**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**




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


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the quarterly period ended September 30, 2006**





**OR**





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


**SECURITIES
      EXCHANGE ACT OF 1934**





**Commission
      File Number**


**333-114622**





**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


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





**Delaware**
              *(State
                or other jurisdiction of incorporation*
              *or
                organization)*
            
            **51-0502125**
              *(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)*





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




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




There
      were 50,000,000 shares outstanding of registrant’s common stock, par value $.001
      per share, as of November 14, 2006.




Transitional
      Small Business Disclosure Format (check one):    
Yes o No x












**EXPLANTORY
      NOTE**





The
      Registrant was organized as a “blank check” shell company to investigate and
      acquire a target company or business seeking the perceived advantages of being
      a
      publicly held corporation. On October 17, 2006 (the “Effective Date”), the
      Registrant closed a share exchange transaction (the “Share Exchange”) pursuant
      to which it (i) became the 100% parent of Full Art International, Ltd., a Hong
      Kong Company (“Full Art”), which has four subsidiaries, including its
      wholly-owned subsidiary, Zhuhai King Glass Engineering Co., Ltd., a company
      formed under the laws of the People’s Republic of China, (ii) assumed the
      operations of Full Art and its subsidiaries and (iii) changed its name from
      SRKP
      1, Inc. to China Architectural Engineering, Inc. The Registrant reported the
      closing of the Share Exchange in the Current Report on Form 8-K filed with
      the
      Securities and Exchange Commission on October 20, 2006. This Quarterly Report
      on
      Form 10-QSB contains information regarding the Registrant and Full Art, as
      indicated herein.





**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**FORM
      10-QSB QUARTERLY REPORT**





**TABLE
      OF CONTENTS**







**Page**PART
                I - FINANCIAL INFORMATION
            
            1ITEM
                1.
            FINANCIAL
                STATEMENTS
            
            1Balance
                Sheet of Registrant as of September 30, 2006 (unaudited)
            
            2Statements
                of Operations (unaudited) of Registrant for the three- and nine-month
                periods ending September 30, 2006 and 2005 and period from Inception
                (March 16, 2004) to September 30, 2006
            
            3Statements
                of Cash Flows (unaudited) of Registrant for the nine-month periods
                ending
                September 30, 2006 and 2005 and period from Inception (March 16,
                2004) to
                September 30, 2006
            
            5Notes
                to the Consolidated Financial Statements of Registrant
            
            6Index
                to Financial Statements of Full Art International, Ltd.
            
            9ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATION
            
            15ITEM
                3.
            CONTROLS
                AND PROCEDURES
            
            41PART
                II -OTHER
                INFORMATION
            
            41ITEM
                1.
            LEGAL
                PROCEEDINGS
            
            41ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            42ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            
            42ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            42ITEM
                5.
            OTHER
                INFORMATION
            
            42ITEM
                6.
            EXHIBITS
            
            42SIGNATURES
            
            
            44













**PART
      I - FINANCIAL INFORMATION**








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





The
      accompanying unaudited financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and with the instructions to Form 10-QSB
      and
      Item 310 of Regulation S-B. Accordingly, they do not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements. The accompanying unaudited financial
      statements reflect all adjustments that, in the opinion of management, are
      considered necessary for a fair presentation of the financial position, results
      of operations, and cash flows for the periods presented. The results of
      operations for such periods are not necessarily indicative of the results
      expected for the full fiscal year or for any future period. The accompanying
      unaudited financial statements should be read in conjunction with the audited
      financial statements of China Architectural Engineering, Inc. (formerly
      known as SRKP 1, Inc.) included in the Form 10-KSB for the fiscal year ended
      December 31, 2005.





1





**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**(formerly
      known as SRKP 1, INC.)**


**(A
      Development Stage Company)**


**BALANCE
      SHEET**







**September
                30.****2006****(Unaudited)****ASSETS****CURRENT
                ASSETS:**Cash
            
            $
            5,752Total
                Current Assets
            
            $
            5,722**LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
                LIABILITIES:**Due
                to Stockholders
            
            $
            34,500Total
                Current Liabilities
            
            
            34,500**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                EQUITY (DEFICIT):**Preferred
                stock, $.001 par value, 10,000,000 sharesauthorized,
                none issued
            
            
            —Common
                stock, $.001 par value, 100,000,000 sharesauthorized,
                5,400,000 shares issued and outstanding
            
            
            5,400Additional
                paid-in capital
            
            
            94,600(Deficit)
                accumulated during development stage
            
            
            (128,778
            )Total
                Stockholders' Equity (Deficit)
            
            
            (28,778
            )$
            5,722





**SEE
      ACCOMPANYING FOOTNOTES TO THE FINANCIAL STATEMENTS**




2





**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**(formerly
      known as SRKP 1, INC.)**


**(A
      Development Stage Company)**


**STATEMENTS
      OF OPERATIONS**


**(Unaudited)**







**Three
                Months**
            
            **Three
                Months****Ending**
            
            **Ending****September
                30, 2006**
            
            **September
                30, 2005****REVENUE**
            
            $
            -
            
            $
            -**EXPENSES**
            
            
            2,255
            
            
            4,364**INTEREST
                INCOME**
            
            
            -
            
            
            244**NET
                (LOSS)**
            
            $
            (2,255
            )
            $
            (4,120
            )**NET
                (LOSS) PER COMMON SHARE-BASIC**
            
            
            *
            
            
            ***WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES****OUTSTANDING**
            
            
            5,400,000
            
            
            6,800,000





*
      Less
      than $.01




**SEE
      ACCOMPANYING FOOTNOTES TO THE FINANCIAL STATEMENTS**




3





**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**(formerly
      known as SRKP 1, INC.)**


**(A
      Development Stage Company)**


**STATEMENTS
      OF OPERATIONS**


**(Unaudited)**




**Nine
                Months**
              **Ending**
              **September
                30, 2006**
            
            **Nine
                Months**
              **Ending**
              **September
                30, 2005**
            
            **Cumulative
                from March 16, 2004 (Inception) to September 30,
                2006****REVENUE**
            
            $
            -
            
            $
            -
            
            $
            -**EXPENSES**
            
            
            18,801
            
            
            26,847
            
            
            129,440**INTEREST
                INCOME**
            
            
            -
            
            
            409
            
            
            662**NET
                (LOSS)**
            
            $
            (18,801
            )
            $
            (26,438
            )
            $
            (128,778
            )**NET
                (LOSS) PER COMMON SHARE-BASIC**
            
            
            *
            
            
            ***WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES****OUTSTANDING**
            
            
            6,089,706
            
            
            6,800,000





***
      LESS THAN $.01**





**SEE
      ACCOMPANYING FOOTNOTES TO THE FINANCIAL STATEMENTS**




4





**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**(formerly
      known as SRKP 1, INC.)**


**(A
      Development Stage Company)**


**STATEMENTS
      OF CASH FLOWS**


**(Unaudited)**







**Nine
                Months**
              **Ending**
              **September
                30, 2006**
            
            **Nine
                Months**
              **Ending**
              **September
                30, 2005**
            
            **Cumulative**
              **from
                March 16,**
              **2004**
              **(Inception)
                to**
              **September
                30, 2006****CASH
                FLOWS FROM (TO) OPERATING ACTIVITIES**Net
                (loss)
            
            $
            (18,801
            )
            $
            (26,438
            )
            $
            (128,778
            )Adjustments
                to reconcile net (loss) to net cashprovided
                by (used in) operating activities:Changes
                in:Restricted
                Cash
            
            
            119,662
            
            
            (119,409
            )
            
            —Accounts
                Payable
            
            
            (11,375
            )
            
            (2,651
            )
            
            —Net
                Cash Provided by (Used In) Operating Activities
            
            
            89,486
            
            
            (148,498
            )
            
            (128,778
            )**CASH
                FLOWS FROM (TO) FINANCING ACTIVITIES:**Common
                stock issued for cash
            
            
            —
            
            
            —
            
            
            219,000Common
                stock returned to Company
            
            
            (119,000
            )
            
            
            
            
            (119,000
            )Collection
                of subscription receivable
            
            
            
            
            
            109,000Advances
                from stockholders
            
            
            34,500
            
            
            
            
            
            34,500Net
                Cash Provided by (Used in) Financing Activities
            
            
            (84,500
            )
            
            109,000
            
            
            134,500**NET
                INCREASE/(DECREASE) IN CASH AND CASH****EQUIVALENTS:**
            
            
            4,986
            
            
            (39,498
            )
            
            5,722**CASH
                AND CASH EQUIVALENTS, BEGINNING****OF
                PERIOD**
            
            
            736
            
            
            40,282
            
            
            —**CASH
                AND CASH EQUIVALENTS, END****OF
                PERIOD**
            
            $
            5,722
            
            $
            784
            
            $
            5,722





**SEE
      ACCOMPANYING FOOTNOTES TO THE FINANCIAL STATEMENTS**




5


**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**(formerly
      known as SRKP 1, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO FINANCIAL STATEMENTS**


**(unaudited)**








**NOTE
      1 - BASIS OF PRESENTATION**





The
      accompanying unaudited financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and with the instructions to Form 10-QSB
      and
      Item 310 of Regulation S-B. Accordingly, they do not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements. The accompanying unaudited financial
      statements reflect all adjustments that, in the opinion of management, are
      considered necessary for a fair presentation of the financial position, results
      of operations, and cash flows for the periods presented. The results of
      operations for such periods are not necessarily indicative of the results
      expected for the full fiscal year or for any future period. The accompanying
      unaudited financial statements should be read in conjunction with the audited
      financial statements of the Company included in the Form 10-KSB for
      the fiscal year ended December 31, 2005.





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**History**


China
      Architectural Engineering, Inc. (formerly known as SRKP 1, INC.) (the
“Company”), a development stage company, was organized under the laws of the
      State of Delaware on March 16, 2004. The Company is in the development stage
      as
      defined in Financial Accounting Standards Board Statement No. 7. The fiscal
      year
      end is December 31.





**Going
      Concern And Plan Of Operation**


The
      Company's financial statements have been presented on the basis that it is
      a
      going concern, which contemplates the realization of assets and the satisfaction
      of liabilities in the normal course of business. The Company is in the
      development stage and has not earned any revenues from operations to date.





The
      Company is currently devoting its efforts to locating merger candidates. The
      Company's ability to continue as a going concern is dependent upon its ability
      to develop additional sources of capital, locate and complete a merger with
      another company, and ultimately, achieve profitable operations. The accompanying
      financial statements do not include any adjustments that might result from
      the
      outcome of these uncertainties.





**Income
      Taxes**


The
      Company uses the liability method of accounting for income taxes pursuant to
      Statement of Financial Accounting Standards No. 109. Under this method, deferred
      income taxes are recorded to reflect the tax consequences in future years of
      temporary differences between the tax basis of the assets and liabilities and
      their financial amounts at year end.





For
      federal income tax purposes, substantially all expenses must be deferred until
      the Company commences business and then they may be written off over a 60 month
      period. These expenses will not be deducted for tax purposes and will represent
      a deferred tax asset. The Company will provide a valuation allowance in the
      full
      amount of the deferred tax asset since there is no assurance of future taxable
      income. Tax deductible losses can be carried forward for 20 years until
      utilized.





**Cash
      And Cash Equivalents**


Cash
      and
      cash equivalents consist primarily of cash in banks and highly liquid
      investments with original maturities of 90 days or less.





**Restricted
      Cash**


Proceeds
      from the Initial Public Offering were restricted until a merger was completed.
      A
      merger was not consummated within the prescribed time period; therefore the
      funds were returned to the original investors in May 2006.





**Concentrations
      Of Credit Risk**


The
      Company maintains all cash in deposit accounts, which at times may exceed
      federally insured limits. The Company has not experienced a loss in such
      accounts.


6


**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**(formerly
      known as SRKP 1, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO FINANCIAL STATEMENTS**


**(unaudited)**








**Earnings
      Per Common Share**


Basic
      earnings per common share is computed based upon the weighted average number
      of
      common shares outstanding during the period. Diluted earnings per share consists
      of the weighted average number of common shares outstanding plus the dilutive
      effects of options and warrants calculated using the treasury stock method.
      In
      loss periods, dilutive common equivalent shares are excluded as the effect
      would
      be anti-dilutive.





**Use
      Of Estimates In The Preparation Of Financial
      Statements**


The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities, the disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting periods.
      Actual results could differ from those estimates and assumptions.





**Recently
      Issued Accounting Pronouncements**


The
      Company has adopted all recently issued accounting pronouncements. The adoption
      of the accounting pronouncements is not anticipated to have a material effect
      on
      the operations of the Company.





**NOTE
      3 - STOCKHOLDERS' EQUITY**





During
      March 2004, the Company sold for $100,000 cash 5,400,000 shares of its $.001
      par
      value common stock to various investors. During December 2004 the Company sold
      1,400,000 shares of its $.001 par value common stock through its Initial Public
      Offering for $10,000 and a subscription receivable for $109,000. The
      subscription receivable was fully collected during 2005.





The
      Board
      of Directors declared a two-for-one forward stock split in July 2005. All
      per-share amounts and number of shares outstanding in this report have been
      restated retroactively for the stock split.





During
      May 2006, since no merger was consummated within 18 months the funds were
      returned to the investor and the 1,400,000 shares of stock were returned to
      the
      Company.





**NOTE
      4 - RELATED PARTY TRANSACTIONS**





The
      Company neither owns nor leases any real or personal property. Most office
      services are provided without charge by the president. Such costs are immaterial
      to the financial statements and accordingly, have not been reflected therein.
      The officers and directors of the Company are involved in other business
      activities and may, in the future, become involved in other business
      opportunities as they become available, such persons may face a conflict in
      selecting between the Company and their other business interests. The Company
      has not formulated a policy for the resolution of such conflicts.





**NOTE
      5 - DUE TO STOCKHOLDERS**





During
      2006 certain stockholders advanced the Company $34,500 to pay for operating
      expenses. These funds have been advanced interest free and are due on
      demand.


7


**CHINA
      ARCHITECTURAL ENGINEERING, INC.**


**(formerly
      known as SRKP 1, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO FINANCIAL STATEMENTS**


**(unaudited)**








**NOTE
      6 - SUBSEQUENT EVENTS**





On
      August
      21, 2006, the Company entered into a share exchange agreement, as amended on
      October 17, 2006 (the “Exchange Agreement”), with Full Art International, Ltd.,
      a Hong Kong Company (“Full Art”) and KGE Group Limited, which was Full Art’s
      sole shareholder, pursuant to which KGE Group would transfer all of Full Art’s
      issued and outstanding securities to the Company in exchange for 45,304,125
      shares of the Company’s common stock (the “Share Exchange”). Concurrently with
      the close of the Share Exchange, the Company would close a private placement
      transaction of 2,320,875 shares of common stock at $1.60 per share (the “Private
      Placement”) pursuant to which the Company would receive gross proceeds in the
      amount of $3,713,400.





On
      October 17, 2006, the Share Exchange closed and Full Art became the Company’s
      wholly-owned subsidiary. Of the 45,304,125 shares issued by the Company,
      2,000,000 shares were issued to FirstAlliance Financial Group, Inc. upon closing
      of the Share Exchange. The shares will be accounted for as a non-reoccurring
      general and administrative expense for services rendered and, as a result,
      the
      earnings of the Company on a consolidated basis with Full Art will be reduced
      for the quarter and year ended December 31, 2006 by the amount of the expense.
      The reduction in earnings will be equal to the fair market value of the shares,
      which will be $1.60 per share, the same per share price at which the Company
      sold shares in the Private Placement. Also at the closing of the Share Exchange,
      the Company issued 100,000 shares of our common stock and a five-year warrant
      to
      purchase 232,088 shares of our common stock at a per share exercise price of
      $1.60 for investor relations services, the value of which will be expensed.





In
      addition, immediately prior to the closing of the Share Exchange and the Private
      Placement, the Company and certain of its shareholders agreed to cancel an
      aggregate of 3,125,000 shares of common stock such that there were 2,275,000
      shares of common stock outstanding immediately prior to the Share Exchange
      and
      Private Placement. The Company also agreed to register the 2,320,875 shares
      of
      common stock sold in the Private Placement, the 2,000,000 shares issued to
      FirstAlliance Financial Group, Inc., the 2,275,000 shares of common stock
      outstanding immediately prior to the Share Exchange, and the securities issued
      for investor relations firm. If the Company fails to register certain of these
      shares in a timely manner, additional shares of its common stock and cash
      penalties may be required to be issued to the respective
      shareholders.





