UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON D.C. 20549
 
 FORM 10-K/A
 Amendment No. 2
 
 R           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the fiscal year ended: December 31, 2008
 
 OR
 
 £           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 COMMISSION FILE NUMBER: 000-53773
 
 CHINA CLEAN ENERGY INC.
 (Exact name of Registrant as specified in its charter)
 
 Delaware
87-0700927(State or other jurisdiction of incorporation)
(I.R.S. Employer Identification Number)Jiangyin Industrial Zone, Jiangyin Town

Fuqing City, Fujian Province

People’s Republic of China
350309(Address of principal executive office)
(Zip Code)
 
 Registrant’s telephone number, including area code: (347) 235-0258
 
 Securities registered pursuant to Section 12(b) of the Exchange Act:  None
 
 Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value
 ________________
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £  No R
 
 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £  No R
 
 Indicate by check 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 R No £
 
 Indicate by check whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filed). Yes £ No £
 
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer £  Accelerated filer £  Non-accelerated filer  £ Smaller reporting company R
 
 Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes £  No R
 
 The aggregate market value of the voting and non-voting Common Stock held by nonaffiliates computed by reference to the closing sales price of the Common Stock as of June 30, 2008 was $13,842,239. As of March 27, 2009 there were 31,512,269 shares of Common Stock outstanding.
 
 Documents incorporated by reference:
  None
 
 EXPLANATORY NOTE
 
 This Amendment No. 2 on Form 10-K/A (this “Amendment No. 2”) amends the Annual Report on Form 10-K of China Clean Energy Inc. (the “Company”) for the year ended December 31, 2008, previously filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2009 (the “Original Filing”) and previously amended by Amendment No. 1 on Form 10-K/A filed with the SEC on August 18, 2009 (“Amendment No. 1”). This Amendment No. 2 is being filed because the certifications required by Item 601(b)(31) of Regulation S-K accompanying the Original Filing and Amendment No. 1 erroneously omitted the introductory language of paragraph 4 that references internal control over financial reporting. Accordingly, this Amendment No. 2 includes the corrected certifications.  Pursuant to interpretation 246.13 in the Regulation S-K section of the SEC’s “Compliance & Disclosure Interpretations,” we are also filing full Item 9A(T) disclosures and our consolidated financial statements as part of this Amendment No. 2.  Except as described above, we have not modified or updated any other disclosures contained in Amendment No. 1, including without limitation Item 9A(T) and the consolidated financial statements.  This Amendment No. 2 also includes certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  1
  TABLE OF CONTENTS
 
 PagePART IIItem 8.
Financial Statements and Supplementary Data.
3Item 9A(T).
Controls and Procedures.
26PART IVItem 15.
Exhibits and Financial Statement Schedules.
27
 
  2
  PART II
  Item 8.
Financial Statements and Supplementary Data.


CHINA CLEAN ENERGY INC.
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  DECEMBER 31, 2008 AND 2007
  Report of Independent Registered Public Accounting Firm
4Report of Independent Registered Public Accounting Firm
5Consolidated Balance Sheets as of December 31, 2008 and 2007
6Consolidated Statements of Income and Other Comprehensive Income for the Years ended December 31, 2008 and 2007
7Consolidated Statements of Shareholders’ Equity and Comprehensive Income
8Consolidated Statements of Cash Flows for the Years ended December 31, 2008 and 2007
9Notes to Consolidated Financial Statements
10
  3
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of Directors and Stockholders
 of China Clean Energy Inc.
  We have audited the accompanying consolidated balance sheet of China Clean Energy Inc. and subsidiaries as of December 31, 2008 and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of China Clean Energy Inc. and subsidiaries as of December 31, 2007 in the accompanying consolidated financial statements were audited by other auditors whose report dated March 7, 2008 expressed an unqualified opinion on those statements.
  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Clean Energy Inc. and subsidiaries as of December 31, 2008 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
   /s/ Moore Stephens Wurth Frazer and Torbet, LLP
   Walnut, California
  March 26, 2009
  4
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the Board of Directors and Stockholders of
 China Clean Energy Inc.
 
 I have audited the accompanying consolidated balance sheets of China Clean Energy Inc. and subsidiaries (the “Company”) as of December 31, 2007 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits.
 
 I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
 
 In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Clean Energy Inc. and subsidiaries as of December 31, 2007 and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.
   /s/ Michael T. Studer CPA P.C.

