax                                   |   |                                            | (47,367     | ) |   | (327,048 | ) |
| Equity                loss and minority interests           |   |                                            | (8,030      | ) |   | - |   |
|                                                        |   |                                            |        |   |   |   |   |
| Net                income                                   |   | $                                               | 5,173,718   |   | $ | 1,695,619 |   |
|                                                        |   |                                            |        |   |   |   |   |
| Earnings                per share:                          |   |                                            |        |   |   |   |   |
| Basic                                                       |   | $                                               | 0.10        |   | $ | 0.03 |   |
| Diluted                                                     |   | $                                               | 0.09        |   | $ | 0.03 |   |
|                                                        |   |                                            |        |   |   |   |   |
| Weighted                average shares outstanding:         |   |                                            |        |   |   |   |   |
| Basic                                                       |   |                                            | 51,783,416  |   |   | 50,000,000 |   |
| Diluted                                                     |   |                                            | 55,489,023  |   |   | 50,000,000 |   |

----

| **CHINA                ARCHITECTURAL ENGINEERING, INC.**                                    |
|---------------------------------------------------------------------------------------------|
|                                                                                        |
| **CONSOLIDATED                STATEMENTS OF CASH FLOWS**                                    |
| **FOR                THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND                2007** |
| **(STATED                IN US DOLLARS)**                                                   |

|                                                                                              |   | **Three                Months Ended March 31,** |               |
|---------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------------------|
|                                                                                              |   | **2008**                                        |               | **2007** |   |
| ***Cash                flows from operating activities***                                         |   |                                            |               |   |   |
| Net                income                                                                         |   | $                                               | 5,173,718          |   | $ | 1,695,619 |   |
| Minority                interest                                                                  |   |                                            | 8,030              |   |   | - |   |
| Depreciation                expense                                                               |   |                                            | 150,407            |   |   | 47,599 |   |
| Amortization                expense on intangible assets                                          |   |                                            | 20,792             |   |   |  - |   |
| Amortization                expense on warrants                                                   |   |                                            | 71,154             |   |   | - |   |
| Amortization                expense on convertible bond                                           |   |                                            | 183,173            |   |   | - |   |
| Decrease                / (increase) in restricted cash                                           |   |                                            | (66,324            | ) |   | 426,771 |   |
| Decrease                in security deposit                                                       |   |                                            | -                  |   |   | 364,901 |   |
| (Increase)/decrease                in inventories                                                 |   |                                            | 186,655            |   |   | (182,583 | ) |
| Increase                in receivables                                                            |   |                                            | (12,071,529        | ) |   | (15,497,969 | ) |
| Decrease                in other assets                                                           |   |                                            | 109,511            |   |   | - |   |
| Increase                in payables                                                               |   |                                            | 4,794,121          |   |   | 12,919,558 |   |
| Net                cash used in operating activities                                              |   | $                                               | (1,440,292         | ) | $ | (226,104 | ) |
|                                                                                              |   |                                            |               |   |   |   |   |
| ***Cash                flows from investing activities***                                         |   |                                            |               |   |   |   |   |
| Purchases                of plant and equipment                                                   |   |                                            | (427,210           | ) |   | (272,968 | ) |
| Net                cash used in investing activities                                              |   | $                                               | (427,210           | ) | $ | (272,968 | ) |
|                                                                                              |   |                                            |               |   |   |   |   |
| ***Cash                flows from financing activities***                                         |   |                                            |               |   |   |   |   |
| Proceeds                from short-term loans                                                     |   | $                                               | 158,198            |   | $ | - |   |
| Proceeds                from long-term loans                                                      |   |                                            | 1,124,667          |   |   | 191,192 |   |
| Repayments                of long-term loans                                                      |   |                                            | -                  |   |   | (5,496 | ) |
| Proceeds                from amount due to shareholder                                            |   |                                            | 618,948            |   |   | 715,104 |   |
|                                                                                              |   |                                            |     |   |   |     |   |
| Net                cash provided by financing activities                                          |   | $                                               | 1,901,813          |   | $ | 900,800 |   |
|                                                                                              |   |                                            |               |   |   |   |   |
| Net                increase in cash and cash equivalents                                          |   | $                                               | 34,311             |   | $ | 401,728 |   |
| Effect                of foreign currency translation on cash and cash                equivalents |   |                                            | 1,875,857          |   |   | 50,695 |   |
|                                                                                              |   |                                            |               |   |   |   |   |
| Cash                and cash equivalents - beginning of period                                    |   |                                            | 4,040,168          |   |   | 2,115,966 |   |
|                                                                                              |   |                                            |               |   |   |   |   |
| Cash                and cash equivalents - end of period                                          |   | $                                               | 5,950,336          |   | $ | 2,568,389 |   |
|                                                                                              |   |                                            |               |   |   |   |   |
| ***Other                supplementary information:***                                             |   |                                            |               |   |   |   |   |
| Cash                paid during the period for:                                              |   |                                            |          |   |   |    |   |
| Interest                paid                                                                      |   | $                                               | 151,668            |   | $ | 4,080 |   |
| Income                tax paid                                                                    |   | $                                               | 82,265             |   | $ | 251,564 |   |