8




**FULL
      ART INTERNATIONAL LIMITED**





**Financial
      Statements**





**THREE
      AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
      (UNAUDITED)**




CONSOLIDATED
                BALANCE SHEET
            
            10CONSOLIDATED
                STATEMENT OF INCOME
            
            12CONSOLIDATED
                STATEMENT OF CASH FLOWS
            
            13NOTES
                TO THE CONSOLIDATED FINANCIAL STATEMENTS
            
            14





9


**FULL
      ART INTERNATIONAL LIMITED**





**CONSOLIDATED
      BALANCE SHEET**


**AS
      AT SEPTEMBER 30**


**(Stated
      in US Dollars) (Unaudited)**





2006
            
            2005**ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            1,790,103
            
            $
            1,861,310Contract
                receivables
            
            
            28,830,562
            
            
            7,334,019Tender
                and other site deposits
            
            
            5,271,650
            
            
            5,372,575Inventories
            
            
            792,156
            
            
            19,376Total
                current assets
            
            $
            36,684,471
            
            $
            14,587,280Intangible
                assets
            
            
            18,652
            
            
            650,218Long-term
                prepayment
            
            
            37,879
            
            
            1,622Plant
                and equipment, net
            
            
            557,029
            
            
            488,482**TOTAL
                ASSETS**
            
            $
            37,298,031
            
            $
            15,727,602**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilitiesAccounts
                payable
            
            $
            14,515,160
            
            $
            4,487,853Customers’
                deposits
            
            
            1,843
            
            
            1,380,816Accruals
            
            
            159,718
            
            
            184,917Short-term
                loans
            
            
            -
            
            
            1,201,176Taxes
                payable
            
            
            3,217,444
            
            
            638,137Dividend
                payable
            
            
            984,484
            
            
            -Other
                payables
            
            
            1,689,754
            
            
            351,920Total
                current liabilities
            
            $
            20,568,403
            
            $
            8,244,819**LONG-TERM
                LIABILITIES**Long-term
                payables
            
            
            50,151
            
            
            49,098**TOTAL
                LIABILITIES**
            
            $
            20,618,554
            
            $
            8,293,917




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


10





**FULL
      ART INTERNATIONAL LIMITED**





**CONSOLIDATED
      BALANCE SHEET (Continued)**


**AS
      AT SEPTEMBER 30**


**(Stated
      in US Dollars) (Unaudited)**





2006
            
            2005**STOCKHOLDERS’
                EQUITY**Common
                stock
            
            $
            3,858
            
            $
            3,858Capital
                reserve
            
            
            -
            
            
            2,611,823Statutory
                reserves
            
            
            1,474,669
            
            
            1,329,503Accumulated
                other comprehensive income
            
            
            364,854
            
            
            179,405Retained
                earnings
            
            
            14,836,096
            
            
            3,309,096$
            16,679,477
            
            $
            7,433,685**TOTAL
                LIABILITIES AND STOCKHOLDERS’****EQUITY**
            
            $
            37,298,031
            
            $
            15,727,602





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


11





**FULL
      ART INTERNATIONAL LIMITED**




**CONSOLIDATED
      STATEMENT OF INCOME**


**FOR
      THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
      2005**


**(Stated
      in US Dollars) (Unaudited)**







**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Contract
                revenues earned
            
            $
            14,182,233
            
            $
            9,852,480
            
            $
            40,624,126
            
            $
            25,818,283Cost
                of contract revenues earned
            
            
            (11,122,018
            )
            
            (7,555,983
            )
            
            (30,311,481
            )
            
            (19,619,673
            )Gross
                profit
            
            $
            3,060,215
            
            $
            2,296,497
            
            $
            10,312,645
            
            $
            6,198,610Selling,
                administrative andother
                operating expenses
            
            
            (1,271,133
            )
            
            (1,346,966
            )
            
            (3,482,963
            )
            
            (4,287,704
            )Interest
                expenses, net
            
            
            11,607
            
            
            (20,620
            )
            
            (7,016
            )
            
            (77,645
            )Income
                from operations
            
            $
            1,800,689
            
            $
            928,911
            
            $
            6,822,666
            
            $
            1,833,261Other
                income, net
            
            
            42,586
            
            
            54,884
            
            
            743,686
            
            
            203,495Income
                before taxes
            
            $
            1,843,275
            
            $
            983,795
            
            $
            7,566,352
            
            $
            2,036,756Income
                tax
            
            
            (292,870
            )
            
            (162,252
            )
            
            (1,149,573
            )
            
            (344,485
            )Net
                income
            
            $
            1,550,405
            
            $
            821,543
            
            $
            6,416,779
            
            $
            1,692,271







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


12





**FULL
      ART INTERNATIONAL LIMITED**





**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2006**


**(Stated
      In US Dollars) (Unaudited)**





Nine
                months endedSeptember
                30, 2006
            
            September
                30, 2005**Cash
                Flows from Operating Activities**Net
                Income
            
            $
            6,416,779
            
            $
            1,692,271Dividend
                paid
            
            
            (2,653,753
            )
            
            (2,590,560
            )Increase
                in Inventory
            
            
            (768,767
            )
            
            (4,353
            )Increase
                in Accounts Receivable
            
            
            (24,529,890
            )
            
            (4,960,236
            )Decrease
                in Tender and other site deposits
            
            
            11,086,540
            
            
            5,586,726Increase
                in Accounts Payable
            
            
            8,149,643
            
            
            1,766,350Decrease
                in Other payables and Accruals
            
            
            (432,488
            )
            
            (3,594,812
            )Net
                Cash Used in Operating Activities
            
            
            (2,731,936
            )
            
            (2,104,614
            )**Cash
                Flows from Investing Activities**Purchases
                of Intangible Assets
            
            
            (56,531
            )
            
            30,881Purchase
                of Fixed Assets
            
            
            (50,643
            )
            
            (15,323
            )Net
                Cash Provided by (Used in) Investing Activities
            
            
            (107,174
            )
            
            15,558**Cash
                Flows from Financing Activities**Repayments
                of short-term loans
            
            
            (743,742
            )
            
            (3,637,816
            )Increase
                in long-term payables
            
            
            (370,405
            )
            
            (155,997
            )Increase
                in capital and statutory reserves
            
            
            4,302,095
            
            
            3,171,307Net
                Cash Provided by (Used in) Financing Activities
            
            
            3,187,948
            
            
            (622,506
            )**Net
                in Cash and Cash Equivalents(Used)/Sourced**
            
            
            348,838
            
            
            (2,711,562
            )**Effect
                of Foreign Currency Translation on Cash and****Cash
                Equivalents**
            
            
            416,811
            
            
            471,717**Cash
                and Cash Equivalents - Beginning of Year**
            
            
            1,024,454
            
            
            4,101,155**Cash
                and Cash Equivalents - End of Period**
            
            $
            1,790,103
            
            $
            1,861,310





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





13




**FULL
        ART INTERNATIONAL LIMITED**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE PERIOD ENDED SEPTEMBER 30, 2006 AND 2005**
 (Stated
        in US Dollars) (Unaudited)
  **1.**  **Management's
        Representation of Interim Financial Information**
  The
        accompanying financial statements have been prepared by Full Art International
        Limited, a Hong Kong Company (“Full Art”), without audit pursuant to the rules
        and regulations of the Securities and Exchange Commission. Certain information
        and footnote disclosures normally included in financial statements prepared
        in
        accordance with generally accepted accounting principles have been condensed
        or
        omitted as allowed by such rules and regulations, and management believes
        that
        the disclosures are adequate to make the information presented not misleading.
        These financial statements include all of the adjustments which, in the opinion
        of management, are necessary to a fair presentation of financial position
        and
        results of operations. All such adjustments are of a normal and recurring
        nature. These financial statements should be read in conjunction with the
        audited financial statements of Full Art International Limited for the year
        ended December 31, 2005 and notes thereto included in China Architectural
        Engineering, Inc.’s Registration Statement on Form SB-2 filed with the
        Securities and Exchange Commission on November 13, 2006, and as it may be
        amended thereafter. Full Art International Limited follows the same accounting
        policies in the preparation of interim reports. Results of operations for
        interim periods are not indicative of annual results.
  **2.**  **Subsequent
        Events**
  On
        August
        21, 2006, China Architectural Engineering, Inc. (“CAE”) entered into a share
        exchange agreement, as amended on October 17, 2006 (the “Exchange Agreement”),
        with Full Art and KGE Group Limited, which was Full Art’s sole shareholder,
        pursuant to which KGE Group would transfer all of Full Art’s issued and
        outstanding securities to CAE in exchange for 45,304,125 shares of CAE’s common
        stock (the “Share Exchange”). Concurrently with the close of the Share Exchange,
        CAE would close a private placement transaction of 2,320,875 shares of common
        stock at $1.60 per share (the “Private Placement”) pursuant to which CAE would
        receive gross proceeds in the amount of $3,713,400.
 
 On
        October 17, 2006, the Share Exchange closed and Full Art became CAE’s
        wholly-owned subsidiary. Of the 45,304,125 shares issued by CAE, 2,000,000
        shares were issued to FirstAlliance Financial Group, Inc. upon closing of
        the
        Share Exchange. The shares will be accounted for as a non-reoccurring general
        and administrative expense for services rendered and, as a result, the earnings
        of CAE on a consolidated basis with Full Art will be reduced for the quarter
        and
        year ended December 31, 2006 by the amount of the expense. The reduction
        in
        earnings will be equal to the fair market value of the shares, which will
        be
        $1.60 per share, the same per share price at which CAE sold shares in the
        Private Placement. Also at the closing of the Share Exchange, CAE issued
        100,000
        shares of our common stock and a five-year warrant to purchase 232,088 shares
        of
        our common stock at a per share exercise price of $1.60 for investor relations
        services, the value of which will be expensed.
 
 In
        addition, immediately prior to the closing of the Share Exchange and the
        Private
        Placement, CAE and certain of its shareholders agreed to cancel an aggregate
        of
        3,125,000 shares of common stock such that there were 2,275,000 shares of
        common
        stock outstanding immediately prior to the Share Exchange and Private Placement.
        CAE also agreed to register the 2,320,875 shares of common stock sold in
        the
        Private Placement, the 2,000,000 shares issued to FirstAlliance Financial
        Group,
        Inc., the 2,275,000 shares of common stock outstanding immediately prior
        to the
        Share Exchange, and the securities issued for investor relations firm. If
        CAE
        fails to register certain of these shares in a timely manner, additional
        shares
        of its common stock and cash penalties may be required to be issued to the
        respective shareholders.
  14
  **ITEM
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATION**
 
 *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 quarterly report are qualified by these cautionary statements and there
        can
        be no assurance of the actual results or developments. Refer also to “Risk
        Factors" and “Special Note Regarding Forward-Looking Statements" in this Item 2,
        below.*
 
 We
        were
        organized as a “blank check” shell company to investigate and acquire a target
        company or business seeking the perceived advantages of being a publicly
        held
        corporation. On October 17, 2006 (the “Effective Date”), we closed a share
        exchange transaction (the “Share Exchange”) pursuant to which we (i) became the
        100% parent of Full Art International, Ltd., a Hong Kong Company (“Full Art”),
        which has four subsidiaries, including its wholly-owned subsidiary, Zhuhai
        King
        Glass Engineering Co., Ltd., a company formed under the laws of the People’s
        Republic of China, (ii) assumed the operations of Full Art and its subsidiaries
        and (iii) changed our name from SRKP 1, Inc. to China Architectural Engineering,
        Inc. We reported the closing of the Share Exchange in our Current Report
        on Form
        8-K filed with the Securities and Exchange Commission on October 20, 2006.
 
 Since
        the
        Share Exchange closed subsequent to the reporting period covered by this
        Quarterly Report on Form 10-QSB, this Item 2 includes both discussion of
        the our
        business as it existed as of September 30, 2006 and of our business post-Share
        Exchange, as the 100% parent of Full Art, to ensure that the disclosure included
        herein is complete and not misleading. The section entitled “ *SRKP
        1, INC.* ”
        describes the Registrant prior to October 17, 2006 and the section entitled
        “ *CHINA
        ARCHITECTURAL ENGINEERING, INC.* ”
        describes the Registrant on and after October 17, 2006.
 
 **SRKP
        1, INC.**
 
 History
        and Organization
 
 We
        were
        organized under the laws of the State of Delaware on March 16, 2004. Since
        our
        inception, we have been engaged in organizational efforts and obtaining initial
        financing. We were formed as a vehicle to pursue a business combination.
        We have
        no full-time employees. Our officers and directors allocate a portion of
        their
        time to the activities of SRKP 1 without compensation. We do not expect to
        make
        any acquisitions of property.
 
 We
        are,
        based on proposed business activities, a "blank check" company. The Securities
        and Exchange Commission defines those companies as "any development stage
        company that is issuing a penny stock, within the meaning of Section 3(a)(51)
        of
        the Exchange Act, and that has no specific business plan or purpose, or has
        indicated that its business plan is to merge with an unidentified company
        or
        companies." Management does not intend to undertake any efforts to cause
        a
        market to develop in our securities, either debt or equity, until we have
        successfully concluded a business combination.
 
 We
        conducted a "blank check" offering subject to Rule 419 of Regulation C under
        the
        Securities Act of 1934, whereby we sold 1,400,000 (post-split) shares of
        common
        stock, which were held in escrow pending the consummation of a business
        combination. Because we did not complete a business combination within the
        required timeframe, the investments were returned to the investors in the
        "blank
        check" offering.
 
 On
        July
        12, 2005, we filed a Certificate of Amendment to our Certificate of
        Incorporation with the Secretary of State of Delaware to effect a 2-for-1
        forward split (the "Stock Split") of our outstanding shares of common stock.
        Holders of a majority of our outstanding shares of common stock approved
        the
        Stock Split by action of written consent on July 8, 2005. The number of
        authorized shares, and the par value, of our common stock was not affected
        by
        the Stock Split.
  15
  Operations
 
 We
        were
        organized as a vehicle to investigate and, if such investigation warrants,
        acquire a target company or business seeking the perceived advantages of
        being a
        publicly held corporation. Our principal business objective for the next
        12-14
        months will be to achieve long-term growth potential through a combination
        with
        a business rather than immediate, short-term earnings. We will not restrict
        our
        potential candidate target companies to any specific business, industry or
        geographical location and, thus, may acquire any type of business.
 
 We
        do not
        currently engage in any business activities that provide cash flow. The
        reference to us as a "blank check" company with respect our “blank check”
offering is because investors entrust their investment monies to our management
        without knowing the ultimate use to which their money may be put. All of
        the
        proceeds of our public offering were intended to be utilized generally to
        effect
        a business combination. Because we did not complete a business combination
        by
        May 8, 2006, which is 18 months from our offering that commenced on November
        8,
        2004, the entire proceeds of that offering were returned to those who subscribed
        to the offering. We plan to continue as a public company and continue to
        search
        for a business combination candidate.
 
 During
        the next 12-14 months we anticipate incurring costs related to:
 
 (i)
        filing of Exchange Act reports (approximately $15,000),
 
 (ii)
        filing of a registration statement, upon identification of a suitable merger
        candidate (approximately $25,000), and
 
 (iii)
        costs relating to consummating a stockholder approved acquisition (approximately
        $50,000).
 
 We
        believe we will be able to meet these costs that we incur through current
        monies
        in our treasury ($5,722 as of September 30, 2006), additional amounts, as
        necessary, to be loaned to us by our management or promoters and deferral
        of
        fees by certain service providers, if necessary. Any advancement would be
        made
        in connection with our management's and promoters' oral commitment to make
        payments for our expenses, prior to the consummation of a business combination,
        to the extent such expenses are not deferred and would either exceed our
        available funds or would render us effectively insolvent upon our payment.
        Any
        loans by our management or promoters would be on an interest free basis,
        payable
        only upon consummation of a merger transaction. Upon consummation of a business
        combination, we may reimburse our management or promoters for any such loans
        out
        of the proceeds of this offering or of that transaction.
 
 We
        may
        consider a business which has recently commenced operations, is a developing
        company in need of additional funds for expansion into new products or markets,
        is seeking to develop a new product or service, or is an established business
        which may be experiencing financial or operating difficulties and is in need
        of
        additional capital. In the alternative, a business combination may involve
        the
        acquisition of, or merger with, a company which does not need substantial
        additional capital, but which desires to establish a public trading market
        for
        its shares, while avoiding, among other things, the time delays, significant
        expense, and loss of voting control which may occur in a public
        offering.
 
 Our
        management anticipates that it will likely be able to effect only one business
        combination, due primarily to our limited financing, and the dilution of
        interest for present and prospective stockholders, which is likely to occur
        as a
        result of our management's plan to offer a controlling interest to a target
        business in order to achieve a tax free reorganization. This lack of
        diversification should be considered a substantial risk in investing in us,
        because it will not permit us to offset potential losses from one venture
        against gains from another.
 
 We
        anticipate that the selection of a business combination will be complex and
        extremely risky. Because of general economic conditions, rapid technological
        advances being made in some industries and shortages of available capital,
        our
        management believes that there are numerous firms seeking even the limited
        additional capital which we will have and/or the perceived benefits of becoming
        a publicly traded corporation. Such perceived benefits of becoming a publicly
        traded corporation include, among other things, facilitating or improving
        the
        terms on which additional equity financing may be obtained, providing liquidity
        for the principals of a business, creating a means for providing incentive
        stock
        options or similar benefits to key employees, and providing liquidity, subject
        to restrictions of applicable statutes, for all stockholders. Potentially
        available business combinations may occur in many different industries and
        at
        various stages of development, all of which will make the task of comparative
        investigation and analysis of such business opportunities extremely difficult
        and complex.
  16
  We
        currently have two part time employees. We do not expect any significant
        changes
        in the number of our employees during the next 12 months unless we consummate
        a
        business combination.
 