Michael T. Studer CPA P.C.
  
 Freeport, New York
 March 7, 2008
  5
  CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2008 AND 2007
  December 31,2008


2007ASSETSCURRENT ASSETSCash and cash equivalents

$
2,913,711


$
1,133,555Accounts receivable, net of allowance for doubtful accounts of $136,389and $407,593 as of December 31, 2008 and December 31, 2007, respectively


1,092,768



2,795,363Inventories


815,210



1,361,478Advances for inventory and other current assets


310,773



179,815Total current assets


5,132,462



5,470,211PLANT AND EQUIPMENT, NET


19,167,624



5,820,045INTANGIBLE ASSETS, NET


5,072,626



4,879,635ADVANCES ON EQUIPMENT PURCHASES


3,649,192



872,974TOTAL ASSETS

$
33,021,904


$
17,042,865LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIESAccounts payable

$
350,618


$
150,557Customer deposits


31,422



181,825Accrued liabilities


349,435



115,249Taxes payable


156,965



334,049Short-term bank loans


––



1,028,228Long-term bank loans – current portion


236,308



202,792Total current liabilities


1,124,748



2,012,700LONG-TERM BANK LOANS


21,553



241,097COMMITMENTS AND CONTINGENCIES


––



––Total liabilities


1,146,301



2,253,797SHAREHOLDERS’ EQUITYPreferred stock, par value $0.001 per share, authorized 10,000,000 shares,no shares issued and outstanding as of December 31, 2008 and 2007


––



––Common stock, par value $0.001 per share, authorized 90,000,000 shares, 31,512,269 and 21,512,269 shares issued and outstanding as ofDecember 31, 2008 and 2007, respectively


3,151



2,151Additional paid-in capital


21,584,006



7,053,834Statutory reserves


1,457,432



1,195,744Retained earnings


5,661,025



5,325,897Accumulated other comprehensive income


3,169,989



1,211,442Total shareholders’ equity


31,875,603



14,789,068Total liabilities and shareholders’ equity

$
33,021,904


$
17,042,865
  See report of independent registered public accounting firm.
  The accompanying notes are an integral part of these statements.
  6
  CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 
 Years Ended December 31,2008


2007REVENUES

$
18,169,835


$
21,756,010Less: Cost of goods sold


14,310,907



15,882,799GROSS PROFIT


3,858,928



5,873,211OPERATING EXPENSESelling and marketing


249,583



695,007General and administrative


2,328,472



1,556,599Research and development


154,499



156,839Total operating expense


2,732,554



2,408,445INCOME FROM OPERATIONS


1,126,374



3,464,766OTHER INCOME (EXPENSE)Interest income (expense), net


24,707



(104,872
)Other incomes (expenses)


(184,625
)


––Total other income (expense)


(159,918
)


(104,872
)INCOME BEFORE  INCOME TAXES


966,456



3,359,894PROVISION FOR INCOME TAXES


369,640



––NET INCOME


596,816



3,359,894OTHER COMPREHENSIVE INCOMEForeign currency translation adjustment


1,958,547



796,353COMPREHENSIVE INCOME

$
2,555,363


$
4,156,247BASIC AND DILUTED EARNINGS PER SHAREWeighted average number of shares


31,293,091



21,512,269Earnings per share

$
0.0191


$
0.1562
  See report of independent registered public accounting firm.
  The accompanying notes are an integral part of these statements.
  7
  CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
 
 Additional


Retained Earnings


Accumulated

OtherCommon Stock


Paid-in


Statutory


Unrestricted


ComprehensiveShares


Amount


Capital


Reserves


Earnings


Income


TotalBalance, December 31, 2006


21,512,269


$
2,151


$
7,053,834


$
785,536


$
2,376,211


$
415,089


$
10,632,821Net income


















3,359,894







3,359,894Adjustment to statutory reserve














410,208



(410,208
)Foreign currencytranslation adjustment



















796,353



796,353Balance at December 31, 2007


21,512,269



2,151



7,053,834



1,195,744



5,325,897



1,211,442



14,789,068Common stock and warrants for cash


10,000,000



1,000



13,626,403















13,627,403Stock based compensation










903,769















903,769Net income


















596,816







596,816Adjustment to statutory reserve














261,688



(261,688
)