----

| **CHINA                ARCHITECTURAL ENGINEERING, INC.**                                |
|-----------------------------------------------------------------------------------------|
| **CONSOLIDATED                STATEMENT OF STOCKHOLDERS’ EQUITY**                 |
| **FOR                THE PERIOD FROM JANUARY 1, 2007 TO MARCH 31,                2008** |
| **(****STATED                IN US DOLLARS)**                                           |

|                                                                                                                           |   | **Total****Number                    of shares** |               | **Common                    stock** |   | **Additional                    paid in capital** |   | **Statutory                    reserves** |                                 | **Accumulated                    other comprehensive income** |   | **Retained                    earnings** |   | **Total** |      |
|--------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------------------|-------------------------------------|--------|---------------------------------------------------|--------|-------------------------------------------|--------------------------------------|---------------------------------------------------------------|--------|------------------------------------------|--------|-----------|-----------|
|                                                                                                                      |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |
| Balance,                    January 1, 2007                                                                                    |   |                                             | 50,000,000         |                                |   | 50,000                                            |   |                                      | 7,074,701                            |                                                          |   | 1,437,223                                |   |      | 469,964   |   |   | 11,480,816 |   |   | 20,512,704 |   |
| Net                    income                                                                                                  |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   | 12,032,328 |   |   | 12,032,328 |   |
| Foreign                    currency translation adjustment                                                                     |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      | 1,422,865 |   |   |   |   |   | 1,422,865 |   |
| Total                    comprehensive income                                                                                  |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   |   |   |   | 13,455,193 |   |
| Proceed                    from issuance of common stock                                                                       |   |                                             | 1,783,416          |                                |   | 1,784                                             |   |                                      | 9,163,264                            |                                                          |   |                                     |   |      |      |   |   |   |   |   | 9,165,048 |   |
| Less:                    Cost of stock issuance                                                                                |   |                                             |               |                                |   |                                              |   |                                      | (951,434                             | )                                                             |   |                                     |   |      |      |   |   |   |   |   | (951,434 | ) |
| Adjustment                    of Zhuhai KGE Co Ltd retained earnings to eliminate dividend                    paid             |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   | 3,844,897 |   |   | 3,844,897 |   |
| Adjustment                    of Zhuhai Career Training School pre-acquisition deficits                                        |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   | 14,429 |   |   | 14,429 |   |
| Adjustment                    of CAEI retained deficits                                                                        |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   | (1,955,262 | ) |   | (1,955,262 | ) |
| Additional                    paid-in capital from warrants and beneficial conversion                    feature               |   |                                             |               |                                |   |                                              |   |                                      | 8,379,027                            |                                                          |   |                                     |   |      |      |   |   |   |   |   | 8,379,027 |   |
| Appropriations                    to statutory revenue reserves                                                                |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   | 1,603,372                                |   |      |      |   |   | (1,603,372 | ) |   | - |   |
| Foreign                    currency translation adjustment                                                                     |   |                                             |     |                                |   |                               |   |                                      |                       |                                                          |   |                                |   |      | 1,422,865 |   |   |                       |   |   | 1,422,865 |   |
| Balance,                    December 31, 2007                                                                                  |   |                                             | 51,783,416         |                                |   | 51,784                                            |   |                                      | 23,665,558                           |                                                          |   | 3,040,595                                |   |      | 1,892,829 |   |   | 23,813,836 |   |   | 52,464,602 |   |
|                                                                                                                           |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   |   |   |   |   |   |
| Balance,                    January 1, 2008                                                                                    |   |                                             | 51,783,416         |                                |   | 51,784                                            |   |                                      | 23,665,558                           |                                                          |   | 3,040,595                                |   |      | 1,892,829 |   |   | 23,813,836 |   |   | 52,464,602 |   |
| Net                    income                                                                                                  |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   | 5,173,718 |   |   | 5,173,718 |   |
| Foreign                    currency translation adjustment                                                                     |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      | 1,875,857 |   |   |   |   |   | 1,875,857 |   |
| Total                    comprehensive income                                                                                  |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      |      |   |   |   |   |   | 7,049,575 |   |
| Adjustment                    of additional Paid-in Capital from warrants and beneficial conversion                    feature |   |                                             |               |                                |   |                                              |   |                                      | (2,070,846                           | )                                                             |   |                                     |   |      |      |   |   |   |   |   | (2,070,846 | ) |
| Foreign                    currency translation adjustment                                                                     |   |                                             |               |                                |   |                                              |   |                                      |                                 |                                                          |   |                                     |   |      | 1,875,857 |   |   |   |   |   | 1,875,857 |   |
| Balance,                    March 31, 2008                                                                                     |   |                                             | 51,783,416         |                                |   | 51,784                                            |   |                                      | 21,594,712                           |                                                          |   | 3,040,595                                |   |      | 3,768,686 |   |   | 28,987,554 |   |   | 57,443,311 |   |

----

**CHINA      ARCHITECTURAL ENGINEERING, INC.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR      THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated      in US Dollars)**