 Evaluation
        of Business Combinations
 
 Our
        officers and directors will analyze or supervise the analysis of prospective
        business combinations. Our management intends to concentrate on preliminary
        prospective business combinations, which may be brought to its attention
        through
        present associations or other third parties. While we have not established
        definitive criteria for acquisition candidates, we intend to focus on candidates
        satisfying some, but not necessarily all, of the following
        criteria:
 
 ·
              A
                  minimum of two years' operating
                  history,
  ·
              At
                  least $5.0 million in annual revenue and/or pre-tax profit of $300,000,
                  and
  ·
              At
                  least $300,000 in stockholders'
                  equity.
  In
        analyzing prospective business combinations, our management will also consider
        such matters as the following:
  ·
              Available
                  technical, financial, and managerial
                  resources,
  ·
              Working
                  capital and other financial
                  requirements,
  ·
              Prospects
                  for the future,
  ·
              Nature
                  of present and expected
                  competition,
  ·
              The
                  quality and experience of management services which may be available
                  and
                  the depth of that management,
  ·
              The
                  potential for further research, development, or
                  exploration,
  ·
              Specific
                  risk factors not now foreseeable but which then may be anticipated
                  to
                  impact on our proposed activities,
  ·
              The
                  potential for growth or expansion,
  ·
              The
                  potential for profit,
  ·
              The
                  perceived public recognition or acceptance of products or services,
                  and
  ·
              Name
                  identification and other relevant
                  factors.
  As
        a part
        of our investigation, our officers and directors will meet personally with
        management and key personnel, visit and inspect material facilities, check
        references of management and key personnel, and take other reasonable
        investigative measures, to the extent of our limited financial resources
        and
        management expertise.
 
 We
        anticipate that any business combination will present certain risks. We may
        not
        be able adequately to identify many of these risks prior to selection. Our
        investors must, therefore, depend on the ability of our management to identify
        and evaluate these risks. We anticipate that the principals of some of the
        combinations which will be available to us will have been unable to develop
        a
        going concern or that such business will be in its development stage in that
        it
        has not generated significant revenues from its principal business activity. The
        risk exists that even after the consummation of such a business combination
        and
        the related expenditure of our funds, the combined enterprise will still
        be
        unable to become a going concern or advance beyond the development stage.
        Many
        of the potential business combinations may involve new and untested products,
        processes or market strategies. We may assume such risks although they may
        adversely impact on our stockholders because we consider the potential rewards
        to outweigh them.
  17
 
 Business
        Combinations
 
 The
        actual terms of a business combination cannot be predicted. In implementing
        a
        structure for a particular business combination, we may become a party to
        a
        merger, consolidation, reorganization, joint venture, or licensing agreement
        with another corporation or entity. We may alternatively purchase stock or
        assets of an existing business.
 
 Any
        merger, acquisition or other business combination can be expected to have
        a
        significant dilutive effect on the percentage of shares held by our existing
        stockholders, including investors in our public offering. The target business
        we
        consider will, in all probability, have significantly more assets than we
        do.
        Therefore, in all likelihood, our management will offer a controlling interest
        in our company to the owners of the target business. While the actual terms
        of a
        transaction to which we may be a party cannot be predicted, we expect that
        the
        parties to the business transaction will find it desirable to avoid the creation
        of a taxable event and thereby structure the acquisition in a so-called
        "tax-free" reorganization under Sections 368(a)(1) or 351 of the Internal
        Revenue Code. In order to obtain tax-free treatment under the Internal Revenue
        Code, the owners of the acquired business may need to own 80% or more of
        the
        voting stock of the surviving entity. As a result, our stockholders, including
        investors in our public offering, would retain 20% or less of the issued
        and
        outstanding shares of the surviving entity, which would result in significant
        dilution in percentage of the entity after the combination and may also result
        in a reduction in the net tangible book value per share of our investors.
        In
        addition, a majority or all of our directors and officers will probably,
        as part
        of the terms of the acquisition transaction, resign as directors and
        officers.
 
 Our
        management will not actively negotiate or otherwise consent to the purchase
        of
        any portion of their common stock as a condition to or in connection with
        a
        proposed business combination, unless such a purchase is demanded by the
        principals of the target company as a condition to a merger or acquisition.
        Our
        officers and directors have agreed to this restriction which is based on
        an oral
        understanding between members of our management. Members of our management
        are
        unaware of any circumstances under which such policy, through their own
        initiative, may be changed.
 
 The
        issuance of substantial additional securities and their potential sale into
        any
        trading market which may develop in our common stock may have a depressive
        effect on our trading market.
 
 The
        structure of the business combination will depend on, among other
        factors:
 
 ·
              The
                  nature of the target business,
  ·
              Our
                  needs and desires and the needs and desires of the persons controlling
                  the
                  target business,
  ·
              The
                  management of the target business,
                  and
  ·
              Our
                  relative negotiating strength compared to the strength of the persons
                  controlling the target business.
  
 We
        will
        not purchase the assets of any company of which a majority of the outstanding
        capital stock is beneficially owned by one or more of our officers, directors,
        promoters, affiliates or associates. Furthermore, we intend to adopt a procedure
        whereby a special meeting of our stockholders will be called to vote upon
        a
        business combination with an affiliated entity, and stockholders who also
        hold
        securities of such affiliated entity will be required to vote their shares
        of
        stock in the same proportion as our publicly held shares are voted. If at
        any
        time a business combination is brought to us by any of our promoters,
        management, or their affiliates or associates, disclosure as to this fact
        will
        be made in a public filing with the Securities and Exchange
        Commission.
 
 Share
        Exchange Agreement
 
 On
        August
        21, 2006, we entered into a share exchange agreement with KGE Group, Limited,
        a
        Hong Kong corporation and the sole shareholder of Full Art International,
        Ltd.,
        a Hong Kong Company (“Full Art”). On October 17, 2006, the parties entered into
        Amendment No. 1 to the share exchange agreement. Pursuant to the share exchange
        agreement, as amended (the “Exchange Agreement”), we agreed to issue an
        aggregate of 45,304,125 shares of our common stock in exchange for all of
        the
        issued and outstanding securities of Full Art (the “Share
        Exchange”).
  18
  We
        agreed
        to issue to issue an aggregate of 45,304,125 shares of its common stock to
        the
        sole shareholder of Full Art and its designees in exchange for all of the
        issued
        and outstanding securities of Full Art. Also at the closing of the Share
        Exchange, we agreed to issue 100,000 shares of our common stock and five
        year
        warrants to purchase 232,088 shares of our common stock at a per share exercise
        price of $1.60 for investor relations services (the “IR Securities”). In
        addition, immediately prior to the closing of the Share Exchange and the
        Private
        Placement, we and certain of our shareholders agreed to cancel an aggregate
        of
        3,125,000 shares of common stock such that there were 2,275,000 shares of
        common
        stock outstanding immediately prior to the Share Exchange and Private Placement.
 
 Pursuant
        to the terms of the Share Exchange, we agreed to register a total of 2,275,000
        shares of common stock held by our shareholders immediately prior to the
        Share
        Exchange. Of these 2,275,000 shares held by our shareholders, 1,312,675 shares
        would be covered by the registration statement filed in connection with the
        Private Placement (described below) and 962,325 shares, which are beneficially
        owned by affiliates of WestPark Capital, Inc. (“WestPark”) would be included in
        a subsequent registration statement filed by us within ten days after the
        end of
        the six-month period that immediately follows the date on which we file the
        registration statement to register the shares issued in the Private Placement.
        We also agreed to register the IR Securities in the registration statement
        filed
        in connection with the Private Placement, in addition to including 2,000,000
        shares of common stock that would be issued to FirstAlliance Financial Group,
        Inc. as a designee of the sole shareholder of Full Art in the subsequent
        registration statement that is filed to register the shares held by the
        affiliates of WestPark.
 
 We
        also
        agreed to conduct a private placement of an aggregate of 2,320,875 shares
        of
        common stock at $1.60 per share for gross proceeds of $3,713,400 (the “Private
        Placement”). We agreed to file a registration statement covering the common
        stock sold in the private placement within 30 days of the closing of the
        Share
        Exchange.
 
 Reporting
        Requirements
 
 We
        will
        exercise our duty to file independent audited financial statements with the
        Securities and Exchange Commission as part of a Form 8-K upon consummation
        of a
        merger or acquisition.
 
 The
        Securities and Exchange Commission recently adopted new rules which require
        a
        "shell company" (as that term is defined in Rule 12b-2 of under the Securities
        Exchange Act of 1934, as amended, or the "Exchange Act") to file a current
        report on Form 8-K reporting the material terms of the transaction when that
        company completes a transaction which causes it to cease being a "shell
        company." Because we fall under the definition of a "shell company," this
        reporting requirement would apply to us in the event we complete a transaction
        that causes us to cease being a "shell company."
 
 Off
        Balance Sheet Arrangements
 
 We
        do not
        have any off-balance sheet arrangements.
 
 RISK
        FACTORS
 
 There
        have been no material changes from the risk factors disclosed in the "Risk
        Factors" section of our Form 10-KSB for the fiscal year ended December 31,
        2005
        as filed with the Securities and Exchange Commission.
 
 
 **CHINA
        ARCHITECTURAL ENGINEERING, INC.**
 
 **OVERVIEW**
 
 We
        were
        incorporated in the state of Delaware on March 16, 2004. We were originally
        organized as a “blank check” shell company to investigate and acquire a target
        company or business seeking the perceived advantages of being a publicly
        held
        corporation. On October 17, 2006, we closed a share exchange transaction
        described below, pursuant to which we (i) became the 100% parent of Full
        Art
        International, Ltd., a Hong Kong Company (“Full Art”), which has four
        subsidiaries, including its wholly-owned subsidiary, Zhuhai King Glass
        Engineering Co., Ltd., a company formed under the laws of the People’s Republic
        of China (“PRC” or “China”), (ii) assumed the operations of Full Art and its
        subsidiaries and (iii) changed our name from SRKP 1, Inc. to China Architectural
        Engineering, Inc. Full Art was incorporated in Hong Kong on July 30, 1992
        under
        the Companies Ordinance of Hong Kong.
  19
 
 Our
        work
        is performed under cost-plus-fee contracts, fixed-price contracts, and
        fixed-price contracts modified by incentive and penalty provisions. These
        contracts are undertaken by us or our wholly-owned subsidiary alone or in
        partnership with other contractors through joint ventures. We also manage,
        for a
        fee, construction projects of others. The length of our contracts varies
        but
        typically have a duration of approximately two years.
 
 We
        specialize in the design, engineering and installation of high-end specialty
        curtain wall systems, including glass curtain walls, stone curtain walls,
        metal
        curtain walls, roofing systems, and related products, for public works projects
        and commercial real estate. We have successfully designed and installed nearly
        one hundred projects throughout China, including the National Grand Theater,
        Exhibition Conservatory of Beijing Botanical Garden, The COSCO Tower at
        Changlian Avenue Beijing, and the Wumen Exhibition Hall in Beijing’s Forbidden
        City, and a number of commercial structures in Southeast Asia. We compete
        on the
        strength of our reputation, track record, strong relationships with government
        clients and our ability to give expression to the vision of leading architects.
        By focusing on innovation while outsourcing commoditized manufacturing work,
        we
        are able to add artistic and technological value to projects at cost-effective
        price points.
 
 ***Completion
        of the Share Exchange***
 
 On
        August
        21, 2006, we entered into a share exchange agreement with KGE Group, Limited,
        a
        Hong Kong corporation and the sole shareholder of Full Art. On October 17,
        2006,
        we entered into Amendment No. 1 to the share exchange agreement. Pursuant
        to the
        share exchange agreement, as amended (the “Exchange Agreement”), we agreed to
        issue an aggregate of 45,304,125 shares of our common stock in exchange for
        all
        of the issued and outstanding securities of Full Art (the “Share Exchange”). The
        Share Exchange closed on October 17, 2006.
 
 ***Principal
        Terms of the Share Exchange***
 
 Upon
        the
        closing of the Share Exchange, we issued an aggregate of 45,304,125 shares
        of
        our common stock to the sole shareholder of Full Art and its designees in
        exchange for all of the issued and outstanding securities of Full Art. Also
        at
        the closing of the Share Exchange, we issued 100,000 shares of our common
        stock
        and a five-year warrant to purchase 232,088 shares of our common stock at
        a per
        share exercise price of $1.60 for investor relations services (the “IR
        Securities”). In addition, immediately prior to the closing of the Share
        Exchange and the Private Placement, as described below, we and certain of
        our
        shareholders agreed to cancel an aggregate of 3,125,000 shares of common
        stock
        such that there were 2,275,000 shares of common stock outstanding immediately
        prior to the Share Exchange and Private Placement. We issued no fractional
        shares in connection with the Share Exchange.
 
 Immediately
        after the closing of the Share Exchange and Private Placement, we had 50,000,000
        outstanding shares of common stock and outstanding warrants to purchase 232,088
        shares of our common stock. Upon the closing of the Share Exchange, the sole
        shareholder of Full Art and its designees owned approximately 90.6% of our
        issued and outstanding common stock, the pre-existing shareholders of the
        Company owned 4.7% and investors in the Private Placement (described below)
        (that closed concurrently with the Share Exchange) owned 4.6% of our outstanding
        common stock.
 
 Pursuant
        to the terms of the Share Exchange, we agreed to register a total of 2,275,000
        shares of common stock held by our shareholders who were shareholders
        immediately prior to the Share Exchange. Of these 2,275,000 shares held by
        our
        shareholders, 1,312,675 shares would be covered by the registration statement
        filed in connection with the Private Placement (described below) and 962,325
        shares which are beneficially owned by affiliates of WestPark Capital, Inc.
        (“WestPark”) will be included in a subsequent registration statement filed by us
        within ten days after the end of the six-month period that immediately follows
        the date on which we file the registration statement to register the shares
        issued in the Private Placement. We also agreed to register the IR Securities
        in
        the registration statement filed in connection with the Private Placement
        in
        addition to including 2,000,000 shares of common stock that were issued to
        FirstAlliance Financial Group, Inc., as a designee of the sole shareholder
        of
        Full Art at the closing of the Share Exchange, in the subsequent registration
        statement that is filed to register the shares held by the affiliates of
        WestPark.
 
 Immediately
        after the closing of the Share Exchange, we changed our corporate name from
        “SRKP 1, Inc.” to “China Architectural Engineering, Inc.” The shares of our
        common stock are not currently listed or quoted for trading on any national
        securities exchange or national quotation system. We intend to apply for
        the
        listing of our common stock on the American Stock Exchange. The transactions
        contemplated by the Exchange Agreement, as amended, were intended to be a
        “tax-free” incorporation pursuant to the provisions of Section 351 of the
        Internal Revenue Code of 1986, as amended.
  20
 
 As
        noted
        above, of the 45,304,125 shares we issued, 2,000,000 shares were issued to
        FirstAlliance Financial Group, Inc. upon closing of the Share Exchange. We
        believe that the shares must be accounted for as a non-reoccurring general
        and
        administrative expense for services rendered and, as a result, our earnings
        on a
        consolidated basis with Full Art will be reduced for the quarter and year
        ended
        December 31, 2006 by the amount of the expense. The reduction in earnings
        will
        be equal to the fair market value of the shares, which we believe will be
        $1.60
        per share, the same per share price at which we sold shares in the private
        placement that closed concurrently with the Share Exchange. Also at the closing
        of the Share Exchange, we issued 100,000 shares of our common stock and five
        year warrants to purchase 232,088 shares of our common stock at a per share
        exercise price of $1.60 for investor relations services, the value of which
        will
        have to be expensed.
 
 ***The
        Private Placement***
 
 On
        October 17, 2006, concurrently with the close of the Share Exchange, we received
        gross proceeds of $3,713,400 in a private placement transaction (the “Private
        Placement”). Pursuant to subscription agreements entered into with the
        investors, we sold an aggregate of 2,320,875 shares of common stock at $1.60
        per
        share. We agreed to file a registration statement covering the common stock
        sold
        in the private placement within 30 days of the closing of the Share Exchange
        pursuant to the subscription agreement with each investor. The investors
        in the
        Private Placement also entered into a lock up agreement pursuant to which
        they
        agreed not to sell their shares until our common stock begins to be traded
        on
        the New York Stock Exchange, American Stock Exchange, NASDAQ Global Market,
        NASDAQ Capital Market or the OTC Bulletin Board, after which their shares
        will
        automatically be released from the lock up on a monthly basis pro rata over
        a
        nine months period. After commissions and expenses, we received net proceeds
        of
        approximately $3,267,792 in the Private Placement. WestPark Capital, Inc.
        acted
        as placement agent in connection with the Private Placement. For its services
        as
        placement agent, WestPark received an aggregate fee of approximately $445,608,
        which consisted of a commission equal to 9.0% of the gross proceeds from
        the
        financing and a non-accountable fee of 3% of the gross proceeds. Some of
        the
        controlling shareholders and control persons of WestPark were also, prior
        to the
        completion of the Share Exchange, controlling shareholders and control persons
        of our company, including Richard Rappaport, who is the Chief Executive Officer
        of WestPark and was the President and a significant shareholder of our company
        prior to the Share Exchange, and Anthony C. Pintsopoulos, who is the Chief
        Financial Officer of WestPark and an officer and director our company prior
        to
        the Share Exchange. Each of Messrs. Rappaport and Pintsopoulos resigned from
        all
        of their executive and director positions with us upon the closing of the
        Share
        Exchange.
 