––Foreign currencytranslation adjustment



















1,958,547



1,958,547Balance at December 31, 2008


31,512,269


$
3,151


$
21,584,006


$
1,457,432


$
5,661,025


$
3,169,989


$
31,875,603
  See report of independent registered public accounting firm.
  The accompanying notes are an integral part of these statements.
  8
  CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
  2008


2007CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
596,816


$
3,359,894Adjusted to reconcile net income to cash provided by operating activities:Depreciation


707,177



542,875Change in allowance for uncollectible accounts


(294,534
)


174,767Amortization of intangible assets


225,731



178,635Stock-based compensation


903,769



––Writedown on inventory


93,838



––Loss on disposal of assets


177,905



––Impairment on fixed assets


74,817



––Changes in operating assets and liabilitiesAccounts receivable


2,159,868



(729,952
)Inventories


536,611



(340,505
)Advances for inventory and other current assets


(116,310
)


(135,505
)Accounts payable


186,224



(211,552
)Customer deposit


(160,299
)


174,628Other payables and accrued liabilities


222,185



69,353Taxes payables


(196,992
)


225,283Net cash provided by operating activities


5,116,806



3,307,921CASH FLOWS FROM INVESTING ACTIVITIESAddition to construction in progress


(11,653,579
)


(1,162,047
)Purchase of equipment


(2,182,310
)


(614,343
)Proceeds from sale of equipment


160,871



––Deposit on purchase of land use rights


––



(2,467,388
)Advances for equipment purchases


(2,667,896
)


(838,422
)Net cash used in investing activities


(16,342,914
)


(5,082,200
)CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from issuance of  common stock


13,627,403



––Payment on short-term bank loans


(1,081,102
)


(329,177
)Proceeds from long-term bank loans


––



426,319Payment on long-term bank loans


(213,336
)


––Net cash provided by financing activities


12,332,965



97,142EFFECT OF EXCHANGE RATE ON CASH


673,299



568,980INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


1,780,156



(1,108,157
)CASH AND CASH EQUIVALENTS, beginning


1,133,555



2,241,712CASH AND CASH EQUIVALENTS, ending

$
2,913,711


$
1,133,555SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for:Interest expense

$
50,672


$
114,227Income taxes

$
298,024


$
––
  See report of independent registered public accounting firm.
  The accompanying notes are an integral part of these statements.
  9
  CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  For The Years Ended December 31, 2008 and 2007
 NOTE 1 – ORGANIZATION AND BUSINESS
  China Clean Energy, Inc. (“CCE” or the “Company”) was incorporated in the State of Delaware on November 12, 2004. The Company originally through its direct and indirect wholly-owned subsidiaries, China Clean Energy Resources Limited (“CCER”), Fujian Zhongde Technology Co., Ltd. (“Fujian Zhongde”), synthesizes and distributes renewable fuel products and specialty chemicals to customers in both the People’s Republic of China (“PRC”) and abroad.
  On November 5, 2007, CCER established a new wholly-owned subsidiary, Fujian Zhongde Energy Co., Ltd. (“Zhongde Energy”), in Jiangyin Industrial Zone, Fuqing City, Fujian Province, PRC. Zhongde Energy plans to build a biodiesel and specialty chemicals refinery in the Jiangyin Industrial Park and produce and sell biodiesel and specialty chemicals products. The construction of its production plant is currently in progress.
  NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
  The accompanying consolidated financial statements of China Clean Energy Inc. reflect the activities of CCE and its 100% owned subsidiaries CCER, Fujian Zhongde and Zhongde Energy (collectively the “Company”). All inter-company balances and transactions have been eliminated in consolidation.