**1.**
**ORGANIZATION      AND **
**PRINCIPAL      ACTIVITIES**

*      (b)*
*Consolidation*

**2.**
**SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES**

| *(a)  * | *Method                of accounting* |
|-------------------|---------------------------------------|

| *(b)  * | *Consolidation* |
|-------------------|-----------------|

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| **Name                of Company**                                           |   | **Place                of Incorporation** |   | **Attributable                Equity interest %** |
|------------------------------------------------------------------------------|--------|-------------------------------------------|--------|---------------------------------------------------|
|                                                                         |   |                                      |   |                                              |
| Full                Art International Limited                                |   | Hong                Kong                  |   | 100                                               |
| Zhuhai                King Glass Engineering Co., Limited                    |   | PRC                                       |   | 100                                               |
| Zhuhai                King General Glass Engineering Technology Co., Limited |   | PRC                                       |   | 100                                               |
| King                General Engineering (HK) Limited                         |   | Hong                Kong                  |   | 100                                               |
| KGE                Building System Limited                                   |   | Hong                Kong                  |   | 100                                               |
| KGE                Australia Pty Limited                                     |   | Australia                                 |   | 55                                                |
| Zhuhai                City, Xiangzhou District Career Training School   |   | PRC                                       |   | 72                                                |
| Techwell                Engineering Limited                                  |   | Hong                Kong                  |   | 100                                               |
| Techwell                International Limited                                |   | Macau                                     |   | 100                                               |
| Techwell                Building System (Shenzhen) Co., Limited              |   | PRC                                       |   | 100                                               |
| CAE                Building Systems, Inc.                                    |   | USA                                       |   | 100                                               |

| *(c)  * | *Use                of estimates* |
|-------------------|-----------------------------------|

| *(d)  * | *Plant                and equipment* |
|-------------------|--------------------------------------|

| Building                               |   |   | 20              years     |   |
|---------------------------------------------|--------|--------|---------------------------|--------|
| Machinery              and equipment        |   |   | 5              - 10 years |   |
| Furniture              and office equipment |   |   | 5              years      |   |
| Motor              vehicle                  |   |   | 5              years      |   |

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| *(e)  * | *Accounting                for the impairment of long-lived                assets* |
|-------------------|------------------------------------------------------------------------------------|

| *(f)  * | *Goodwill                and Intangible Assets* |
|-------------------|-------------------------------------------------|

| *(g)  * | *Inventories* |
|-------------------|---------------|

| *(h)  * | *Contracts                receivable* |
|-------------------|---------------------------------------|

| *(i)  * | *Cash                and cash equivalents* |
|-------------------|--------------------------------------------|

| *(j)  * | *Restricted                cash* |
|-------------------|----------------------------------|

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| *(k)  * | *Earnings                per share* |
|-------------------|-------------------------------------|

|                                                                           |   | **Three                Months Ended March 31,** |       |
|--------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                           |   | **2008**                                        |       | **2007** |   |
| Net                Income                                                      |   | $                                               | 5,173,718  |   | $ | 1,695,619 |   |
|                                                                           |   |                                            |       |   |   |   |   |
| Basic                Weighted Average Shares Outstanding                       |   |                                            | 51,783,416 |   |   | 50,000,000 |   |
| Dilutive                Shares:                                                |   |                                            |       |   |   |   |   |
| -  Addition                to Common Stock from Conversion of Bonds  |   |                                            | 2,857,143  |   |   | - |   |
| -  Addition                to Common Stock from Exercise of Warrants |   |                                            | 848,464    |   |   | - |   |
| **Diluted                Weighted Average Outstanding Shares:**                |   |                                            | 55,489,023 |   |   | 50,000,000 |   |
|                                                                           |   |                                            |       |   |   |   |   |
| Earnings                Per Share                                              |   |                                            |       |   |   |   |   |
| -  Basic                                                             |   | $                                               | 0.100      |   | $ | 0.034 |   |
| -  Diluted                                                           |   | $                                               | 0.093      |   | $ | 0.034 |   |

| *(l)  * | *Revenue                and cost recognition* |
|-------------------|-----------------------------------------------|

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| a.   | Earned                Revenue is the amount of gross profit earned on a contract for a                period                plus the costs incurred on the contract during the                period. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Cost                of Earned Revenue is the cost incurred during the period, excluding                the                cost of materials not unique to a contract that have not been used                for the                contract. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | Gross                Profit earned on a contract is computed by multiplying the total                estimated                gross profit on the contract by the percentage of completion. The                excess                of that amount over the amount of gross profit reported in prior                periods                is the earned gross profit that should be recognized in the income                statement for the current period. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(m)  * | *Income                taxes* |
|-------------------|-------------------------------|

*Statement      of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.      *
*FIN      48, Accounting for Uncertainty in Tax Positions.*