 **Critical
        Accounting Policies and Estimates**
 
 The
        discussion and analysis of our financial condition and results of operations
        are
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with generally accepted accounting principles in the United States.
        We believe the following are the critical accounting policies that impact
        the
        financial statements, some of which are based on management’s best estimates
        available at the time of preparation. Actual experience may differ from these
        estimates.
 
 ***Use
        of Estimates*** -
        The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosures of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenue and expenses
        during
        the reporting period. Actual results could differ from those
        estimates.
 
 ***Consolidation
        -*** The
        consolidated financial statements include our accounts and the accounts of
        our
        subsidiaries. Significant inter-company transactions have been eliminated
        in
        consolidation.
 
 ***Concentrations
        and Credit Risks*** -
        For the
        nine months ended September 30, 2006 and the years ended December 31, 2005
        and
        2004, substantially all of our sales were to companies located in the PRC
        and
        all of our assets were located in the PRC. Our operations may be adversely
        affected by significant political, economic and social uncertainties in the
        PRC.
        Although the Chinese government has pursued economic reform policies in the
        past, we cannot assure you that the Chinese government will continue to pursue
        such policies or that such policies will not be significantly altered,
        especially in the event of a change in leadership, social or political
        disruption or unforeseen circumstances affect China’s political, economic and
        social conditions. We can give no assurance that the Chinese government’s
        pursuit of economic reforms will be consistent or effective.
  21
 
 ***Revenue
        and Cost Recognition -*** Revenues
        from fixed-price and modified fixed-price construction contracts are recognized
        on the percentage-of-completion method, measured by the percentage of cost
        incurred to date to the estimated total cost for each contract. Contracts
        to
        manage, supervise, or coordinate the construction activity of others are
        recognized only to the extent of the fee revenue. The revenue earned in a
        period
        is based on the ratio of costs incurred to the total estimated costs required
        by
        the contract. Contract costs include all direct material and labor costs
        and
        those indirect costs related to contract performance, such as indirect labor,
        supplies, tools, repairs, and depreciation costs.
 
 ***Selling,
        General, And Administrative Costs*** -
        Selling, general, and administrative costs are charged to expense as incurred.
        Allowances for estimated losses on uncompleted contracts are made in the
        period
        in which such losses are determined. Changes in job performance, job conditions,
        and estimated profitability, including those arising from contract penalty
        provisions, and final contract settlements may result in revisions to costs
        and
        income and are recognized in the period in which the revisions are determined.
        Profit incentives are included in revenues when their realization is reasonably
        assured. An amount equal to contract costs attributable to claims is included
        in
        revenues when realization is probable and the amount can be reliably
        estimated.
 
 ***Contract
        Receivable -*** Contract
        receivable represents billings to customers on the percentage of work completed
        and recognized to date based on contract price. An allowance is provided
        for
        doubtful collections which is based upon a review of outstanding receivables,
        historical collection information, and existing economic conditions. We record
        an allowance for doubtful collections for our outstanding contract receivable
        at
        the end of the period in accordance with generally accepted accounting
        principles in the PRC, and we consider that allowance to be reasonable at
        September 30, 2006, December 31, 2005 and December 31, 2004.
 
 ***Comprehensive
        Income -*** Comprehensive
        income is defined to include all changes in equity except those resulting
        from
        investments by owners and distributions to owners. Among other disclosures,
        all
        items that are required to be recognized under current accounting standards
        as
        components of comprehensive income are required to be reported in a financial
        statement that is presented with the same prominence as other consolidated
        financial statements. Our current components of other comprehensive income
        are
        the foreign currency translation adjustment.
 
 ***Income
        Taxes*** *-* Income
        tax is accounted for using an asset and liability approach and allows for
        recognition of deferred tax benefits in future years. Under the asset and
        liability approach, deferred taxes are provided for the net tax effects of
        temporary differences between the carrying amounts of assets and liabilities
        for
        financial reporting purposes and the amounts used for income tax purposes.
        A
        valuation allowance is provided for deferred tax assets if it is more likely
        than not these items will either expire before we are able to realize their
        benefits, or that future realization is uncertain.
 
 ***Advertising*** *-* Advertising
        costs are expensed as incurred.
 
 ***Research
        and Development*** *-* All
        research and development costs are expensed as incurred. The costs of material
        and equipment acquired or constructed for research and development and having
        alternative future uses are classified as property and equipment and depreciated
        over their estimated useful lives.
 
 ***Retirement
        Benefits*** *-* We
        make
        monthly contributions to various employee retirement benefit plans organized
        by
        provincial governments in the PRC in accordance with rates prescribed by
        them.
        The provincial governments undertake to assume the retirement benefit
        obligations of all existing and future retired employees of our company.
        Contributions to these plans are charged to expense as incurred.
 
 ***Plant
        and Equipment -*** Plant
        and
        equipment are carried at cost less accumulated depreciation. Depreciation
        is
        provided over their estimated useful lives, using the straight-line method.
        The
        cost and related accumulated depreciation of assets sold or otherwise retired
        are eliminated from the accounts and any gain or loss is included in the
        statement of income. The cost of maintenance and repairs is charged to income
        as
        incurred, whereas significant renewals and betterments are capitalized.
 
 ***Land
        Use Rights -*** Land
        use
        rights are stated at cost less accumulated amortization. Amortization is
        provided over the respective useful lives, using the straight-line
        method.
  22
  ***Accounting
        for the Impairment of Long-Lived Assets -*** Long-lived
        assets are reviewed for impairment whenever events or changes in circumstances
        indicate that the carrying amount of assets may not be recoverable. It is
        reasonably possible that these assets could become impaired as a result of
        technology or other industry changes. Determination of recoverability of
        assets
        to be held and used is by comparing the carrying amount of an asset to future
        net undiscounted cash flows to be generated by the assets. If such assets
        are
        considered to be impaired, the impairment to be recognized is measured by
        the
        amount by which the carrying amount of the assets exceeds the fair value
        of the
        assets. Assets to be disposed of are reported at the lower of the carrying
        amount or fair value less costs to sell. During the reporting years, there
        was
        no impairment loss.
 
 ***Inventories
        -*** Inventories
        are raw materials which are stated at the lower of weighted average cost
        or
        market value.
 
 ***Advances
        to Suppliers -*** Advances
        to suppliers represent the cash paid in advance for purchasing raw
        materials.
 
 ***Cash
        and Cash Equivalents -*** All
        highly liquid investments purchased with original maturities of three months
        or
        less to be cash equivalents. We maintain bank accounts only in the PRC and
        Hong
        Kong. We do not maintain any bank accounts in the United States of
        America.
 
 ***Restricted
        Cash -*** Restricted
        cash represents time deposit accounts to secure notes payable and bank
        loans.
 
 ***Foreign
        Currency Translation -*** The
        consolidated financial statements are presented in United States dollars.
        Our
        functional currencies as well as the functional currencies of our subsidiaries
        are the Hong Kong Dollar (HKD) and Renminbi (RMB). The consolidated financial
        statements are translated into United States dollars from HKD and RMB at
        year-end exchange rates as to assets and liabilities and average exchange
        rates
        as to revenues and expenses. Capital accounts are translated at their historical
        exchange rates when the capital transactions occurred. The
        RMB
        is not freely convertible into foreign currency and all foreign exchange
        transactions must take place through authorized institutions. No representation
        is made that the RMB amounts could have been, or could be, converted into
        US$ at
        the rates used in translation.
 
 ***Surplus
        Reserves -*** Surplus
        reserves for foreign investment enterprises are referring to the amount
        appropriated from the net income in accordance with laws or regulations,
        which
        can be used to recover losses and increase capital, as approved, and are
        to be
        used to expand production or operations.
 
 ***Intangibles*** -
        Under
        the Statement of Accounting Standards (“SFAS”) No. 142, “Goodwill and Other
        Intangible Assets,” all goodwill and certain intangible assets determined to
        have indefinite lives will not be amortized, but will be tested for impairment
        at least annually. Other intangible assets will be amortized over their useful
        lives and reviewed for impairment in accordance with SFAS No. 144 “Accounting
        for Impairment or Disposal of Long-Lived Assets.”
  23
  **Results
        of Operations**
 
 The
        following table sets forth our statements of operations for the three and
        nine
        months ended September 30, 2006 and 2005 in U.S. dollars:
  **Three
                    Months Ended September 30,**
                
                **Nine
                    Months Ended September 30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**(unaudited)
                
                (unaudited)
                
                (unaudited)
                
                (unaudited)***(in
                    thousands)***Contract
                    revenues earned
                
                $
                14,182
                
                $
                9,852
                
                $
                40,624
                
                $
                25,818Cost
                    of contract revenues earned
                
                
                (11,122
                )
                
                (7,556
                )
                
                (30,311
                )
                
                (19,620
                )Gross
                    profit
                
                $
                3,060
                
                $
                2,296
                
                $
                10,313
                
                $
                6,199Selling,
                    administrative and other operating expenses
                
                
                (1,271
                )
                
                (1,347
                )
                
                (3,483
                )
                
                (4,288
                )Interest
                    expenses, net
                
                
                12
                
                
                (21
                )
                
                (7
                )
                
                (78
                )Income
                    from operations
                
                $
                1,801
                
                $
                929
                
                $
                6,823
                
                $
                1,833Other
                    income, net
                
                
                43
                
                
                55
                
                
                744
                
                
                206Income
                    before taxes
                
                $
                1,843
                
                $
                984
                
                $
                7,566
                
                $
                2,040Income
                    tax
                
                
                (293
                )
                
                (162
                )
                
                (1,150
                )
                
                (344
                )Net
                    income
                
                $
                1,550
                
                $
                822
                
                $
                6,417
                
                $
                1,695
 **Three
        Months Ended September 30, 2006 and 2005**
 
 Contract
        revenues earned for the three months ended September 30, 2006 were $14.2
        million, an increase of $4.3 million, or 44.0%, from the contract revenues
        earned of $9.9 million for the comparable period in 2005. The primary reason
        for
        the increase in contract revenues earned was an increase in the number of
        projects for the three months ended September 30, 2006. In addition, we also
        experienced a general increase in the amount of revenue generated per project
        for the three months ended September 30, 2006 as compared to the same period
        in
        2005.
 
 Cost
        of
        contract revenues earned for the three months ended September 30, 2006 was
        $11.1
        million, an increase of $3.6 million, or 47.2%, from $7.6 million for the
        comparable period in 2005. Cost of contract revenues earned consists of the
        raw
        materials, labor and other operating costs related to manufacturing. The
        increase in costs of contract revenues earned was primarily due to the increased
        number of projects for the three months ended September 30, 2006. Gross profit
        for the three months ended September 30, 2006 was $3.1 million, an increase
        of
        $0.8 million, or 33.3%, from $2.3 million for the comparable period of 2005.
        Our
        gross margin for the three months ended September 30, 2006 was 21.6% as compared
        with 23.3% for the three months ended September 30, 2005.
 
 Selling
        and administrative expenses were approximately $1,271,000 for the three months
        ended September 30, 2006, a decrease of approximately $76,000, or 5.6%, from
        $1,347,000 for the comparable period in 2005. The slight decrease was due
        to the
        implementation of internal controls on operating expenses, including stricter
        control on staff costs, entertainment expenses, and traveling expenses during
        the three months ended September 30, 2006.
   24
 
 Income
        from operations for the three months ended September 30, 2006 was $1.8 million,
        an increase of $0.9 million, or 93.9%, from $0.9 million for the comparable
        period in 2005. The increase was due to the increase in contract revenues
        earned, and the control in the cost of contract revenues earned.
 
 Income
        tax was $293,000 for the three months ended September 30, 2006, compared
        with
        $162,000 taxes for the same period of 2005. The primary reason for the increase
        was due to the increase in income before taxes. Through two of our subsidiaries,
        Zhuhai King Glass Engineering Co., Ltd and Zhuhai King General Glass Engineering
        Technology Co., Ltd, we are generally subject to a PRC income tax rate of
        33%;
        however, in accordance with the relevant tax laws and regulations of PRC,
        the
        corporation income tax rate is currently 15%. In addition, we and two of
        our
        subsidiaries are subject to Hong Kong profits tax rate of 17.5%.
 
 Net
        income for the three months ended September 30, 2006 was $1.6 million, an
        increase of $0.8 million, or 88.6%, from $0.8 million for the comparable
        period
        in 2005. Our net profit margin for the three months ended September 30, 2006
        was
        10.9%, compared with 8.3% for the same period of 2005.
  **Nine
        Months Ended September 30, 2006 and 2005**
  Contract
        revenues earned for nine months ended September 30, 2006 were $40.6 million,
        an
        increase of $14.8 million, or 57.3%, from the contract revenues earned of
        $25.8
        million for the comparable period in 2005. The primary reason for the increase
        in contract revenues earned was an increase in the number of projects for
        the
        nine months ended September 30, 2006. In addition, we also experienced a
        general
        increase in the amount of revenue generated per project for the nine months
        ended September 30, 2006 as compared to the same period in 2005.
 
 Cost
        of
        contract revenues earned for the nine months ended September 30, 2006 was
        $30.3
        million, an increase of $10.7 million, or 54.5%, from $19.6 million for the
        comparable period in 2005. Cost of contract revenues earned consists of the
        raw
        materials, labor and other operating costs related to manufacturing. The
        increase in costs of contract revenues earned was primarily due to the increased
        number of projects for the nine months ended September 30, 2006. Gross profit
        for the nine months ended September 30, 2006 was $10.3 million, an increase
        of
        $4.1 million, or 66.4%, from $6.2 million for the comparable period of 2005.
        Our
        gross margin for the nine months ended September 30, 2006 was 25.4% as compared
        with 24.0% for the nine months ended September 30, 2005. The increase was
        primarily a result of increased prices for our services and products passed
        onto
        our customers.
 
 Selling
        and administrative expenses were $3.5 million for the nine months ended
        September 30, 2006, a decrease of approximately $0.8 million, or 18.8%, from
        $4.3 million for the comparable period in 2005. The decrease was primarily
        due
        to the implementation of internal controls on operating expenses during the
        first nine months of 2006, including stricter control on staff costs,
        entertainment expenses, and traveling expenses.
 
 Income
        from operations for the nine months ended September 30, 2006, was $6.8 million,
        an increase of $5.0 million, or 272.2%, from $1.8 million for the comparable
        period in 2005. The increase was due to the increase in contract revenues
        earned, and control in the cost of contract revenues earned.
 
 Income
        tax was $1.1 million for the first nine months of 2006 compared with $344,000
        for the first nine months of 2005. The primary reason for the increase was
        due
        to the increase in income before taxes. Through two of our subsidiaries,
        Zhuhai
        King Glass Engineering Co., Ltd and Zhuhai King General Glass Engineering
        Technology Co., Ltd, we are generally subject to a PRC income tax rate of
        33%;
        however, in accordance with the relevant tax laws and regulations of PRC,
        the
        corporation income tax rate is currently 15%. In addition, we and two of
        our
        subsidiaries are subject to Hong Kong profits tax rate of 17.5%.
 
 Net
        income for the nine months ended September 30, 2006 was $6.4 million, an
        increase of $4.7 million, or 278.5%, from $1.7 million for the comparable
        period
        in 2005. Our net profit margin for the nine months ended September 30, 2006
        was
        15.8%, compared with 6.6% for the same period of 2005.
 
 **Liquidity
        and Capital Resources**
 
 At
        September 30, 2006, we had cash and cash equivalents of $1,790,103. Prior
        to
        October 17, 2006, we have historically financed our business operations through
        short-term bank loans and cash provided by operations.
  25
  We
        borrowed funds through short-term notes during the year ended December 31,
        2004
        in the amounts of $3.6 million and $1.2 million that were due and repaid
        by us
        during the 2005 fiscal year. The notes carried interest rates of 5.04% and
        6.786%, respectively, per annum. We also borrowed funds through a short-term
        notes during the year ended December 31, 2005 in the amount of $743,000 that
        we
        repaid in 2006. The notes had an interest rate of 6.1065%.
 
 On
        October 17, 2006, concurrently with the close of the Share Exchange, we received
        gross proceeds of $3,713,400 in a private placement transaction (the “Private
        Placement”). For its services as placement agent, WestPark Capital, Inc.
        received an aggregate fee of approximately $445,608, which consisted of a
        commission equal to 9.0% of the gross proceeds from the financing and a
        non-accountable fee of 3% of the gross proceeds. We also incurred legal and
        accounting expenses of approximately $150,000. After commissions and expenses,
        we received net proceeds of approximately $3,117,792.
 