  Basis of Presentation
  The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States and are expressed in US dollars.
  Use of Estimates
  The preparation of financial statements in conformity with accounting principles generally accepted in the Unites States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, the Company estimates the fair value of share based compensation granted to its employees and estimates its potential losses on uncollectible receivables. Management believes that the estimates utilized in preparing its financial statements are reasonable and prudent. Actual results could differ from those estimates.
  Fair Value of Financial Instruments
  On January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements,” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. Current assets and current liabilities qualified as financial instruments and management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their current interest rate is equivalent to interest rates currently available. The three levels are defined as follow:
  ·
Level 1 -- inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
  ·
Level 2 -- inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
  10
  ·
Level 3 -- inputs to the valuation methodology are unobservable and significant to the fair value.
  As of December 31, 2008 and 2007, the short term and long term bank loans amounted to $236,308 and $21,553, and $1,231,020 and $241,097, respectively. In accordance with SFAS 157, the Company determined that the carrying value of these loans approximated the fair value using the level 2 inputs by comparing the stated loan interest rate to the rate charged by the Bank of China to similar loans.
  The Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with SFAS 157.
  Foreign Currency Translation
  The functional currency of CCE and CCER is the United States dollar. The functional currency of Fujian Zhongde and Zhongde Energy is the Chinese Renminbi (“RMB”). The reporting currency of the Company is the United States dollar.
  Fujian Zhongde and Zhongde Energy assets and liabilities are translated into United States dollars at period-end exchange rates ($0.14670 and $0.13710 at December 31, 2008 and 2007, respectively). Fujian Zhongde and Zhongde Energy revenues and expenses are translated into United States dollars at weighted average exchange rates for the periods ($0.14415 and $0.13710 for the years ended December 31, 2008 and 2007, respectively). Resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Items in the cash flow statement are translated at the average exchange rate for the period. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
  As of December 31, 2008 and 2007, translation adjustments resulting from this process included in accumulated other comprehensive income in the consolidated statement of stockholders’ equity amounted to $3,169,989 and $1,211,442, respectively.
  Cash and Cash Equivalents
  The Company considers all highly liquid instruments with original maturities of three months or less at the time of purchase to be cash equivalents.
  Accounts Receivable
  The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Known bad debts are written off against allowance for doubtful accounts when identified.
  Inventories
  Inventories are stated at the lower of cost or market using weighted average method. Management reviews inventories for obsolescence or cost in excess of net realizable value periodically and records an inventory writedown and additional cost of goods sold when the carrying value exceeds net realizable value.
 11
 Plant and Equipment
  Plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
  Estimated Useful LifeBuildings
10-20 yearsVehicle
5 yearsOffice equipment
5 yearsProduction equipment
10 years
 
 Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. No depreciation is provided for construction in progress until such time as the assets are completed and placed into service. Maintenance, repairs and minor renewals are charged directly to expense as incurred. Major additions and betterment to buildings and equipment are capitalized. Interest incurred during construction is capitalized into construction in progress. All other interest is expensed as incurred.
  Intangibles
  Under the SFAS 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. Intangible assets other than goodwill will be amortized over their useful lives and reviewed for impairment in accordance with SFAS 144, "Accounting for Impairment or Disposal of Long-Lived Assets".
  Intangible assets consist of land use right and patents. All land in the People’s Republic of China is owned by government, however, the government grants “land use rights”. China Clean Energy, through its 100% owned subsidiaries, owns three land use rights with usable life ranging from 42 to 50 years which will expire ranging from 2048 to 2058. The Company amortizes the cost of land use right over their usable life.
  Patents, which have legal life of 10 years in PRC, are being amortized over 10 years as management believes that ten years is the estimated useful life of the ptaents currently owned by the Company.
  Impairment of Long-Lived Assets
  The Company reviews its long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected discounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets. As of December 31, 2008 and 2007, the Company recorded an impairment loss totaling $74,817 and $0, respectively.
  12
  Revenue Recognition
 Sales are recognized when the revenue is realized or realizable, and has been earned, in accordance with the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.” The Company’s sales are related to sales of product. Revenue for product sales is recognized as risk and title to the product transfer to the customer, which usually occurs at the time when shipment is made, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectibility is deemed probable. Substantially all of the Company’s products are sold FOB (“free on board”) shipping point. Title to the product passes when the product is delivered to the freight carrier.
  Transportation and unloading charges and product inspection charges are included in selling expenses and totaled $189,703 and $645,171 for the years ended December 31, 2008 and 2007, respectively.
  Research and Development Costs
  Research and development (or “R&D”) expenses include salaries, material, contract and other outside service fees, and facilities and overhead costs. Under the guidance of paragraphs 8 to 11 of SFAS 2 “Accounting for Research and Development Costs”, the Company expenses the costs associated with the research and development activities when incurred.
  The research and development expenses are included in general and administrative expenses and totaled $154,499 and $156,839 for the years ended December 31, 2008 and 2007, respectively.
  Stock-based Compensation
  The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS 123R, “Accounting for Stock-Based Compensation,” and the conclusions reached by EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services.” Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
  Income Taxes
  The Company records income taxes pursuant to SFAS 109, "Accounting for Income Taxes". SFAS 109 requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes.
  The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date.
  Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. Because there is no material difference between income reported under Generally Accepted Accounting Principles in the United States and income reported under Chinese tax regulation, there are no deferred tax amounts at December 31, 2008 and 2007.
  13
  The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s financial statements.
  China Income Taxes
  The Company’s subsidiaries are governed by the Income Tax Law of the People’s Republic of China (PRC) concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws (the Income Tax Laws).
  Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the old laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”).
  The key changes are:
  a.
The new standard EIT rate of 25% replaces the 33% rate applicable to both DES and FIEs, except for High Tech companies that pay a reduced rate of 15%;
  b.
Companies established before March 16, 2007 continue to enjoy tax holiday treatment approved by local government for a grace period of either for the next 5 years or until the tax holiday term is completed, whichever is sooner.
  Earnings Per Share
  Basic earnings per common share are computed on the basis of the weighted average number of common shares outstanding during the period.
  Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.
  Reclassifications
  Retained Earnings in the amount of $410,208 had been reclassified to Statutory Reserves as of December 31 to conform to the 2008 financial statement presentation. These reclassifications had no effect on net income or cash flows as previously reported.
  Recent Accounting Pronouncements
  In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133”, which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact that adopting SFAS 161 will have on its financial statements.
  14
  In April 2008, the FASB issued FSP 142-3 “Determination of the useful life of Intangible Assets”, which amends the factors a company should consider when developing renewal assumptions used to determine the useful life of an intangible asset under SFAS 142. This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. SFAS 142 requires companies to consider whether renewal can be completed without substantial cost or material modification of the existing terms and conditions associated with the asset. FSP 142-3 replaces the previous useful life criteria with a new requirement—that an entity consider its own historical experience in renewing similar arrangements. If historical experience does not exist then the Company would consider market participant assumptions regarding renewal, including 1) highest and best use of the asset by a market participant, and 2) adjustments for other entity-specific factors included in SFAS 142. The Company is currently evaluating the impact that adopting FSP 142-3 will have on its financial statements.
  In May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
  In May 2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee Insurance Contracts – An interpretation of FASB Statement No. 60”. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
  In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Early application of EITF 03-6-1 is prohibited. It also requires that all prior-period EPS data be adjusted retrospectively. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.
  In June 2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF 07-5”). This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Paragraph 11(a) of Statement of Financial Accounting Standard 133 “Accounting for Derivatives and Hedging Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. The Company believes adopting this statement will have a material impact on the financial statements because among other things, any option or warrant previously issued and all new issuances denominated is US dollars will be required to be carried as a liability and marked to market each reporting period.
  15
  On October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 became effective on October 10, 2008, and its adoption did not have a material impact on our financial position or results for the year ended December 31, 2008.
  In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP FAS 140-4 and FIN 46(R)-8”). FSP FAS 140-4 and FIN 46(R)-8 amends FAS 140 and FIN 46(R) to require additional disclosures regarding transfers of financial assets and interest in variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 is effective for interim or annual reporting periods ending after December 15, 2008. FSP FAS 140-4 and FIN 46(R)-8, will not have a material impact on our consolidated financial statements because we do not have any variable interest entities.
  In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes the impairment model included within EITF 99-20 to be more consistent with the impairment model of SFAS No. 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on our consolidated financial statements because all of our investments in debt securities are classified as trading securities.
  NOTE 3–ACCOUNTS RECEIVABLE
  Accounts receivable consisted of the following:
  December 31,