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| ·   | Zhuhai                King Glass Engineering Co., Limited (“Zhuhai KGE”) and Zhuhai King General                Glass Engineering Technology Co., Limited (“Zhuhai KGGET”) are located in                Zhuhai and was subject to the PRC corporation income tax rate of                33% prior                to January 1, 2008. However, in accordance with the relevant tax                laws and                regulations of PRC, the Zhuhai local corporation income tax rate                was 15%                prior to January 1, 2008. Zhuhai KGGET is presently dormant, and                from the                time that it has its first profitable tax year, it is exempt from                corporate income tax for its first two years and is then entitled                to a 50%                tax reduction for the succeeding three years. Zhuhai KGGET has enjoyed                this tax incentive in the previous years. On March 16, 2007, the                National                People’s Congress of China enacted a new PRC Enterprise Income Tax Law,                under which foreign invested enterprises and domestic companies will                be                subject to enterprise income tax at a uniform rate of 25%. The new                law                will become effective on January 1, 2008. During the transition period                for                enterprises established before March 16, the tax rate will be gradually                increased starting in 2008 and be equal to the new tax rate in 2012.                Zhuhai KGE is subject to 18% tax rate during the first quarter of                2008 and                anticipates that as a result of the new EIT law, its income tax provision                will increase, which could adversely affect Zhuhai KGE’s financial                condition and results of                operations. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Full                Art International Limited, King General Engineering (HK) Limited,                and KGE                Building System Limited are subject to Hong Kong profits tax rate                of                17.5%. Currently, Full Art has around US$370,000 tax losses carried                forward. KGE Building System has around US$33,000 tax losses carried                forward. King General Engineering (HK) does not have any material                tax                losses carried forward. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Techwell                Engineering Limited is subject to Hong Kong tax rate of 17.5%. Techwell                International Limited is a Macau registered company and therefore                is                subject to Macau profit tax rate of 12%. Techwell Building System                (Shenzhen) Co. Limited Is located in Shenzhen and is subject to PRC                corporate income tax rate of 33%. No tax was provisioned as the Company                acquired Techwell on November 6,                2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | KGE Australia Pty Limited is subject to corporate              income              tax rate of 30%. |
|--------------------|-----------------------------------------------------------------------------------------------------|

| ·   | The                Company is subject to United States Tax according to Internal Revenue                Code                Sections 951 and 957. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Company, after a reverse-merger on October 17, 2006, revived to be                an                active business enterprise because of the operations with subsidiaries                in                China and Hong Kong. Based on the consolidated net income for the                year                ended December 31, 2007, the Company shall be taxed at the 35% tax                rate. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Techwell                Engineering Limited has established a branch in Dubai, which has                zero                corporate income tax rate. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(n)  * | *Advertising* |
|-------------------|---------------|

| *(o)  * | *Research                and development* |
|-------------------|-------------------------------------------|

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| *(p)  * | *Retirement                benefits* |
|-------------------|--------------------------------------|

| *(q)  * | *Foreign                currency translation* |
|-------------------|-----------------------------------------------|

|                                                     |   | **March                31,****2008** |   | **December                31,****2007** |   | **March                31,****2007** |   |
|----------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|--------------------------------------|--------|
| Period                end RMB : US$ exchange rate        |   |                                 | 7.0222 |                                    |   | 7.3141                               |   |   | 7.7409 |   |
| Average                quarterly RMB : US$ exchange rate |   |                                 | 7.1757 |                                    |   | 7.6172                               |   |   | 7.7714 |   |

|                                                     |   | **March                31,****2008** |   | **December                31,****2007** |   | **March                31,****2007** |   |
|----------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|--------------------------------------|--------|
| Period                end HKD : US$ exchange rate        |   |                                 | 7.7827 |                                    |   | 7.8049                               |   |   | 7.8140 |   |
| Average                quarterly HKD : US$ exchange rate |   |                                 | 7.7954 |                                    |   | 7.8026                               |   |   | 7.8085 |   |

|                                                     |   | **March                31,****2008** |   | **December                31,****2007** |   | **March                31,****2007** |   |
|----------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|--------------------------------------|--------|
| Period                end MOP : US$ exchange rate        |   |                                 | 8.1748 |                                    |   | -                                    |   |   | - |   |
| Average                quarterly MOP : US$ exchange rate |   |                                 | 8.1650 |                                    |   | -                                    |   |   | - |   |

|                                                     |   | **March                31,****2008** |   | **December                31,****2007** |   | **March                31,****2007** |   |
|----------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|--------------------------------------|--------|
| Period                end AUD : US$ exchange rate        |   |                                 | 1.0908 |                                    |   | -                                    |   |   | - |   |
| Average                quarterly AUD : US$ exchange rate |   |                                 | 1.1063 |                                    |   | -                                    |   |   | - |   |

|                                                     |   | **March                31,****2008** |   | **December                31,****2007** |   | **March                31,****2007** |   |
|----------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|--------------------------------------|--------|
| Period                end AED : US$ exchange rate        |   |                                 | 3.6737 |                                    |   | -                                    |   |   | - |   |
| Average                quarterly AED : US$ exchange rate |   |                                 | 3.6733 |                                    |   | -                                    |   |   | - |   |

| *(r)  * | *Statutory                reserves* |
|-------------------|-------------------------------------|

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| *(s)  * | *Comprehensive                income* |
|-------------------|---------------------------------------|

| *(t)  * | *Recent                accounting pronouncements* |
|-------------------|---------------------------------------------------|

*Noncontrolling      Interests in Consolidated Financial Statements − an amendment of ARB No.      51*