 Net
        cash
        used in operating activities for the nine months ended September 30, 2006
        was
        $2.7 million, as compared to $2.1 million used in the same period in 2005.
        The
        change is primarily the result of an increase in net income and account payable
        during the first nine months of 2006, partially offset by a decrease in
        payables.
 
 Net
        cash
        used by investing activities was $107,000 for the first nine months of 2006
        compared to $16,000 provided for the first nine months of 2005. The change
        was a
        result of a decrease from purchases of plant and equipment during the first
        nine
        months of 2006.
 
 Net
        cash
        provided by financing activities was $3.2 million for the first nine months
        of
        2006 compared to $623,000 used for the first nine months of 2005. The change
        was
        primarily due to a repayment of short-term loans in the amount of $3.6 million
        during the first nine months of 2005, as compared to a repayment of $744,000
        during the same period in 2006.
 
 As
        of
        September 30, 2006, contracts receivables were $28.8 million, an increase
        of
        $21.5 million, or 293.1%, over contracts receivables of $7.3 million as of
        September 30, 2005. The increase in contracts receivable reflected an increase
        in contract revenue earned. In addition, because the collection period typically
        runs from three months to one year, the increase in contracts receivable
        reflects not only the increase in sales but also the long collection period.
        Since we require an average of one to two months to receive products we order
        from the date of our order, we have been increasing our inventories in order
        to
        enable us to meet anticipated increases in sales. In addition, our payment
        cycle
        is considerably shorter than our receivable cycle, since we typically pay
        our
        suppliers all or a portion of the purchase price in advance and for some
        suppliers we must maintain a deposit for future orders. We are currently
        involved in three lawsuits in which we are suing other parties for overdue
        payments. The total amount involved is $1,292,520.
 
 At
        September 30, 2006, we had no material commitments for capital expenditures
        other than for those expenditures incurred in the ordinary course of business.
        During the second half of 2006, we intend to expend approximately $3.0 to
        $4.0
        million to purchase materials and serve as deposits for performance bonds
        for
        new projects that we have obtained. Additional capital for this objective
        would
        be required that is in excess of our liquidity, requiring us to raise additional
        capital through an equity offering or secured or unsecured debt financing.
        The
        availability of additional capital resources will depend on prevailing market
        conditions, interest rates, and our existing financial position and results
        of
        operations.
 
 **Off-Balance
        Sheet Arrangements**
 
 None.
 
 **New
        Accounting Pronouncements**
 
 In
        May
        2005, the FASB issued a SFAS 154, “Accounting Changes and Error Corrections” to
        replace APB Opinion No. 20, “Accounting Changes” and SFAS 3, “Reporting
        Accounting Changes in Interim Financial Statements” requiring retrospective
        application to prior periods consolidated financial statements of changes
        in
        accounting principle, unless it is impracticable to determine either the
        period-specific effects or the cumulative effect of the change.  When it is
        impracticable to determine the period-specific effects of an accounting change
        on one or more individual prior periods presented, SFAS 154 requires the
        new
        accounting principle be applied to the balances of assets and liabilities
        as of
        the beginning of the earliest period for which retrospective application
        is
        practicable and that a corresponding adjustment be made to the opening balance
        of retained earnings (or other appropriate components of equity or net assets
        in
        the statement of financial position) for that period rather than being reported
        in an income statement.  When it is impracticable to determine the
        cumulative effect of applying a change in accounting principle to all prior
        periods, SFAS 154 requires that the new accounting principle be applied as
        if it
        were adopted prospectively from the earliest date practicable.  The
        effective date for this statement is for accounting changes and corrections
        of
        errors made in fiscal year beginning after December 15, 2005.
   26
  In
        February 2006, the FASB issued a SFAS 155, “Accounting for Certain Hybrid
        Financial Instruments” to amend FASB Statements No. 133, Accounting for
        Derivative Instruments and Hedging Activities, and No. 140, Accounting for
        Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
        This statement permits fair value remeasurement for any hybrid financial
        instrument that contains an embedded derivative that otherwise would require
        bifurcation and eliminate the prohibition on a qualifying special-purpose
        entity
        from holding a derivative financial instrument that pertains to a beneficial
        interest other than another derivative financial instrument.  This
        statement is effective for all financial instruments acquired or issued after
        the beginning of an entity’s first fiscal year that begins after September 15,
        2006.
 
 We
        do not
        anticipate that the adoption of these two standards will have a material
        impact
        on these consolidated financial statements.
 
 **Credit
        Risk**
  We
        are
        exposed to credit risk from our cash at bank, fixed deposits and contract
        receivables. The credit risk on cash at bank and fixed deposits is limited
        because the counterparts are recognized financial institutions. Contract
        receivables are subject to credit evaluations. We periodically record a
        provision for doubtful collections based on an evaluation of the collectibility
        of contract receivables by assessing, among other factors, the customer’s
        willingness or ability to pay, repayment history, general economic conditions
        and our ongoing relationship with the customers.
  We
        are
        currently involved in three lawsuits in which we are suing other parties
        for
        overdue payments. The total amount involved is $1,292,520.
  **Foreign
        Currency Risk**
  The
        functional currencies of our company are the Hong Kong Dollar (HKD) and Renminbi
        (RMB). Substantially all of our operations are conducted in the PRC. Our
        sales
        and purchases are conducted within the PRC in RMB. Conversion of RMB into
        foreign currencies is regulated by the People’s Bank of China through a unified
        floating exchange rate system. Although the PRC government has stated its
        intention to support the value of the RMB, there can be no assurance that
        such
        exchange rate will not again become volatile or that the RMB will not devalue
        significantly against the U.S. dollar. Exchange rate fluctuations may adversely
        affect the value, in U.S. dollar terms, of our net assets and income derived
        from our operations in the PRC. In addition, the RMB is not freely convertible
        into foreign currency and all foreign exchange transactions must take place
        through authorized institutions.
  **Country
        Risk**
  Substantial
        portion of our business, assets and operations are located and conducted
        in
        China. While China’s economy has experienced significant growth in the past
        twenty years, growth has been uneven, both geographically and among various
        sectors of the economy. The Chinese government has implemented various measures
        to encourage economic growth and guide the allocation of resources. Some
        of
        these measures benefit the overall economy of China, but may also have a
        negative effect on us. For example, our operating results and financial
        condition may be adversely affected by government control over capital
        investments or changes in tax regulations applicable to us. If there are
        any
        changes in any policies by the Chinese government and our business is negatively
        affected as a result, then our financial results, including our ability to
        generate revenues and profits, will also be negatively affected.
 
 **RISK
        FACTORS**
 
 Any
        investment in our common stock involves a high degree of risk. Investors
        should
        carefully consider the risks described below and all of the information
        contained in this quarterly report before deciding whether to purchase our
        common stock. Our business, financial condition or results of operations
        could
        be materially adversely affected by these risks if any of them actually occur.
        Our shares of common stock are not currently listed or quoted for trading
        on any
        national securities exchange or national quotation system. If and when our
        common stock is traded, the trading price could decline due to any of these
        risks, and an investor may lose all or part of his investment. Some of these
        factors have affected our financial condition and operating results in the
        past
        or are currently affecting our company. This quarterly report also contains
        forward-looking statements that involve risks and uncertainties. Our actual
        results could differ materially from those anticipated in these forward-looking
        statements as a result of certain factors, including the risks we face as
        described below and elsewhere in this quarterly report. With respect to this
        discussion, the terms, “we,” “us,” or “our” refer to China Architectural
        Engineering, Inc., and our 100%-owned subsidiary Full Art International, Ltd.
        (“Full Art”).
  27
  **RISKS
        RELATED TO OUR OPERATIONS**
 
 **Our
        business is cyclical vulnerable to economic downturns. If the economy weakens,
        then our revenues, profits and our financial condition may
        deteriorate.**
 
 The
        nonresidential construction industry and demand for our services is cyclical
        and
        vulnerable to economic downturns, which may result in clients delaying,
        curtailing or canceling proposed and existing projects. From time to time,
        our
        business has been adversely affected by unfavorable economic conditions,
        low use
        of manufacturing capacity, high vacancy rates, changes in tax laws affecting
        the
        real estate industry, high interest rates and the unavailability of financing.
        Demand for our products may be adversely affected by a recession in the general
        construction industry or particular geographic regions, such as China. Our
        clients may demand better pricing terms and their ability to pay our invoices
        may be affected by the economy. Our government clients may face budget deficits
        that prohibit them from funding proposed and existing projects. Our business
        traditionally lags the overall recovery in the economy; therefore, our business
        may not recover immediately when the economy improves. We cannot predict
        the
        timing or severity of future economic or industry downturns. Any economic
        downturn, particularly in areas where many of our sales are made, could have
        a
        material adverse effect on our results of operations and financial
        condition.
 
 **Because
        we depend on governmental agencies for a significant portion of our revenue,
        our
        inability to win or renew government contracts could harm our operations
        and
        significantly reduce or eliminate our profits.**
 
 Revenues
        from Chinese government contracts represented approximately 70 to 80% of
        our
        revenues for each of the nine months ended September 30, 2006 and the year
        ended
        December 31, 2005. Our inability to win or renew Chinese government contracts
        could harm our operations and significantly reduce or eliminate our profits.
        Chinese government contracts are typically awarded through a regulated
        procurement process. Some Chinese government contracts are awarded to multiple
        competitors, causing increases in overall competition and pricing pressure.
        The
        competition and pricing pressure, in turn may require us to make sustained
        post-award efforts to reduce costs in order to realize revenues under these
        contracts. If we are not successful in reducing the amount of costs we
        anticipate, our profitability on these contracts will be negatively impacted.
        Finally, Chinese government clients can generally terminate or modify their
        contracts with us at their convenience.
 
 **If
         we are unable to accurately estimate and control our contract costs, then
        we may incur losses on our contracts, which may result in decreases in our
        operating margins and in a significant reduction or elimination of our profits.**
 
 It
        is
        important for us to control our contract costs so that we can maintain positive
        operating margins. We generally enter into three principal types of contracts
        with our clients: cost-plus, fixed-price and time-and-materials. Under cost-plus
        contracts, which may be subject to contract ceiling amounts, we are reimbursed
        for allowable costs and fees, which may be fixed or performance-based. If
        our
        costs exceed the contract ceiling or are not allowable under the provisions
        of
        the contract or any applicable regulations, we may not be reimbursed for
        all our
        costs. Under fixed-price contracts, we receive a fixed price regardless of
        what
        our actual costs will be. Consequently, we realize a profit on fixed-price
        contracts only if we control our costs and prevent cost over-runs on the
        contracts. Under time-and-materials contracts, we are paid for labor at
        negotiated hourly billing rates and for other expenses. Profitability on
        our
        contracts is driven by billable headcount and our ability to manage costs.
        Under
        each type of contract, if we are unable to control costs, we may incur losses
        on
        our contracts, which may result in decreases in our operating margins and
        in a
        significant reduction or elimination of our profits.
 
 28
  **If
         we fail to timely complete, miss a required performance standard or
        otherwise fail to adequately perform on a project, then we may incur a loss
        on
        that project, which may affect our overall profitability.**
 
 We
        may
        commit to a client that we will complete a project by a scheduled date. We
        may
        also commit that a project, when completed, will achieve specified performance
        standards. If the project is not completed by the scheduled date or subsequently
        fails to meet required performance standards, we may either incur significant
        additional costs or be held responsible for the costs incurred by the client
        to
        rectify damages due to late completion or failure to achieve the required
        performance standards. The uncertainty of the timing of a project can present
        difficulties in planning the amount of personnel needed for the project.
        If the
        project is delayed or canceled, we may bear the cost of an underutilized
        workforce that was dedicated to fulfilling the project. In addition, performance
        of projects can be affected by a number of factors beyond our control, including
        unavoidable delays from weather conditions, unavailability of vendor materials,
        changes in the project scope of services requested by clients or labor
        disruptions. In some cases, should we fail to meet required performance
        standards, we may also be subject to agreed-upon financial damages, which
        are
        determined by the contract. To the extent that these events occur, the total
        costs of the project could exceed our estimates and we could experience reduced
        profits or, in some cases, incur a loss on that project, which may affect
        our
        overall profitability.
 
 **Our
        use of the “percentage-of-completion” method of accounting could result in
        reduction or reversal of previously recorded revenues and
        profits.**
 
 A
        substantial portion of our revenues and profits are measured and recognized
        using the “percentage-of-completion” method of accounting, which is discussed
        further in Note 2, “Summary Of Significant Accounting Policies” to our
“Financial Statements.” Our use of this method results in recognition of
        revenues and profits ratably over the life of a contract, based generally
        on the
        proportion of costs incurred to date to total costs expected to be incurred
        for
        the entire project. The effect of revisions to revenues and estimated costs
        is
        recorded when the amounts are known or can be reasonably estimated. Such
        revisions could occur in any period and their effects could be material.
        Although we have historically made reasonably reliable estimates of the progress
        towards completion of long-term engineering, program and construction management
        or construction contracts in process, the uncertainties inherent in the
        estimating process make it possible for actual costs to vary materially from
        estimates, including reductions or reversals of previously recorded revenues
        and
        profits.
 
 **Our
        future revenues depend on our ability to consistently bid and win new contracts
        and renew existing contracts and, therefore, our failure to effectively obtain
        future contracts could adversely affect our profitability.**
 
 Our
        future revenues and overall results of operations require us to successfully
        bid
        on new contracts and renew existing contracts. Contract proposals and
        negotiations are complex and frequently involve a lengthy bidding and selection
        process, which is affected by a number of factors, such as market conditions,
        financing arrangements and required governmental approvals. If negative market
        conditions arise, or if we fail to secure adequate financial arrangements
        or the
        required governmental approval, we may not be able to pursue particular
        projects, which could adversely affect our profitability.
 
 **Our
        results could be adversely impacted by product quality and
        performance.**
 
 We
        manufacture or install products based on specific requirements of each of
        our
        customers. We believe that future orders of our products or services will
        depend
        on our ability to maintain the performance, reliability and quality standards
        required by our customers. If our products or services have performance,
        reliability or quality problems, we may experience delays in the collection
        of
        accounts receivables, higher manufacturing or installation costs, additional
        warranty and service expense, and reduced, cancelled or discontinued orders.
        Additionally, performance, reliability or quality claims from our customers,
        with or without merit, could result in costly and time-consuming litigation
        that
        could require significant time and attention of management and involve
        significant monetary damages.
 
 **Continued
        price volatility and supply constraints in the steel and aluminum markets
        could
        prevent us from meeting delivery schedules to our customers or reduce our
        profit
        margins** .
 
 Our
        business is dependent on the prices and supply of steel and aluminum, which,
        along with glass, are the principal raw materials used in our products. The
        steel and aluminum industries are highly cyclical in nature, and steel and
        aluminum prices have been volatile in recent years and may remain volatile
        in
        the future. Steel and aluminum prices are influenced by numerous factors
        beyond
        our control, including general economic conditions, competition, labor costs,
        production costs, import duties and other trade restrictions. In the past
        there
        have been unusually rapid and significant increases in steel and aluminum
        prices
        and severe shortages in the steel and aluminum industries due in part to
        increased demand from China’s expanding economy and high energy prices. We do
        not have any long-term contracts for the purchase of steel and aluminum and
        normally do not maintain inventories of steel and aluminum in excess of our
        current production requirements. We can give you no assurance that steel
        and
        aluminum will remain available or that prices will not continue to be volatile.
        If the available supply of steel and aluminum declines, we could experience
        price increases that we are not able to pass on to our customers, a
        deterioration of service from our suppliers or interruptions or delays that
        may
        cause us not to meet delivery schedules to our customers. Any of these problems
        could adversely affect our results of operations and financial
        condition.
 
 29
  **Our
        business is characterized by long periods for collection from our customers
        and
        short periods for payment to our suppliers, the combination of which may
        cause
        us to have liquidity problems.**
 
 We
        experience an average accounts settlement period ranging from three months
        to as
        high as one year from the time we provide services to the time we receive
        payment from our customers. In contrast, we typically need to place certain
        deposit with our suppliers on a portion of the purchase price in advance
        and for
        some suppliers we must maintain a deposit for future orders. Because our
        payment
        cycle is considerably shorter than our receivable cycle, we may experience
        working capital shortages. Working capital management, including prompt and
        diligent billing and collection, is an important factor in our results of
        operations and liquidity. We cannot assure you that system problems, industry
        trends or other issues will not extend our collection period, adversely impact
        our working capital.
 
 **The
        industries in which we operate are highly competitive.**
 
 The
        markets we serve are very competitive, price and lead-time sensitive and
        are
        impacted by changes in the commercial construction industry, including
        unforeseen delays in project timing and work flow. In addition, competition
        in
        the markets of the building industry and in the metal coil coating industry
        is
        intense. It is based primarily on:
 
 –  quality;
 
 –  service;
 
 –  delivery;
 
 –  ability
        to provide added value in the design and engineering of buildings;
 
 –  price;
 
 –  speed
        of
        construction in buildings and components; and
 
 –  personal
        relationships with customers.
 