2008


December 31,

2007Accounts receivable

$
1,229,157


$
3,202,956Less: allowance for doubtful accounts


(136,389
)


(407,593
)Accounts receivable, net

$
1,092,768


$
2,795,363
  16
  The following table consists of allowance for doubtful accounts at December 31, 2008 and December 31, 2007.
  December 31,

2008


December 31,

2007Beginning allowance for doubtful accounts

$
407,593



228,604Additions to bad debt expense


––



163,119Recovery of amount previously reserved


(294,543
)


––Effect of foreign currency translation gain


23,339



15,870Ending allowance for doubtful accounts

$
136,389



407,593
  NOTE 4 – INVENTORIES
  Inventories consist of the following:
  December 31,

2008


December 31,

2007Raw materials

$
353,438


$
564,993Work in process and packaging material


70,360



11,728Finished goods on shipment


38,856



––Finished goods


352,556



784,757Total

$
815,210


$
1,361,478
  As of December 31, 2008,and 2007,management determined the carrying amount of raw materials exceeded prices currently available; therefore, $92,113 and $0 was written down and the amount had been included in cost of goods sold for 2008 and 2007 respectively.
  NOTE 5 – PLANT AND EQUIPMENT
  Plant and equipment, net consist of:
  December 31,

2008


December 31,

2007Buildings

$
2,456,981


$
2,227,928Equipment and machinery


6,620,068



5,309,511Office equipment and vehicles


51,380



55,998Construction in progress


13,079,606



1,209,953Total


22,208,035



8,803,390Less accumulated depreciation


(3,040,411
)


(2,983,345
)Plant and equipment, net

$
19,167,624


$
5,820,045Advances on equipment purchases

$
3,649,192


$
872,974
  17
  Construction in progress represents material, labor costs, and capitalized interest incurred to construct the Zhongde Energy Co., Ltd in Jiangyin, Fujian. Management expects construction will be completed by the 2nd quarter of 2009. No depreciation is provided for construction in progress until such time until construction is complete and assets are placed into service. As of December 31, 2008, the construction in progress totaled $13.1 million.
  Depreciation expense for years ended December 31, 2008 and 2007 was $707,177 and $542,875, respectively. During the years ended December 31, 2008 and 2007, interest expense of $50,672 and $114,227 was capitalized into construction in progress, respectively.
  NOTE 6 – INTANGIBLE ASSETS
  Intangible assets, net consist of:
  December 31,

2008


December 31,

2007Land use rights

$
4,950,538


$
4,550,853Patents and licenses


1,349,640



1,261,292Total


6,300,178



5,812,145Less accumulated amortization


(1,227,552
)


(932,510
)Total intangible assets, net

$
5,072,626


$
4,879,635
  Amortization expense for the years ended December 31, 2008 and 2007 amounted to $225,731 and $178,635, respectively. The estimated aggregate amortization expense for each of the five succeeding fiscal years are as the following:
  Years

Estimated

Amortization Expense2009


216,3802010


197,1612011


194,2782012


194,2782013


194,278
  18
  NOTE 7 – BANK INDEBTEDNESS
  Bank indebtedness consists of:
  December 31,

2008


December 31,

2007Due bank under revolving credit agreement, interest at 115% of PRC prime rate, secured by  certain buildings and land use rights owned by Fujian Zhongde, repaid January 2008.

$
––


$
1,028,219Due bank, interest at 115% of PRC prime rate, due in monthly installments of principal  and interest of $18,170 through January 2010, secured by certain buildings and land use rights


257,861



443,898Total


257,861



1,472,117Less current portion


(236,308
)