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

**3.**
**CONTRACT      RECEIVABLES**

|                                                     |   | **March                31,****2008** |       | **December                31,****2007** |   |
|----------------------------------------------------------|--------|--------------------------------------|------------|-----------------------------------------|--------|
|                                                     |   |                                 |       |                                    |   |
| Contract                receivables                      |   | $                                    | 32,083,642 |                                    | $      | 13,263,260 |   |
| *Less**:*                Allowance for doubtful accounts |   |                                 | (215,701   | )                                       |   | (215,701 | ) |
|                                                     |   |                                 |       |                                    |   |   |   |
| Net                                                      |   | $                                    | 31,867,941 |                                    | $      | 13,047,559 |   |

| *Allowance                for Doubtful Accounts*            |   | **March                31,****2008** |    | **December                31,****2007** |   |
|-------------------------------------------------------------|--------|--------------------------------------|---------|-----------------------------------------|--------|
|                                                        |   |                                 |    |                                    |   |
| Beginning                balance                            |   | $                                    | 215,701 |                                    | $      | 417,648 |   |
| Add:                Allowance created                       |   |                                 |    |                                    |   |   |   |
| *Less**:*                Bad debt charged against allowance |   |                                 | -       |                                    |   | (201,947 | ) |
|                                                        |   |                                 |    |                                    |   |   |   |
| Ending                balance                               |   | $                                    | 215,701 |                                    | $      | 215,701 |   |

**4.**
**INVENTORIES**

|                                  |   | **March                31,****2008** |    | **December                31,****2007** |   |
|---------------------------------------|--------|--------------------------------------|---------|-----------------------------------------|--------|
| Raw                materials at sites |   | $                                    | 342,088 |                                    | $      | 528,743 |   |

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

**5.**
**PLANT      AND EQUIPMENT**

|                                                    |   | **March                31,****2008** |      | **December                31,****2007** |   |
|---------------------------------------------------------|--------|--------------------------------------|-----------|-----------------------------------------|--------|
| **At                cost**                              |   |                                 |      |                                    |   |
| Motor                vehicle                            |   | $                                    | 1,752,700 |                                    | $      | 1,223,692 |   |
| Machinery                and equipment                  |   |                                 | 3,225,509 |                                    |   | 3,383,123 |   |
| Furniture,                software and office equipment |   |                                 | 738,325   |                                    |   | 625,102 |   |
| Building                                                |   |                                 | 302,734   |                                    |   | 290,652 |   |
| Leasehold                improvement                    |   |                                 | 207,103   |                                    |   | 189,403 |   |
|                                                    |   | $                                    | 6,226,371 |                                    | $      | 5,711,972 |   |
|                                                    |   |                                 |      |                                    |   |   |   |
| *Less**:                Accumulated depreciation*       |   |                                 |      |                                    |   |   |   |
| Motor                vehicle                            |   | $                                    | 617,150   |                                    | $      | 593,141 |   |
| Machinery                and equipment                  |   |                                 | 2,449,513 |                                    |   | 2,227,231 |   |
| Furniture,                software and office equipment |   |                                 | 246,661   |                                    |   | 269,695 |   |
| Building                                                |   |                                 | 13,623    |                                    |   | 9,810 |   |
| Leasehold                improvement                    |   |                                 | 40,067    |                                    |   | 29,541 |   |
|                                                    |   | $                                    | 3,367,014 |                                    | $      | 3,129,418 |   |
|                                                    |   |                                 |      |                                    |   |   |   |
|                                                    |   | $                                    | 2,859,357 |                                    | $      | 2,582,554 |   |

**6.**
**INTANGIBLE      ASSETS**

|                                              |   | **March                31,****2008** |    | **December                31,****2007** |   |
|---------------------------------------------------|--------|--------------------------------------|---------|-----------------------------------------|--------|
| **At                cost**                        |   |                                 |    |                                    |   |
| Intangible                Assets                  |   | $                                    | 104,204 |                                    | $      | 99,567 |   |
| *Less**:                Accumulated amortization* |   |                                 | 49,973  |                                    |   | 29,181 |   |
|                                              |   |                                 |    |                                    |   |   |   |
|                                              |   | $                                    | 54,231  |                                    | $      | 70,386 |   |

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

**7.**
**LOANS**

| **A.  ** | **SHORT-TERM                BANK LOANS** |
|--------------------|------------------------------------------|

|                                                                                                                                                 |   | **March                31,****2008** |      | **December                31,****2007** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-----------------------------------------|--------|
| Bank                of East Asia Ltd., line of credit, at 5.508% per annum, subject to                variation every 6 months, due October 25, 2011 |   | $                                    | 569,622   |                                    | $      | 546,889 |   |
|                                                                                                                                                 |   |                                 |      |                                    |   |   |   |
| Dah                Sing Bank, 5.0% per annum, line of credit, due November 28,                2008                                                   |   |                                 | 476,859   |                                    |   | 257,926 |   |
|                                                                                                                                                 |   |                                 |      |                                    |   |   |   |
| Dah                Sing Bank, 5.5% per annum, trust receipts, due November 25,                2008                                                   |   |                                 | 1,281,114 |                                    |   | 1,773,735 |   |
|                                                                                                                                                 |   | $                                    | 2,327,595 |                                    | $      | 2,578,550 |   |

| **B.  ** | **LONG-TERM                BANK LOANS** |
|--------------------|-----------------------------------------|

|                                                                                                                                                |   | **March                31,****2008** |      | **December                31,****2007** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|-----------------------------------------|--------|
|                                                                                                                                                |   |                                 |      |                                    |   |
| Bank                of East Asia Ltd., line of credit, at 5.832% per annum, subject to                variation ever 6 months, due October 25, 2011 |   | $                                    | 167,062   |                                    | $      | 169,518 |   |
|                                                                                                                                                |   |                                 |      |                                    |   |   |   |
| Auto                capital lease obligations (hire purchase) due November 12,                2009                                                  |   |                                 | 320,152   |                                    |   | 274,363 |   |
|                                                                                                                                                |   |                                 |      |                                    |   |   |   |
| Installment                loan from Dah Sing Bank at an interest rate at 3.5% due July                28,2015                                      |   |                                 | 285,677   |                                    |   | - |   |
|                                                                                                                                                |   |                                 |      |                                    |   |   |   |
| Installment                loan from Dah Sing Bank at an interest rate at 4.0% due October 25,                2025.                                 |   |                                 | 1,204,809 |                                    |   | - |   |
|                                                                                                                                                |   | $                                    | 1,977,700 |                                    | $      | 443,881 |   |