 We
        compete with several large integrated glass manufacturers, numerous specialty,
        architectural glass and window fabricators, and major contractors and
        subcontractors. We also compete with a number of other manufacturers of
        engineered building systems ranging from small local firms to large national
        firms. Many of our competitors have greater financial or other resources
        than
        we. In addition, we and other manufacturers of engineered high-end curtain
        walls
        compete with alternative methods of building construction. If these alternative
        building methods compete successfully against us, such competition could
        adversely affect us. Demand for our services is cyclical and vulnerable to
        economic downturns. If the economy weakens, then our revenues, profits and
        our
        financial condition may deteriorate. Many of our competitors have greater
        financial or other resources than us.
 
 **Our
        business activities may require our employees to travel to and work in high
        security risk countries, which may result in employee death or injury,
        repatriation costs or other unforeseen costs.**
 
 As
        a
        multinational company, our employees often travel to and work in high security
        risk countries around the world that are undergoing political, social and
        economic upheavals resulting in war, civil unrest, criminal activity or acts
        of
        terrorism. For example, we have employees working in high security risk
        countries located in the Middle East and Southwest Asia. As a result, we
        may be
        subject to costs related to employee death or injury, repatriation or other
        unforeseen circumstances.
 
 30
  **Force
        majeure events, including natural disasters and terrorists’ actions have
        negatively impacted and could further negatively impact the economies in
        which
        we operate, which may affect our financial condition, results of operations
        or
        cash flows.**
 
 *Force
        majeure* events,
        including natural disasters, such as Typhoon Pai Bi An that affected the
        Southeastern China Coast in August 2006 and terrorist attacks, such as those
        that occurred in New York and Washington, D.C. on September 11, 2001, could
        negatively impact the economies in which we operate.
 
 We
        typically remain obligated to perform our services after a terrorist action
        or
        natural disaster unless the contract contains a *force
        majeure* clause
        that relieves us of our contractual obligations in such an extraordinary
        event.
        If we are not able to react quickly to *force
        majeure* ,
        our
        operations may be affected significantly, which would have a negative impact
        on
        our financial condition, results of operations or cash flows.
 
 **We
        may suffer as a result of product liability or defective
        products.**
 
 We
        may
        produce products which injure or kill individuals despite proper testing.
        Existing PRC laws and regulations do not require us to maintain third party
        liability insurance to cover product liability claims. However, if a product
        liability claim is brought against us, it may, regardless of merit or eventual
        outcome, result in damage to our reputation, breach of contract with our
        customers, decreased demand for our products, costly litigation, product
        recalls, loss of revenue, and the inability to commercialize some products.
 
 **We
        incur costs to comply with environmental laws and have liabilities for
        environmental cleanups.**
 
 Because
        we have air emissions, discharge wastewater, and handle hazardous substances
        and
        solid waste at our fabrication facilities, we incur costs and liabilities
        to
        comply with environmental laws and regulations and may incur significant
        additional costs as those laws and regulations change in the future or if
        there
        is an accidental release of hazardous substances into the environment. The
        operations of our fabrication facilities are subject to stringent and complex
        environmental laws and regulations that regulate the cleanup of hazardous
        substances that may have been released at properties currently or previously
        owned or operated by us or locations to which we have sent waste for disposal.
        Failure to comply with these laws and regulations may trigger a variety of
        administrative, civil and criminal enforcement measures, including the
        assessment of monetary penalties, the imposition of remedial requirements,
        and
        the issuance of orders enjoining future operations.
 
 **If
        our partners fail to perform their contractual obligations on a project,
        we
        could be exposed to legal liability, loss of reputation or reduced
        profits.**
 
 We
        sometimes enter into subcontracts, joint ventures and other contractual
        arrangements with outside partners to jointly bid on and execute a particular
        project. The success of these joint projects depends upon, among other things,
        the satisfactory performance of the contractual obligations of our partners.
        If
        any of our partners fails to satisfactorily perform its contractual obligations,
        we may be required to make additional investments and provide additional
        services to complete the project. If we are unable to adequately address
        our
        partner’s performance issues, then our client could terminate the joint project,
        exposing us to legal liability, loss of reputation or reduced
        profits.
 
 **We
        are dependent on certain key personnel and loss of these key personnel could
        have a material adverse effect on our business, financial condition and results
        of operations.**
 
 Our
        success is, to a certain extent, attributable to the management, sales and
        marketing, and operational expertise of key personnel. Luo Ken Yi, our Chief
        Executive Officer and Chief Operating Officer, Tang Nianzhong, our Vice General
        Manager and Ye Ning, our Vice General Manager perform key functions in the
        operation of our business. There can be no assurance that we will be able
        to
        retain these managers after the term of their employment contracts expire.
        The
        loss of these managers could have a material adverse effect upon our business,
        financial condition, and results of operations. We must attract, recruit
        and
        retain a sizeable workforce of technically competent employees. Our ability
        to
        effectively implement our business strategy will depend upon, among other
        factors, the successful recruitment and retention of additional highly skilled
        and experienced management and other key personnel. We cannot assure you
        that we
        will be able to hire or retain such employees.
 
 31
  **Our
        continued expansion of sales into overseas markets could fail, reduce operating
        results and/or expose us to increased risks associated with different market
        dynamics and competition in any of the foreign countries where we attempt
        to
        sell our products.**
 
 We
        will
        face many obstacles in our planned expansion of sales in overseas markets
        including differences in patent protection, taxation policy, legal systems
        and
        rules, marketing costs, fluctuations in currency exchange rates and changes
        in
        political and economic conditions. We may not be as successful as our
        competitors in generating revenues in international markets. Developing product
        recognition overseas is expensive and time-consuming and our international
        expansion efforts may be more costly and less profitable than we expect.
        If we
        are not successful in our target markets, our sales could decline, our margins
        could be negatively impacted and we could lose market share, any of which
        could
        materially harm our business, results of operations and profitability.
 
 **We
        cannot guarantee the protection of our intellectual property rights and if
        infringement or counterfeiting of our intellectual property rights occurs,
        our
        reputation and business may be adversely affected.**
 
 Our
        success depends in part on our ability to preserve our patents and trade
        secrets
        and operate without infringing the proprietary rights of third parties. We
        currently own approximately 32 patents in China. If we fail to maintain our
        patents and trade secret protections, we may not be able to prevent third
        parties from using our proprietary rights. In addition, our issued patents
        may
        not contain claims sufficiently broad to protect us against third parties
        with
        similar technologies or products or provide us with any competitive advantage.
        If a third party initiates litigation regarding our patents, and is successful,
        a court could revoke our patents or limit the scope of coverage for those
        patents. We also rely upon trade secrets, proprietary know-how and continuing
        technological innovation to remain competitive. We attempt to protect this
        information with security measures such as the use of confidentiality agreements
        with our employees, consultants and corporate collaborators. It is possible
        that
        these individuals will breach these agreements and that any remedies for
        a
        breach will be insufficient to allow us to recover our costs. Furthermore,
        our
        trade secrets, know-how and other technology may otherwise become known or
        be
        independently discovered by our competitors.
 
 Furthermore,
        we have registered and applied for registration of our trademarks in the
        PRC,
        where we have a substantial business presence, to protect the reputation
        of our
        products. Our products are sold under these trademarks. There is no assurance
        that there will not be any infringement of our brand name or other registered
        trademarks or counterfeiting of our products in the future. Should any such
        infringement or counterfeiting occur, our reputation and business may be
        adversely affected. We may also incur significant expenses and substantial
        amounts of time and effort to enforce our intellectual property rights in
        the
        future. Such diversion of our resources may adversely affect our existing
        business and future expansion plans.
 
 **We
        enjoy certain preferential tax concessions and loss of these preferential
        tax
        concessions will cause our tax liabilities to increase and our profitability
        to
        decline.**
 
 We
        enjoy
        preferential tax concessions as a high-tech enterprise. Pursuant to the State
        Council’s Regulations on Encouraging Investment in and Development, we were
        granted a reduction in our income tax rate to a rate of 15%. In addition,
        there
        is no assurance that the preferential tax treatment will remain unchanged
        and
        effective. Our tax liabilities will increase and our profits may accordingly
        decline if our reduced income tax rate is no longer applicable and/or the
        tax
        relief on investment in PRC is no longer available.
 
 **Our
        failure to manage growth effectively could have an adverse effect on our
        business, financial condition, and results of operations.**
 
 The
        rapid
        market growth, if any, of our business may require us to expand our employee
        base for managerial, operational, financial, and other purposes. As of June
        30,
        2006, we had 385 full time employees. The continued future growth will impose
        significant added responsibilities upon the members of management to identify,
        recruit, maintain, integrate, and motivate new employees. Aside from increased
        difficulties in the management of human resources, we need increased liquidity
        to finance the purchases of raw materials and supplies, development of new
        products, acquisition of new businesses and technologies, and the hiring
        of
        additional employees. For effective growth management, we will be required
        to
        continue improving our operations, management, and financial systems and
        control. Our failure to manage growth effectively may lead to operational
        and
        financial inefficiencies that will have a negative effect on our
        profitability.
 
 32
  **Our
        quarterly and annual revenue and operating results are volatile and difficult
        to
        predict.**
 
 Our
        revenue and operating results may fall below the expectations of securities
        analysts, company-provided guidance or investors in future periods. Our annual
        revenue and operating results may vary depending on a number of factors,
        including, but not limited to: fluctuating customer demand, delay or timing
        of
        shipments, construction delays, changes in product mix or market acceptance
        of
        new products; manufacturing or operational difficulties that may arise due
        to
        quality control, capacity utilization of our production equipment or staffing
        requirements; and competition, including the introduction of new products
        by
        competitors, adoption of competitive technologies by our customers and
        competitive pressures on prices of our products and services. Our failure
        to
        meet revenue and operating result expectations would likely adversely affect
        the
        market price of our common stock.
 
 **Our
        actual results could differ from the estimates and assumptions that we use
        to
        prepare our financial statements, which may significantly reduce or eliminate
        our profits.**
 
 To
        prepare financial statements in conformity with generally accepted accounting
        principles, management is required to make estimates and assumptions as of
        the
        date of the financial statements, which affect the reported values of assets
        and
        liabilities and revenues and expenses and disclosures of contingent assets
        and
        liabilities. Areas requiring significant estimates by our management include:
 
 –
              the
                  application of the “percentage-of-completion” method of accounting, and
                  revenue recognition on contracts, change orders, and contract
                  claims;
 
 –
              provisions
                  for uncollectible receivables and customer claims and recoveries
                  of costs
                  from subcontractors, vendors and
                  others;
 
 –
              provisions
                  for income taxes and related valuation
                  allowances;
 
 –
              value
                  of goodwill and recoverability of other intangible assets;
                  and
 
 –
              accruals
                  for estimated liabilities, including litigation and insurance
                  reserves.
 
 Our
        actual results could differ from those estimates, which may significantly
        reduce
        or eliminate our profits.
 
 **RISKS
        RELATED TO US DOING BUSINESS IN CHINA**
 
 **All
        of our assets are located in China and substantially all of our revenues
        are
        derived from our operations in China, and changes in the political and economic
        policies of the PRC government could have a significant impact upon the business
        we may be able to conduct in the PRC and the results of operations and financial
        condition.**
 
 Our
        business operations may be adversely affected by the current and future
        political environment in the PRC. The PRC has operated as a socialist state
        since the mid-1900s and is controlled by the Communist Party of China. The
        Chinese government exerts substantial influence and control over the manner
        in
        which we must conduct our business activities. The PRC has only permitted
        provincial and local economic autonomy and private economic activities since
        1988. The government of the PRC has exercised and continues to exercise
        substantial control over virtually every sector of the Chinese economy,
        particularly the pharmaceutical industry, through regulation and state
        ownership. Our ability to operate in China may be adversely affected by changes
        in Chinese laws and regulations, including those relating to taxation, import
        and export tariffs, raw materials, environmental regulations, land use rights,
        property and other matters. Under current leadership, the government of the
        PRC
        has been pursuing economic reform policies that encourage private economic
        activity and greater economic decentralization. There is no assurance, however,
        that the government of the PRC will continue to pursue these policies, or
        that
        it will not significantly alter these policies from time to time without
        notice.
   33
  **The
        PRC laws and regulations governing our**  **current
        business operations are sometimes vague and uncertain. Any changes in such
        PRC
        laws and regulations may have a material and adverse effect on our
        business.**
 
 The
        PRC’s
        legal system is a civil law system based on written statutes, in which system
        decided legal cases have little value as precedents unlike the common law
        system
        prevalent in the United States. There are substantial uncertainties regarding
        the interpretation and application of PRC laws and regulations, including
        but
        not limited to the laws and regulations governing our business, or the
        enforcement and performance of our arrangements with customers in the event
        of
        the imposition of statutory liens, death, bankruptcy and criminal proceedings.
        The Chinese government has been developing a comprehensive system of commercial
        laws, and considerable progress has been made in introducing laws and
        regulations dealing with economic matters such as foreign investment, corporate
        organization and governance, commerce, taxation and trade. However, because
        these laws and regulations are relatively new, and because of the limited
        volume
        of published cases and judicial interpretation and their lack of force as
        precedents, interpretation and enforcement of these laws and regulations
        involve
        significant uncertainties. New laws and regulations that affect existing
        and
        proposed future businesses may also be applied retroactively. We are considered
        a foreign persons or foreign funded enterprises under PRC laws, and as a
        result,
        we are required to comply with PRC laws and regulations. We cannot predict
        what
        effect the interpretation of existing or new PRC laws or regulations may
        have on
        our businesses. If the relevant authorities find us in violation of PRC laws
        or
        regulations, they would have broad discretion in dealing with such a violation,
        including, without limitation:
 
 ·
              levying
                  fines;
  ·
              revoking
                  our business and other licenses;
  ·
              requiring
                  that we restructure our ownership or operations;
                  and
  ·
              requiring
                  that we discontinue any portion or all of our
                  business.
  
 **The
        foreign currency exchange rate between U.S. Dollars and Renminbi could adversely
        affect our financial condition.**
 
 To
        the
        extent that we need to convert dollars into Renminbi for our operational
        needs,
        our financial position and the price of our common stock may be adversely
        affected should the Renminbi appreciate against the U.S. dollar at that time.
        Conversely, if we decide to convert our Renminbi into dollars for the
        operational needs or paying dividends on our common stock, the dollar equivalent
        of our earnings from our subsidiaries in China would be reduced should the
        dollar appreciate against the Renminbi.
 
 Until
        1994, the Renminbi experienced a gradual but significant devaluation against
        most major currencies, including dollars, and there was a significant
        devaluation of the Renminbi on January 1, 1994 in connection with the
        replacement of the dual exchange rate system with a unified managed floating
        rate foreign exchange system. Since 1994, the value of the Renminbi relative
        to
        the U.S. Dollar has remained stable and has appreciated slightly against
        the
        U.S. dollar. Countries, including the United States, have argued that the
        Renminbi is artificially undervalued due to China’s current monetary policies
        and have pressured China to allow the Renminbi to float freely in world markets.
        In July 2005, the PRC government changed its policy of pegging the value
        of the
        Renminbi to the dollar. Under the new policy the Renminbi is permitted to
        fluctuate within a narrow and managed band against a basket of designated
        foreign currencies. While the international reaction to the Renminbi revaluation
        has generally been positive, there remains significant international pressure
        on
        the PRC government to adopt an even more flexible currency policy, which
        could
        result in further and more significant appreciation of the Renminbi against
        the
        dollar.
 
 **Inflation
        in the PRC could negatively affect our profitability and
        growth.**
 
 While
        the
        PRC economy has experienced rapid growth, such growth has been uneven among
        various sectors of the economy and in different geographical areas of the
        country. Rapid economic growth can lead to growth in the money supply and
        rising
        inflation. During the past decade, the rate of inflation in China has been
        as
        high as approximately 20% and China has experienced deflation as low as
        approximately minus 2%. If prices for our products and services rise at a
        rate
        that is insufficient to compensate for the rise in the costs of supplies
        such as
        raw materials, it may have an adverse effect on our profitability. In order
        to
        control inflation in the past, the PRC government has imposed controls on
        bank
        credits, limits on loans for fixed assets and restrictions on state bank
        lending. The implementation of such policies may impede economic growth.
        In
        October 2004, the People’s Bank of China, the PRC’s central bank, raised
        interest rates for the first time in nearly a decade and indicated in a
        statement that the measure was prompted by inflationary concerns in the Chinese
        economy. In April 2006, the People’s Bank of China raised the interest rate
        again. Repeated rises in interest rates by the central bank would likely
        slow
        economic activity in China which could, in turn, materially increase our
        costs
        and also reduce demand for our products and services.
 
