Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report.

Results of Operations

Fiscal Year Ended August 31, 2009 Compared to the Fiscal Year Ended August 31, 2008.

Revenues. Consolidated operating revenues for the twelve-month period ended August 31, 2009 was $55,637,894, compared to $40,467,123 for the same corresponding period in year 2008, an increase of $15,170,771 or 37.5%. The increase is mainly the result of increased sales of cement, which amounted to 785,631 tons or 74.3%.

Gross Profit. Gross profit decreased by $5,941,696 or 61% to $3,798,728 for the year ended August 31, 2009 from $9,740,424 for the same corresponding period in year 2008. The significant decrease is mainly due to the growth in unit cost of cement and decrease of the price of sales. The unit price of cement decreased $10 per ton in 2009 compared year over year, while the cost of sales decreased $2 per ton in the same corresponding period.

Selling Expense. Selling expenses for the 2009 and 2008 fiscal years were $362,989 and $182,539, respectively, an increase of $180,450. The increase is mainly attributable to an increase in sales service fee of $180,450.

General and Administrative Expenses. General and administrative expenses for the 2009 fiscal year were $1,904,219, compared to $1,624,449 for the 2008 fiscal year, an increase of $279,770 or 17%. Among the increased General and Administrative Expenses was the cost incurred in consulting expense.

Net Income. Net income for the 2009 fiscal year was $3,851,152, compared to $6,962,683 for the 2008 fiscal year. The decrease is attributable to the decreased gross profit.

Liquidity and Capital Resources

As of August 31, 2009 and 2008, cash and cash equivalents totaled $752,952 and $415,031, respectively.

The net cash provided by operations decreased by $10,454,483 to $2,772,827 for the year ended August 31, 2009 from $13,227,310 for 2008 fiscal year. The decreased net cash from operations was primarily due to the contribution from accounts receivable, advance to suppliers, and tax payable amounted to $4,772,788, $4,753,727and $1,303,062 respectively.

During the 2009 fiscal year, the Company obtained a total of $2,669,980 from financing activities compared to $2,574,182 for the 2008 fiscal year, an increase of $95,798. The increase was mainly attributable to the increase in short term bank loans.

During the 2009 fiscal year, the Company used a total $4,947,511 in investing activities compared to $17,136,499 for 2008, a decrease of $12,188,988. The decrease was mainly attributable to the completion of the second cement clinker production line in September 2008. The investing activity during the current year is mainly for the waste-heat generator project, which was put into production on October 25, 2009.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

Inflation

The effect of inflation on our revenue and operating results has not been significant.

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Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.

Impairment of Long-Lived Assets

The Company evaluates potential impairment of long-lived assets, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires the Company to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. The Company believes that long-lived assets in the accompanying balance sheets are appropriately valued at August 31, 2009.

Foreign Currency Translation

The functional currency of the Company is the Renminbi ("RMB"), the PRC's currency. The Company maintains its financial statements using the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.

For financial reporting purposes, the financial statements of the Company, which are prepared using the RMB, are translated into the Company's reporting currency, United States Dollars. Balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using the average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in accumulated other comprehensive income (loss) in stockholder's equity.

Fair Value of Financial Instruments

The Company's financial instruments include cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, value-added taxes, short-term and long-term bank loans, and loans payable to related parties. The carrying amounts of financial instruments other than long-term obligations approximate fair value due to their short maturities. Long-term obligations approximate fair value based upon rates currently available for similar instruments.