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

**8.          CONVERTIBLE BONDS AND BOND WARRANTS**

| ·   | *Interest                Rate.*                The Bonds bear interest from April 12, 2007 at the rate of 6% per                annum                for the first year after April 12, 2007 and 3% per annum thereafter,                of                the principal amount of the Bonds. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Conversion.*                    Each Bond is convertible at the option of the holder at any time                    after                    April 12, 2008 up to March 28, 2012, into shares of our common                    stock at an                    initial conversion price equal to the price per share at which                    shares are                    sold in our initial public offering of common stock on the American                    Stock                    Exchange (“AMEX”) with minimum gross proceeds of $2,000,000. If no initial                    public offering occurs prior to conversion, the conversion price                    per share                    will be $2.00, subject to adjustment in accordance with the terms                    and                    conditions of the Bonds. Based on the initial public offering                    completed on                    October 3, 2007 the initial conversion is now set at $3.50 per                    share                    resulting initial conversion shares of 2,857,143. The conversion                    price is                    subject to adjustment in certain events, including our issuance                    of                    additional shares of common stock or rights to purchase common                    stock at a                    per share or per share exercise or conversion price, respectively,                    at less                    than the applicable per share conversion price of the Bonds.                    If for the                    period of 20 consecutive trading days immediately prior to April                    12, 2009                    or February 18, 2012, the conversion price for the Bonds is higher                    than                    the average closing price for the shares, then the conversion                    price will                    be reset to such average closing price; provided that, the conversion                    price will not be reset lower than 70% of the then existing conversion                    price. In addition, the Amended and Restated Trust Deed provides                    that the                    conversion price of the Bonds cannot be adjusted to lower than                    $0.25 per                    share of common stock (as adjusted for stock splits, stock dividends,                    spin-offs, rights offerings, recapitalizations and similar                    events). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Mandatory                Redemptions.*If                on or before April 12, 2008, either (i) our common stock (including                the                shares of common stock issuable upon conversion of the Bonds and                exercise                of the Warrants) are not listed on AMEX or (ii) the Bonds, Warrants,                and                shares underlying the Bonds and Warrants are not registered with                the                Securities and Exchange Commission (the “SEC”), then holders of the Bonds                can require us to redeem the Bonds at 106.09% of the principal amount.                In                addition, at any time after April 12, 2010, holders of the Bonds                can                require us to redeem the Bonds at 126.51% of the principal amount.                The                Company is required to redeem any outstanding Bonds at 150.87% of                its                principal amount on April 4, 2012. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| (1) | Bond                Discount                 | 300,000   |
|-----|----------------------------------------------|-----------|
| (2) | Warrants                                     | 3,004,090 |
| (3) | Beneficial                Conversion Feature | 3,304,091 |

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

|                                                                          |   | **March                31,****2008** |       | **December                31,****2007** |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------|------------|-----------------------------------------|--------|
|                                                                          |   |                                 |       |                                    |   |
| Convertible                Bonds Payable                                      |   | $                                    | 10,000,000 |                                    | $      | 10,000,000 |   |
| Less:                Interest discount - Warrants                             |   |                                 | (3,004,090 | )                                       |   | (4,036,170 | ) |
| Less:                Interest discount - Beneficial conversion feature        |   |                                 | (3,304,091 | )                                       |   | (4,342,857 | ) |
| Less:                Bond discount                                            |   |                                 | (300,000   | )                                       |   | (300,000 | ) |
| Accretion                of interest discount - Warrant                       |   |                                 | 590,804    |                                    |   | 589,729 |   |
| Accretion                of interest discount - Beneficial conversion feature |   |                                 | 649,805    |                                    |   | 634,540 |   |
| Amortization                of bond discount to interest expense              |   |                                 | 59,002     |                                    |   | 43,835 |   |
| 6%                Interest Payable                                            |   |                                 | 589,999    |                                    |   | 438,332 |   |
| Accretion                of redemption premium                                |   |                                 | 589,999    |                                    |   | 438,332 |   |
|                                                                          |   |                                 |       |                                    |   |   |   |
| Net                                                                           |   | $                                    | 5,871,428  |                                    | $      | 3,465,741 |   |

**9.  **
**CONTRACT      REVENUES EARNED**

|     |   | **March                31,****2008** |       | **March                31,****2007** |   |
|----------|--------|--------------------------------------|------------|--------------------------------------|--------|
| Billed   |   | $                                    | 6,794,149  |                                 | $      | 2,874,165 |   |
| Unbilled |   |                                 | 18,555,157 |                                 |   | 11,555,927 |   |
|     |   |                                 |       |                                 |   |   |   |
|     |   | $                                    | 25,349,306 |                                 | $      | 14,430,092 |   |