 34
  **Recent
        PRC regulations relating to acquisitions of PRC companies by foreign entities
        may create regulatory uncertainties that could restrict or limit our ability
        to
        operate, including our ability to pay dividends.**
 
 The
        PRC
        State Administration of Foreign Exchange, or SAFE, issued a public notice
        in
        January 2005 concerning foreign exchange regulations on mergers and acquisitions
        in China. The public notice states that if an offshore company controlled
        by PRC
        residents intends to acquire a PRC company, such acquisition will be subject
        to
        strict examination by the relevant foreign exchange authorities. The public
        notice also states that the approval of the relevant foreign exchange
        authorities is required for any sale or transfer by the PRC residents of
        a PRC
        company’s assets or equity interests to foreign entities for equity interests or
        assets of the foreign entities.
 
 In
        April
        2005, SAFE issued another public notice further explaining the January notice.
        In accordance with the April notice, if an acquisition of a PRC company by
        an
        offshore company controlled by PRC residents has been confirmed by a Foreign
        Investment Enterprise Certificate prior to the promulgation of the January
        notice, the PRC residents must each submit a registration form to the local
        SAFE
        branch with respect to their respective ownership interests in the offshore
        company, and must also file an amendment to such registration if the offshore
        company experiences material events, such as changes in the share capital,
        share
        transfer, mergers and acquisitions, spin-off transaction or use of assets
        in
        China to guarantee offshore obligations. The April notice also provides that
        failure to comply with the registration procedures set forth therein may
        result
        in restrictions on our PRC resident shareholders and subsidiaries. Pending
        the
        promulgation of detailed implementation rules, the relevant government
        authorities are reluctant to commence processing any registration or application
        for approval required under the SAFE notices.
 
 In
        addition, on August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by the
        State-Owned Assets Supervision and Administration Commission of the State
        Council, State Administration of Taxation, State Administration for Industry
        and
        Commerce, China Securities Regulatory Commission and SAFE, amended and released
        the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises,
        new foreign-investment rules which took effect September 8, 2006, superseding
        much, but not all, of the guidance in the prior SAFE circulars. These new
        rules
        significantly revise China’s regulatory framework governing onshore-offshore
        restructurings and how foreign investors can acquire domestic enterprises.
        These
        new rules signify greater PRC government attention to cross-border merger,
        acquisition and other investment activities, by confirming MOFCOM as a key
        regulator for issues related to mergers and acquisitions in China and requiring
        MOFCOM approval of a broad range of merger, acquisition and investment
        transactions. Further, the new rules establish reporting requirements for
        acquisition of control by foreigners of companies in key industries, and
        reinforce the ability of the Chinese government to monitor and prohibit foreign
        control transactions in key industries.
 
 These
        new
        rules may significantly affect the means by which offshore-onshore
        restructurings are undertaken in China in connection with offshore private
        equity and venture capital financings, mergers and acquisitions. It is expected
        that such transactional activity in China in the near future will require
        significant case-by-case guidance from MOFCOM and other government authorities
        as appropriate. It is anticipated that application of the new rules will
        be
        subject to significant administrative interpretation, and we will need to
        closely monitor how MOFCOM and other ministries apply the rules to ensure
        its
        domestic and offshore activities continue to comply with PRC law. Given the
        uncertainties regarding interpretation and application of the new rules,
        we may
        need to expend significant time and resources to maintain
        compliance.
 
 It
        is
        uncertain how our business operations or future strategy will be affected
        by the
        interpretations and implementation of the SAFE notices and new rules. Our
        business operations or future strategy could be adversely affected by the
        SAFE
        notices and the new rules. For example, we may be subject to more stringent
        review and approval process with respect to our foreign exchange activities.
 
 **Failure
        to comply with the United States Foreign Corrupt Practices Act could subject
        us
        to penalties and other adverse consequences.**
 
 We
        are
        subject to the United States Foreign Corrupt Practices Act, which generally
        prohibits United States companies from engaging in bribery or other prohibited
        payments to foreign officials for the purpose of obtaining or retaining
        business. In addition, we are required to maintain records that accurately
        and
        fairly represent our transactions and have an adequate system of internal
        accounting controls. Foreign companies, including some that may compete with
        us,
        are not subject to these prohibitions, and therefore may have a competitive
        advantage over us. Corruption, extortion, bribery, pay-offs, theft and other
        fraudulent practices occur from time-to-time in the PRC, particularly in
        our
        industry since it deals with contracts from the Chinese Government, and our
        executive officers and employees have not been subject to the United States
        Foreign Corrupt Practices Act prior to the completion of the Share Exchange.
        We
        can make no assurance that our employees or other agents will not engage
        in such
        conduct for which we might be held responsible. If our employees or other
        agents
        are found to have engaged in such practices, we could suffer severe penalties
        and other consequences that may have a material adverse effect on our business,
        financial condition and results of operations.
 
 35
  **Any
        recurrence of Severe Acute Respiratory Syndrome (SARS), Avian Flu, or another
        widespread public health problem, in the PRC could adversely affect our
        operations.**
 
 A
        renewed
        outbreak of Severe Acute Respiratory Syndrome, Avian Flu or another widespread
        public health problem in China, where all of our manufacturing facilities
        are
        located and where all of our sales occur, could have a negative effect on
        our
        operations. Such an outbreak could have an impact on our operations as a
        result
        of:
 
 ·
              quarantines
                  or closures of some of our manufacturing facilities, which would
                  severely
                  disrupt our operations,
  ·
              the
                  sickness or death of our key officers and employees,
                  and
  ·
              a
                  general slowdown in the Chinese
                  economy.
  Any
        of
        the foregoing events or other unforeseen consequences of public health problems
        could adversely affect our operations.
 
 **A
        downturn in the economy of the PRC may slow our growth and
        profitability.**
 
 The
        growth of the Chinese economy has been uneven across geographic regions and
        economic sectors. There can be no assurance that growth of the Chinese economy
        will be steady or that any downturn will not have a negative effect on our
        business, especially if it results in either a decreased use of our products
        or
        in pressure on us to lower our prices.
 
 **We
        may have difficulty establishing adequate management, legal and financial
        controls in the PRC.**
 
 PRC
        companies have historically not adopted a Western style of management and
        financial reporting concepts and practices, which includes strong corporate
        governance, internal controls and, computer, financial and other control
        systems. In addition, we may have difficulty in hiring and retaining a
        sufficient number of qualified employees to work in the PRC. As a result
        of
        these factors, we may experience difficulty in establishing management, legal
        and financial controls, collecting financial data and preparing financial
        statements, books of account and corporate records and instituting business
        practices that meet Western standards. Therefore, we may, in turn, experience
        difficulties in implementing and maintaining adequate internal controls as
        required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result
        in
        significant deficiencies or material weaknesses in our internal controls
        which
        could impact the reliability of our financial statements and prevent us from
        complying with SEC rules and regulations and the requirements of the
        Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of
        compliance could have a materially adverse effect on our business.
 
 **You
        may experience difficulties in effecting service of legal process, enforcing
        foreign judgments or bringing original actions in China based upon U.S. laws,
        including the federal securities laws or other foreign laws against us or
        our
        management.**
 
 Most
        of
        our current operations are conducted in China. Moreover, almost all of our
        directors and officers are nationals and residents of China. All or
        substantially all of the assets of these persons are located outside the
        United
        States and in the PRC. As a result, it may not be possible to effect service
        of
        process within the United States or elsewhere outside China upon these persons.
        In addition, uncertainty exists as to whether the courts of China would
        recognize or enforce judgments of U.S. courts obtained against us or our
        officers and/or directors predicated upon the civil liability provisions
        of the
        securities law of the United States or any state thereof, or be competent
        to
        hear original actions brought in China against us or such persons predicated
        upon the securities laws of the United States or any state thereof.
 
 36
  **RISKS
        RELATED TO OUR CAPITAL STRUCTURE**
 
 **There
        is no current trading market for** **our** **common stock, and there is no assurance of an established public trading
        market,
        which would adversely affect the ability of** **our** **investors to sell their securities in the public market.**
  Our
        common stock is not currently listed or quoted for trading on any national
        securities exchange or national quotation system. We intend to apply for
        the
        listing of our common stock on the American Stock Exchange in the future.
        There
        is no guarantee that the American Stock Exchange, or any other exchange or
        quotation system, will permit our shares to be listed and traded. If we fail
        to
        obtain a listing on the American Stock Exchange, we may seek quotation on
        the
        OTC Bulletin Board. The NASD has enacted changes that limit quotations on
        the
        OTC Bulletin Board to securities of issuers that are current in their reports
        filed with the Securities and Exchange Commission. The effect on the OTC
        Bulletin Board of these rule changes and other proposed changes cannot be
        determined at this time. The OTC Bulletin Board is an inter-dealer,
        over-the-counter market that provides significantly less liquidity than the
        NASDAQ Global Market (the “NASDAQ Global Market”). Quotes for stocks included on
        the OTC Bulletin Board are not listed in the financial sections of newspapers
        as
        are those for the NASDAQ Global Market. Therefore, prices for securities
        traded
        solely on the OTC Bulletin Board may be difficult to obtain and holders of
        common stock may be unable to resell their securities at or near their original
        offering price or at any price.
 
 **Shares
        eligible for future sale may adversely affect the market price of our common
        stock, as the future sale of a substantial amount of outstanding stock in
        the
        public marketplace could reduce the price of our common
        stock.**
  Pursuant
        to the terms of the Share Exchange, we agreed to file a registration statement
        with the Securities and Exchange Commission to register a total of 2,320,875
        shares of common stock issued in an equity financing that that was conducted
        in
        connection with the Share Exchange that closed on October 17, 2006. The
        registration statement must be filed with thirty days of the closing of the
        Share Exchange. The investors in the Private Placement also entered into
        a
        lock-up agreement pursuant to which they agreed not to sell their shares
        until
        our common stock begins to be traded on either the New York Stock Exchange,
        American Stock Exchange, NASDAQ Global Market, NASDAQ Capital Market or the
        OTC
        Bulletin Board, after which their shares will automatically be released from
        the
        lock up on a monthly basis. We also agreed to register the IR Securities,
        which
        consists of 100,000 shares of our common stock and common stock underlying
        five
        year warrants to purchase 232,088 shares, in the registration statement filed
        in
        connection with the Private Placement. We also agreed to register all of
        the
        2,275,000 shares of common stock held by our shareholders immediately prior
        to
        the Share Exchange. Of these 2,275,000 shares, 1,312,675 shares would be
        covered
        by the registration statement filed in connection with the Private Placement,
        and 962,325 shares, which are beneficially owned by affiliates of WestPark
        Capital, Inc., would be included in a subsequent registration statement filed
        by
        us within ten days after the end of the six-month period that immediately
        follows the date on which we file the registration statement to register
        the
        shares issued in the Private Placement. We also agreed to register 2,000,000
        shares of our common stock that were issued to FirstAlliance Financial Group,
        Inc., which received its shares as a designee of the sole shareholder of
        Full
        Art at the closing of the Share Exchange. The shares will be registered in
        the
        registration statement that is filed to register the shares held by the
        affiliates of WestPark. All of the shares included in an effective registration
        statement as described above may be freely sold and transferred except if
        subject to a lock up agreement.
 
 Additionally,
        following the Share Exchange, the former stockholder of Full Art may be eligible
        to sell all or some of our shares of common stock by means of ordinary brokerage
        transactions in the open market pursuant to Rule 144, promulgated under the
        Securities Act (“Rule 144”), subject to certain limitations. In general,
        pursuant to Rule 144, a stockholder (or stockholders whose shares are
        aggregated) who has satisfied a one-year holding period may, under certain
        circumstances, sell within any three-month period a number of securities
        which
        does not exceed the greater of 1% of the then outstanding shares of common
        stock
        or the average weekly trading volume of the class during the four calendar
        weeks
        prior to such sale. As of the closing of the Share Exchange, 1% of our issued
        and outstanding shares of common stock was approximately 500,000 shares.
        Rule
        144 also permits, under certain circumstances, the sale of securities, without
        any limitations, by a non-affiliate that has satisfied a two-year holding
        period. Any substantial sale of common stock pursuant to any resale prospectus
        or Rule 144 may have an adverse effect on the market price of our common
        stock
        by creating an excessive supply.
  37
  **Following
        the Share Exchange, the former principal stockholder of Full Art has significant
        influence over us.**
  Our largest
        shareholder, KGE Group, Limited, or KGE Group, beneficially owns or controls
        approximately 75.5 %
        of our outstanding shares as of the close of the Share Exchange. Luo
        Ken
        Yi ,
        who is our Chief
        Executive Officer, Chief
        Operating Officer ,
        and
        Chairman of the Board, and Ye Ning, who is our Vice
        General Manager and a director, are directors of KGE Group. In addition, Luo
        Ken
        Yi and Ye
        Ning own approximately 77.0% and 2.5%, respectively, respectively, of KGE
        Group’s issued and outstanding shares. As a result of its holding, KGE Group has
        controlling influence in determining the outcome of any corporate transaction
        or
        other matters submitted to our shareholders for approval, including mergers, consolidations and the sale
        of all
        or substantially all of our assets, election of directors, and other significant
        corporate actions. KGE Group also has the power to prevent or cause a change
        in
        control. In addition, without the consent of KGE Group, we could be prevented
        from entering into transactions that could be beneficial to us. The interests
        of
        KGE Group, and its control persons, may differ from the interests of our shareholders.
 
 **The
        ability of our Chinese operating subsidiaries to pay dividends may be restricted
        due to** **foreign
        exchange control regulations of China.**
 
 The
        ability of our Chinese operating subsidiaries to pay dividends may be restricted
        due to the foreign exchange control policies and availability of cash balance
        of
        the Chinese operating subsidiaries. Because substantially all of our operations
        are conducted in China and a majority of our revenues are generated in China,
        all of our revenue being earned and currency received are denominated in
        Renmanbi (RMB). RMB is subject to the exchange control regulation in China,
        and,
        as a result, we may unable to distribute any dividends outside of China due
        to
        PRC exchange control regulations that restrict our ability to convert RMB
        into
        US Dollars.
 
 **We** **will recognize a charge to our earnings as a result of the Share Exchange
        and
        also may not be able to achieve the benefits** **we** **expect
        to result from the Share Exchange.**
  On
        August
        21, 2006, we (formerly known as SRKP 1, Inc.) entered into the Exchange
        Agreement, as amended on October 17, 2006, with KGE Group, the sole shareholder
        of Full Art, pursuant to which we agreed to acquire 100% of the issued and
        outstanding securities of Full Art in exchange for shares of our common stock.
        On October 17, 2006, the Share Exchange closed, Full Art became our 100%-owned
        subsidiary and our sole business operations became that of Full Art. Also,
        the
        management and directors of Full Art became the management and directors
        of us
        and we changed our corporate name from SRKP 1, Inc. to China Architectural
        Engineering, Inc.
 
 We
        issued
        2,000,000 shares of common stock to FirstAlliance Financial Group, Inc. upon
        closing of the Share Exchange, and management believes that the shares must
        be
        accounted as a non-reoccurring general and administrative expense and, as
        a
        result, will reduce our earnings, if any, for the quarter and year ended
        December 31, 2006. The reduction in earnings will be equal to the value of
        the
        shares, which will be valued at $1.60 per share, the same per share price
        at
        which we sold shares in the Private Placement. As a result of the reduction
        in
        earnings, our results of operation for the quarter and year ended December
        31,
        2006 will suffer and the value of our common stock and your investment may
        fall.
 
 In
        addition, we may not realize the benefits that we hoped to receive as a result
        of the Share Exchange, which includes:
 
 ·
              access
                  to the capital markets of the United
                  States;
  ·
              the
                  increased market liquidity expected to result from exchanging stock
                  in a
                  private company for securities of a public company that may eventually
                  be
                  traded;
  ·
              the
                  ability to use registered securities to make acquisition of assets
                  or
                  businesses;
  ·
              increased
                  visibility in the financial
                  community;
  ·
              enhanced
                  access to the capital markets;
  ·
              improved
                  transparency of operations; and
  ·
              perceived
                  credibility and enhanced corporate image of being a publicly traded
                  company.
  38
  There
        can
        be no assurance that any of the anticipated benefits of the Share Exchange
        will
        be realized in respect to our new business operations. In addition, the
        attention and effort devoted to achieving the benefits of the Share Exchange
        and
        attending to the obligations of being a public company, such as reporting
        requirements and securities regulations, could significantly divert management’s
        attention from other important issues, which could materially and adversely
        affect our operating results or stock price in the future.
 
 **If
         we fail to maintain effective internal controls over financial reporting,
        the price of our common stock may be adversely affected.**
 
 Our
        internal control over financial reporting may have weaknesses and conditions
        that need to be addressed, the disclosure of which may have an adverse impact
        on
        the price of our common stock. We are required to establish and maintain
        appropriate internal controls over financial reporting. Failure to establish
        those controls, or any failure of those controls once established, could
        adversely impact our public disclosures regarding our business, financial
        condition or results of operations. In addition, management’s assessment of
        internal controls over financial reporting may identify weaknesses and
        conditions that need to be addressed in our internal controls over financial
        reporting or other matters that may raise concerns for investors. Any actual
        or
        perceived weaknesses and conditions that need to be addressed in our internal
        control over financial reporting, disclosure of management’s assessment of our
        internal controls over financial reporting or disclosure of our public
        accounting firm’s attestation to or report on management’s assessment of our
        internal controls over financial reporting may have an adverse impact on
        the
        price of our common stock.
 