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

**10.  **
**INCOME      TAXES**

|                                                                    |   | **March                31,** |    |
|-------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                    |   | **2008**                     |    | **2007** |   |
| Tax                at the PRC, HK, Macau and Australia income tax rates |   | $                            | 65,787  |   | $ | 667,480 |   |
| Effect                of PRC government grants                          |   |                         | (18,420 | ) |   | (340,432 | ) |
| Current                income tax expense                               |   | $                            | 47,367  |   | $ | 327,048 |   |

**11.  **
**COMMITMENTS**

| For                the period ended March 31, |   |   |    |
|-----------------------------------------------|--------|--------|---------|
| 2009                                          |   |   | 556,267 |   |
| 2010                                          |   |   | 96,062  |   |
|                                          |   | $      | 652,329 |   |

**12.  **
**RELATED      PARTIES TRANSACTIONS**

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

**13.  **
**OTHER      EVENTS**

**14.  **
**SUBSEQUENT      EVENTS**

| ***A.  *** | ***$12,000,000                bonding facility granted by ABN AMRO Bank                N.V.*** |
|----------------------|------------------------------------------------------------------------------------------------|

| ·   | Irrevocable                and unconditional guarantee executed by Zhuhai KGGET                and |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | Share                charge over the shares of the Company for a minimum value of US $5,000,000                or equivalent, executed by KGE Group                Limited. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

| ***B.  *** | ***$20,000,000 12% convertible bonds              and 300,000              warrants issued to ABN AMRO Bank N.V. and CITIC Allco Investment              Ltd.*** |
|----------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Interest                Rate.*                The Bonds bear cash interest from April 15, 2008 at the rate of 12%                per                annum of the principal amount of the                Bonds. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Conversion*.                Each Bond is convertible at the option of the holder at any time                during                the period (i) beginning on the earlier of (a) the date that a                registration statement for the shares to be issued upon conversion                of the                Bonds is first declared effective by the United States Securities                and                Exchange Commission (the “SEC”) and (b) October 15, 2008 and (ii) ending                at the close of business on April 8, 2011, subject to certain exceptions,                into shares of the Company’s common stock at an initial conversion price                equal to $6.35 per share, which is the product of 1.1 and the average                closing price per share of the Company’s common stock for the period of 20                consecutive trading days immediately prior to April 15, 2008. The                conversion price is subject to adjustment in certain events, including                the                Company’s issuance of additional shares of common stock or rights to                purchase common stock at a per share or per share exercise or conversion                price, respectively, at less than the applicable per share conversion                price of the Bonds. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Mandatory                Redemptions*.                Interest is payable semi-annually in arrears on April 15 and October                15 of                each year (each an “Interest Payment Date”) commencing October 15, 2008.                On any Interest Payment Date on or after April 15, 2010, the holders                of                the Bonds can require the Company to redeem the Bonds at 116.61%                of the                principal amount of the Bonds redeemed, plus all accrued but unpaid                interest. The Company is required to redeem any outstanding Bonds                at                116.61% of its principal amount on April 15,                2011. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**CHINA        ARCHITECTURAL ENGINEERING, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 AND 2007**

**(Stated        in US Dollars)**

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**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATION**

**Forward-Looking      Statements **

*The      following discussion should be read in conjunction with our consolidated      financial statements and related notes included elsewhere in this quarterly      report. This quarterly report contains forward-looking statements. The words      “anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,”“project,” “could,” “may,” and similar expressions are intended to identify      forward-looking statements. These statements include, among others, information      regarding future operations, future capital expenditures, and future net cash      flow. Such statements reflect our management’s current views with respect to      future events and financial performance and involve risks and uncertainties,      including, without limitation, general economic and business conditions, changes      in foreign, political, social, and economic conditions, regulatory initiatives      and compliance with governmental regulations, the ability to achieve further      market penetration and additional customers, and various other matters, many      of      which are beyond our control. Should one or more of these risks or uncertainties      occur, or should underlying assumptions prove to be incorrect, actual results      may vary materially and adversely from those anticipated, believed, estimated      or      otherwise indicated. Consequently, all of the forward-looking statements made      in      this report are qualified by these cautionary statements and there can be no      assurance of the actual results or developments. *

**Overview      **

**Recent      Events**

***April      2008 Issuance of Bonds and Bond Warrants***

| ·   | *Interest                Rate.*The                Bonds bear cash interest from April 15, 2008 at the rate of 12% per                annum                of the principal amount of the                Bonds. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | *Conversion.*                Each Bond is convertible at the option of the holder at any time                during                the period (i) beginning on the earlier of (a) the date that a                registration statement for the shares to be issued upon conversion                of the                Bonds is first declared effective by the United States Securities                and                Exchange Commission (the “SEC”) and (b) October 15, 2008 and (ii) ending                at the close of business on April 8, 2011, subject to certain exceptions,                into shares of our common stock at an initial conversion price equal                to                $6.35 per share, which is the product of (i) 1.1 and (ii) the average                closing price per share of our common stock for the period of 20                consecutive trading days immediately prior to April 15, 2008. The                conversion price is subject to adjustment in certain events, including                our                issuance of additional shares of common stock or rights to purchase                common                stock at a per share or per share exercise or conversion price,                respectively, at less than the applicable per share conversion price                of                the Bonds. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | *Mandatory                Redemptions.*                Interest is payable semi-annually in arrears on April 15 and October                15 of                each year (each an “Interest Payment Date”) commencing October 15, 2008.                On any Interest Payment Date on or after April 15, 2010, the holders                of                the Bonds can require us to redeem the Bonds at 116.61% of the principal                amount of the Bonds redeemed, plus all accrued but unpaid interest.                We are                required to redeem any outstanding Bonds at 116.61% of its principal                amount on April 15, 2011. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Results      of Operations**

|                                                        |   |   | **Three                Months Ended March 31,**                                        |   |
|-------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------|--------|
|                                                        |   |   | **2008**                                                                               |   |   | **2007** |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
|                                                        |   |   | ***(in                thousands, except share and per share                amounts)*** |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Contract                revenues earned                     |   | $      | 25,349                                                                                 |   | $ | 14,430 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Cost                of contract revenues earned             |   |   | (16,904                                                                                | )      |   | (11,533 | ) |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Gross                profit                                 |   | $      | 8,445                                                                                  |   | $ | 2,897 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Selling,                general and administrative expenses |   |   | (3,000                                                                                 | )      |   | (874 | ) |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Income                from operations                       |   | $      | 5,445                                                                                  |   | $ | 2,023 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Interest                income                              |   |   | 7                                                                                      |   |   | 4 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Interest                expenses                            |   |   | (334                                                                                   | )      |   | (4 | ) |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Other                income                                 |   |   | 111                                                                                    |   |   | 0 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Income                before taxes                          |   | $      | 5,229                                                                                  |   | $ | 2,023 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Income                tax                                   |   |   | (47                                                                                    | )      |   | (327 | ) |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Equity                loss and minority interests           |   |   | (8                                                                                     | )      |   | - |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Net                income                                   |   | $      | 5,174                                                                                  |   | $ | 1,696 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Earnings                per share:                          |   |   |                                                                                   |   |   |   |   |
| Basic                                                       |   | $      | 0.10                                                                                   |   | $ | 0.03 |   |
| Diluted                                                     |   | $      | 0.09                                                                                   |   | $ | 0.03 |   |
|                                                        |   |   |                                                                                   |   |   |   |   |
| Weighted                average shares outstanding:         |   |   |                                                                                   |   |   |   |   |
| Basic                                                       |   |   | 51,783,416                                                                             |   |   | 50,000,000 |   |
| Diluted                                                     |   |   | 55,489,023                                                                             |   |   | 50,000,000 |   |

**Three      Months Ended March 31, 2008 and 2007**

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**Liquidity      and Capital Resources**

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**Contractual      Obligations**

|                                       |   | **Payments                due by period** |       |
|--------------------------------------------|--------|-------------------------------------------|------------|
|                                       |   | **Total**                                 |       | **Less than****1                year** |   | **1-3 years** |   | **3-5 years** |   | **More****than 5****years** |   |
| Operating                Lease Obligations |   | $                                         | 652,329    |   | $ | 556,267 |   | $ | 96,062 |   | $ | — |   | $ | — |   |
| Contingent                Liabilities (1)  |   | $                                         | 8,485,288  |   | $ | 6,363,966 |   | $ | 2,121,322 |   | $ | — |   | $ | — |   |
| Long-term                debt (2)          |   | $                                         | 17,064,700 |   | $ | — |   | $ | 320,152 |   | $ | 16,744,548 |   | $ | — |   |

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| (1) | Includes                the $2,121,322 performance bond expired April 11, 2009 and $6,363.966                advanced payment bond expired March 28, 2009, both were issued by                ABN AMRO                Bank N.V. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Includes                the $10 million convertible bond which is required to be redeemed                at                150.87% at maturity at April 12, 2012, which may be converted into                our                common stocks after September 28, 2008, accordingly we may re-classify                upon conversion. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Off-Balance      Sheet Arrangements**

**Critical      Accounting Policies and Estimates**

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET      RISK**

**ITEM      4.  CONTROLS AND PROCEDURES**

**Evaluation      of Disclosure Controls and Procedures**

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**Changes      in internal control over financial reporting**

**PART      II-OTHER INFORMATION**

**ITEM      1.**
**LEGAL      PROCEEDINGS**

**ITEM      1A. **
**RISK      FACTORS**

**ITEM      2.**
**UNREGISTERED      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

**ITEM      3.**
**DEFAULTS      UPON SENIOR SECURITIES**

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

**ITEM      5.**
**OTHER      INFORMATION**

**ITEM      6.**
**EXHIBITS**

| 31.1 |   | Certification                of Chief Executive Officer pursuant to Section 302(a) of the                Sarbanes-Oxley Act of 2002  |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification                of Chief Financial Officer pursuant to Section 302(a) of the                Sarbanes-Oxley Act of 2002. |
| 32.1 |   | Certification                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002.*   |

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**SIGNATURES**

|                        |                                                                                                     |                               |
|-----------------------------|----------------------------------------------------------------------------------------------------------|------------------------------------|
|                        | **CHINA                ARCHITECTURAL ENGINEERING, INC.**(Registrant)                                     |
|                   |                                                                                                |                          |
| May                14, 2008 | By:                                                                                            | /s/ Luo                Ken Yi |
|                        | Luo                Ken Yi                                                                                |
|                        | Chief                Executive Officer, Chief Operating Officer and Chairman of the                Board |

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