 **Compliance
        with changing regulation of corporate governance and public disclosure will
        result in additional expenses.**
  Changing
        laws, regulations and standards relating to corporate governance and public
        disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC
        regulations, have created uncertainty for public companies and significantly
        increased the costs and risks associated with accessing the public markets
        and
        public reporting. Our management team will need to invest significant management
        time and financial resources to comply with both existing and evolving standards
        for public companies, which will lead to increased general and administrative
        expenses and a diversion of management time and attention from revenue
        generating activities to compliance activities.
 
 **Standards
        for compliance with Section 404 of the Sarbanes-Oxley Act Of 2002 are uncertain,
        and if we fail to comply in a timely manner, our business could be harmed
        and
        our stock price could decline.**
  Rules
        adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
        require annual assessment of our internal control over financial reporting,
        and
        attestation of this assessment by our company’s independent registered public
        accountants. The SEC extended the compliance dates for non-accelerated filers,
        as defined by the SEC. Accordingly, we believe that the annual assessment
        of our
        internal controls requirement will first apply to our annual report for the
        2007
        fiscal year and the attestation requirement of management’s assessment by our
        independent registered public accountants will first apply to our annual
        report
        for the 2008 fiscal year. The standards that must be met for management to
        assess the internal control over financial reporting as effective are new
        and
        complex, and require significant documentation, testing and possible remediation
        to meet the detailed standards. We may encounter problems or delays in
        completing activities necessary to make an assessment of our internal control
        over financial reporting. In addition, the attestation process by our
        independent registered public accountants is new and we may encounter problems
        or delays in completing the implementation of any requested improvements
        and
        receiving an attestation of our assessment by our independent registered
        public
        accountants. If we cannot assess our internal control over financial reporting
        as effective, or our independent registered public accountants are unable
        to
        provide an unqualified attestation report on such assessment, investor
        confidence and share value may be negatively impacted.
  **Our** **common
        stock may be considered a “penny stock,” and thereby be subject to additional
        sale and trading regulations that may make it more difficult to
        sell.**
  Our
        common stock, which is not currently listed or quoted for trading, may be
        considered to be a “penny stock” if it does not qualify for one of the
        exemptions from the definition of “penny stock” under Section 3a51-1 of the
        Securities Exchange Act for 1934, as amended (the “Exchange Act”) once, and if,
        it starts trading. Our common stock may be a “penny stock” if it meets one or
        more of the following conditions (i) the stock trades at a price less than
        $5.00
        per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it
        is NOT quoted on the Nasdaq Capital Market, or even if so, has a price less
        than
        $5.00 per share; or (iv) is issued by a company that has been in business
        less
        than three years with net tangible assets less than $5 million.
  39
  The
        principal result or effect of being designated a “penny stock” is that
        securities broker-dealers participating in sales of our common stock will
        be
        subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9
        promulgated under the Exchange Act. For example, Rule 15g-2 requires
        broker-dealers dealing in penny stocks to provide potential investors with
        a
        document disclosing the risks of penny stocks and to obtain a manually signed
        and dated written receipt of the document at least two business days before
        effecting any transaction in a penny stock for the investor’s account. Moreover,
        Rule 15g-9 requires broker-dealers in penny stocks to approve the account
        of any
        investor for transactions in such stocks before selling any penny stock to
        that
        investor. This procedure requires the broker-dealer to (i) obtain from the
        investor information concerning his or her financial situation, investment
        experience and investment objectives; (ii) reasonably determine, based on
        that
        information, that transactions in penny stocks are suitable for the investor
        and
        that the investor has sufficient knowledge and experience as to be reasonably
        capable of evaluating the risks of penny stock transactions; (iii) provide
        the
        investor with a written statement setting forth the basis on which the
        broker-dealer made the determination in (ii) above; and (iv) receive a signed
        and dated copy of such statement from the investor, confirming that it
        accurately reflects the investor’s financial situation, investment experience
        and investment objectives. Compliance with these requirements may make it
        more
        difficult and time consuming for holders of our common stock to resell their
        shares to third parties or to otherwise dispose of them in the market or
        otherwise.
 
 **We** **do not foresee paying cash dividends in the foreseeable
        future.**
  We
        do not
        plan to declare or pay any cash dividends on our shares of common stock in
        the
        foreseeable future and we currently intend to retain any future earnings
        for
        funding growth. As a result, you should not rely on an investment in our
        securities if you require dividend income. Capital appreciation, if any,
        of our
        shares may be your sole source of gain for the foreseeable future. Moreover,
        you
        may not be able to resell your shares in our company at or above the price
        you
        paid for them.
 
 **SPECIAL
        NOTE REGARDING FORWARD-LOOKING STATEMENTS**
  The
        information contained in this quarterly report, including in the documents
        incorporated by reference into this quarterly report, includes some statements
        that are not purely historical and that are “forward-looking statements” as
        defined by the Private Securities Litigation Reform Act of 1995. Such
        forward-looking statements include, but are not limited to, statements regarding
        our and their management’s expectations, hopes, beliefs, intentions or
        strategies regarding the future, including our financial condition, results
        of
        operations, and the expected impact of the Merger on the parties’ individual and
        combined financial performance. In addition, any statements that refer to
        projections, forecasts or other characterizations of future events or
        circumstances, including any underlying assumptions, are forward-looking
        statements. The words “anticipates,” “believes,” “continue,” “could,”
“estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,”
“potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and
        similar expressions, or the negatives of such terms, may identify
        forward-looking statements, but the absence of these words does not mean
        that a
        statement is not forward-looking.
 
 The
        forward-looking statements contained in this quarterly report are based on
        current expectations and beliefs concerning future developments and the
        potential effects on the parties and the transaction. There can be no assurance
        that future developments actually affecting us will be those anticipated.
        These
        forward-looking statements involve a number of risks, uncertainties (some
        of
        which are beyond the parties’ control) or other assumptions that may cause
        actual results or performance to be materially different from those expressed
        or
        implied by these forward-looking statements, including the
        following:
 
 ·
              Vulnerability
                  of our business to general economic
                  downturn;
  ·
              Our
                  dependence on government contracts;
  ·
              Fluctuation
                  and unpredictability of costs related to our products and
                  services;
  ·
              Changes
                  in the laws of the PRC that affect our
                  operations;
  ·
              Our
                  failure to meet or timely meet contractual performance standards
                  and
                  schedules;
   40
  ·
              Any
                  recurrence of severe acute respiratory syndrome (SARS) or Avian
                  Flu;
  ·
              Reduction
                  or reversal of our recorded revenue or profits due to “percentage of
                  completion” method of accounting;
  ·
              Our
                  dependence on the steel and aluminum
                  markets;
  ·
              Exposure
                  to product liability and defect
                  claims;
  ·
              Our
                  ability to obtain all necessary government certifications and/or
                  licenses
                  to conduct our business;
  ·
              Development
                  of a public trading market for our
                  securities;
  ·
              The
                  cost of complying with current and future governmental regulations
                  and the
                  impact of any changes in the regulations on our operations;
                  and
  ·
              The
                  other factors referenced in this quarterly report, including, without
                  limitation, under the sections entitled “Risk Factors” and “Management’s
                  Discussion and Analysis of Financial Condition and Results of Operations.”
  These
        risks and uncertainties, along with others, are also described above under
        the
        heading “Risk Factors.” Should one or more of these risks or uncertainties
        materialize, or should any of the parties’ assumptions prove incorrect, actual
        results may vary in material respects from those projected in these
        forward-looking statements. We undertake no obligation to update or revise
        any
        forward-looking statements, whether as a result of new information, future
        events or otherwise, except as may be required under applicable securities
        laws.
 
 **ITEM
        3. CONTROLS AND PROCEDURES**
  *(a)
        Evaluation of disclosure controls and procedures*
  As
        of
        September 30, 2006, our management, with the participation of our Chief
        Executive Officer, or “CEO,” and Chief Financial Officer, or “CFO,” performed an
        evaluation of the effectiveness and the operation of our disclosure controls
        and
        procedures as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
        Exchange Act of 1934, as amended, or the “Exchange Act.” Based on that
        evaluation, the CEO and CFO concluded that our disclosure controls and
        procedures were effective as of September 30, 2006.
  *(b)
        Changes in internal control over financial reporting*
  Based
        on
        the evaluation of our management as required by paragraph (d) of Rule 13a-15
        or
        15d-15 of the Exchange Act, we believe that there were no changes in our
        internal control over financial reporting that occurred during our last fiscal
        quarter that have materially affected, or are reasonably likely to materially
        affect, our internal control over financial reporting.
 
 However,
        upon the closing of the Share Exchange on October 17, 2006, which occurred
        after
        the end of the fiscal quarter covered by this report, the internal control
        over
        financial reporting utilized by Full Art International, Ltd. prior to the
        Share
        Exchange became the internal control over financial reporting of our company.
        Upon closing of the Share Exchange, we (i) became the 100% parent of Full
        Art,
        which has four subsidiaries, including its wholly-owned subsidiary, Zhuhai
        King
        Glass Engineering Co., Ltd., a company formed under the laws of the People’s
        Republic of China (“PRC” or “China”), (ii) assumed the operations of Full Art
        and its subsidiaries and (iii) changed our name from SRKP 1, Inc. to China
        Architectural Engineering, Inc. Following the Share Exchange the sole business
        conducted by our company became the business conducted by Full Art, and the
        officers and directors of Full Art became the officers and directors of our
        company. We believe these changes will materially affect, or are reasonably
        likely to materially affect, our internal controls over financial
        reporting.
 
  **PART
        II-OTHER INFORMATION**
 
 **ITEM
        1.**  **LEGAL
        PROCEEDINGS**
 
 We
        are
        not currently a party to any material legal proceedings.
   41
  **ITEM
        2.**  **UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
 
 We
        had no
        unregistered sales of equity securities for the quarter ended September 30,
        2006. However, we did have unregistered sales of equity securities after
        the
        closing of the Share Exchange and Private Placement on October 17, 2006.
        See
        Part II, Item 5 for a description of the unregistered sales of equity
        securities.
 
 **ITEM
        3.**  **DEFAULTS
        UPON SENIOR SECURITIES**
 None.
 
 **ITEM
        4.**  **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
 
 **ITEM
        5.**  **OTHER
        INFORMATION**
 
 On
        October 17, 2006, pursuant to the terms of the Exchange Agreement entered
        into
        by and between us, Full Art and the sole shareholder of Full Art, we issued
        45,304,125 shares of common stock to the shareholder, which is KGE Group,
        Limited, and its designees in exchange for all of the issued and outstanding
        securities of Full Art. The securities were offered and issued to KGE Group
        and
        its designees in reliance upon exemptions from registration pursuant to Section
        4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated
        thereunder. Each of KGE Group and its designees qualified as an accredited
        investor (as defined by Rule 501 under the Securities Act of 1933, as
        amended).
 
 On
        October 17, 2006, immediately following the closing of the Share Exchange,
        we
        received gross proceeds of $3,713,400 in a private placement transaction
        (the
“Private Placement”). Pursuant to subscription agreements entered into with the
        investors, we sold an aggregate of 2,320,875 shares of our common stock at
        a
        price of $1.60 per share. We agreed to file a registration statement covering
        the common stock sold in the private placement within 30 days of the closing
        of
        the Share Exchange pursuant to the subscription agreement with each investor.
        The securities were offered and sold to investors in reliance upon exemptions
        from registration pursuant to Section 4(2) under the Securities Act of 1933,
        as
        amended, and Rule 506 promulgated thereunder. Each of the persons and/or
        entities receiving our securities qualified as an accredited investor (as
        defined by Rule 501 under the Securities Act of 1933, as amended).
 
 On
        October 17, 2006, at the closing of the Share Exchange, we issued to an
        investment firm 100,000 shares of our common stock and five year warrants
        to
        purchase 232,088 shares of our common stock at a per share exercise price
        of
        $1.60 for investor relations services (the “IR Securities”). The securities were
        offered and sold to investment firm in reliance upon exemptions from
        registration pursuant to Section 4(2) under the Securities Act of 1933, as
        amended, and Rule 506 promulgated thereunder. The investment firm qualified
        as
        an accredited investor (as defined by Rule 501 under the Securities Act of
        1933,
        as amended).
 
 In
        addition, our shareholders, on October 17, 2006, canceled an aggregate of
        3,125,000 shares of common stock such that there were 2,275,000 shares
        outstanding immediately prior to the Share Exchange. The share cancellation
        was
        a condition to the closing of the Share Exchange and the shareholders did
        not
        receive any cash consideration for the cancellation.
 
 **ITEM
        6.**  **EXHIBITS**
 
 (a)
        Exhibits
 
 2.1
              
              Share
                  Exchange Agreement, dated as of August 21, 2006, by and among the
                  Registrant, KGE Group, Limited, and Full Art International, Ltd.
                  (incorporated by reference from Exhibit 2.1 to Current Report on
                  Form 8-K
                  filed with the Securities and Exchange Commission on October 20,
                  2006).2.1(a)
              
              Amendment
                  No. 1 to the Share Exchange Agreement, dated as of October 17,
                  2006, by
                  and among the Registrant, KGE Group, Limited, and Full Art International,
                  Ltd. (incorporated by reference from Exhibit 2.1(a) to Current
                  Report on
                  Form 8-K filed with the Securities and Exchange Commission on October
                  20,
                  2006).
   42
   3.3
              
              Articles
                  of Merger Effecting Name Change (incorporated by reference from
                  Exhibit
                  3.3 to Current Report on Form 8-K filed with the Securities and
                  Exchange
                  Commission on October 20, 2006).10.1
              
              Form
                  of Subscription Agreement dated October 17, 2006 (incorporated
                  by
                  reference from Exhibit 10.1 to Current Report on Form 8-K filed
                  with the
                  Securities and Exchange Commission on October 20,
                  2006).10.3
              
              Employment
                  Agreement dated December 30, 2005 by and between the Registrant
                  and Luo
                  Ken Yi (translated to English) (incorporated by reference from
                  Exhibit
                  10.3 to Current Report on Form 8-K filed with the Securities and
                  Exchange
                  Commission on October 20, 2006).10.4
              
              Employment
                  Agreement dated January 11, 2005 by and between the Registrant
                  and Tang
                  Nianzhong (translated to English) (incorporated by reference from
                  Exhibit
                  10.4 to Current Report on Form 8-K filed with the Securities and
                  Exchange
                  Commission on October 20, 2006).10.5
              
              Employment
                  Agreement by and between the Registrant and Ye Ning (translated
                  to
                  English) (incorporated by reference from Exhibit 10.5 to Current
                  Report on
                  Form 8-K filed with the Securities and Exchange Commission on October
                  20,
                  2006).10.6
              
              Employment
                  Agreement dated January 1, 2006 by and between the Registrant and
                  Li
                  Guoxing (translated to English) (incorporated by reference from
                  Exhibit
                  10.6 to Current Report on Form 8-K filed with the Securities and
                  Exchange
                  Commission on October 20, 2006).10.7
              
              Employment
                  Agreement dated January 1, 2005 by and between the Registrant and
                  Bai Fai
                  (translated to English) (incorporated by reference from Exhibit
                  10.7 to
                  Current Report on Form 8-K filed with the Securities and Exchange
                  Commission on October 20, 2006).10.8
              
              Employment
                  Agreement dated December 26, 2005 by and between the Registrant
                  and Wang
                  Zairong (translated to English) (incorporated by reference from
                  Exhibit
                  10.8 to Current Report on Form 8-K filed with the Securities and
                  Exchange
                  Commission on October 20, 2006).10.9
              
              Employment
                  Agreement dated December 20, 2005 by and between the Registrant
                  and Feng
                  Shu (translated to English) (incorporated by reference from Exhibit
                  10.9
                  to Current Report on Form 8-K filed with the Securities and Exchange
                  Commission on October 20, 2006).10.10
              
              Employment
                  Agreement dated December 26, 2005 by and between the Registrant
                  and Wang
                  Xin (translated to English) (incorporated by reference from Exhibit
                  10.10
                  to Current Report on Form 8-K filed with the Securities and Exchange
                  Commission on October 20, 2006).31.1
              
              Certification
                  of Chief Executive Officer pursuant to Section 302(a) of the
                  Sarbanes-Oxley Act of 200231.2
              
              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.*
  
 *
        This
        exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities
        Exchange Act of 1934 or otherwise subject to the liabilities of that section,
        nor shall it be deemed incorporated by reference in any filing under the
        Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
        before or after the date hereof and irrespective of any general incorporation
        language in any filings.
 
  43
 
 **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant has
        duly
        caused this report to be signed on its behalf by the undersigned, thereunto
        duly
        authorized.
 
 **CHINA
                  ARCHITECTURAL ENGINEERING, INC.**
                (Registrant)November
                  20, 2006
              By:
              /s/ Luo
                  Ken YiLuo
                  Ken YiChief
                  Executive Officer, Chief Operating Officer and Chairman of the
                  Board
   44