(1,231,020
)Noncurrent portion of bank indebtedness

$
21,553


$
241,097
  Total interest expense on the bank loans for the years ended December 31, 2008 and 2007 amounted to $50,672, which was fully capitalized into construction in progress, and $114,227, respectively.
  NOTE 8 – RETIREMENT AND EMPLOYMENT LIABILITIES
  The full time employees of the Company are entitled to employee benefits including medical care, welfare subsidies, unemployment insurance and retirement benefits through a Chinese government mandated multi-employer defined contribution plan. The Company is required to accrue for those benefits based on certain percentages of the employees’ salaries and make contributions to the plans out of the amounts accrued for medical and pension benefits. The total provisions and contributions made for such employee benefits was $16,681 and $14,263 for the years ended December 31, 2008 and 2007, respectively. The Chinese government is responsible for the medical benefits and the pension liability to be paid to these employees.
  As of December 31, 2008 and 2007, the Company had no liability for pension or post-employment benefits. The Company does not have a pension or other retirement plan.
  NOTE 9 – $15,000,000 PRIVATE PLACEMENT
  On January 9, 2008, CCE completed a private placement, pursuant to which CCE issued 10,000,000 shares of common stock and 5,000,000 five-year warrants at an initial exercise price of $2.00 per share for aggregate gross proceeds of $15,000,000. In connection with this private placement, CCE incurred placement agent cash fees of approximately $1,200,000, and issued the placement agent 1,200,000 five-year warrants at an initial exercise price of $2.00 per share. The net proceeds of $13.6 million were recorded as equity. The fair value of the warrants issued to the placement agent, was determined to be part of the cost of raising capital and therefore netted against the additional paid-in capital.
  19
  In connection with the private placement, four shareholders and officers placed a total of 1,500,000 shares of their personally owned CCE common stock into an escrow account, to be released to the investors of this offering if the Company fails to (1) commence the production of biodiesel at its currently proposed production facility in Jiangyin, PRC on or before January 1, 2009, or (2) record at least $14,000,000 of adjusted net income for the fiscal year ending December 31, 2009. Should the Company successfully satisfy each of these two milestones, these shares of CCE common stock will be returned to the four shareholders and officers.
  As of January 1, 2009, the Company did not successfully commence production of biodiesel at the Jiangyin location, and the 1,500,000 shares of Company’s common stock held in escrow account that was previously owned by those four shareholders and officers had been transferred to investors. The transfer of the 1,500,000 shares of Company’s common stock will not affect the Company’s financial results.
  In connection with the private placement, CCE entered into a registration rights agreement with the purchasers and agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the common stock issued and underlying the warrants on or before February 23, 2008 and to cause such registration statement to be declared effective by the Securities and Exchange Commission on or before May 8, 2008. On February 1, 2008, the Company filed the registration statement. On February 8, 2008, the registration statement was declared effective by the Securities and Exchange Commission.
  On January 11, 2008, CCER made a capital contribution of $10,000,000 to Zhongde Energy to fulfill the registered capital investment requirements stipulated by the Fuqing City Foreign Trading and Economy Cooperation Bureau.
  NOTE 10 – OPTIONS AND WARRANTS
  On January 9, 2008, the Company adopted the 2008 Equity Incentive Plan. Under the 2008 Equity Incentive Plan, CCE is authorized to issue up to 2,000,000 options, 1,000,000 will have an exercise price equal to the greater of (i) $2.50 or (ii) the fair market value of the common stock on the date of grant (“Tranche 1 Options”) and 1,000,000 will have an exercise price equal to the greater of (i) $3.00 or (ii) 100% of the fair market value of the common stock on the date of grant (“Tranche 2 Options”). Under the 2008 Equity Incentive Plan, CCE is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options and all options under the Plan shall vest quarterly over three years. The 2008 Equity Incentive Plan is administered by CCE’S board of directors.
  On January 9, 2008, CCE granted options to purchase a total of 1,680,000 shares of common stock under the 2008 Equity Incentive Plan, including 1,350,000 granted to Company officers and directors. 840,000 options are exercisable at a price of $2.50 per share and 840,000 options are exercisable at a price of $3.00 per share; all 1,680,000 options expire 10 years from the date of grant. The $3,043,429 fair value of the 1,680,000 stock options will be expensed ratably over the three year requisite service period of the respective personnel. The fair value of the stock options was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: exercise prices of $2.50 (for 840,000 stock options) and $3.00 (for 840,000 stock options), expected life of options of 10 years, expected volatility of 98%, expected dividend yield of 0%, and risk-free interest rate of 3.82%. For the year ended December 31, 2008, $903,769 was amortized and recorded as compensation expense.
  20
  Following is a summary of stock option activity:
  Options

Outstanding


Weighted

Average

Exercise Price


Aggregate

Intrinsic ValueOutstanding as of December 31, 2006


––


$
––


$
––Granted


––



––



––Forfeited


––



––



––Exercised


––



––



––Outstanding as of December 31, 2007


––


$
––


$
––Granted


1,680,000



2.75



3,043,429Forfeited


(1,070,000
)


2.75



(1,902,143
)Exercised


––



––



––Outstanding as of December 31, 2008


610,000


$
2.75


$
1,141,286
  Following is a summary of the status of options outstanding at December 31, 2008:
  Outstanding Options


Exercisable OptionsExercise

Price


Number


Average Remaining

Contractual Life


Average

Exercise Price


Number


Average Remaining

Contractual Life$
2.50



305,000



9.00


$
2.50



264,444



9.00$
3.00



305,000



9.00


$
3.00



264,444



9.00Total



610,000











528.888
  Following is a summary of warrant activity:
  Outstanding as of December 31, 2006


––Granted


––Forfeited


––Exercised


––Outstanding as of December 31, 2007


––Granted


6,200,000Forfeited


––Exercised


––Outstanding as of December 31, 2008


6,200,000
   21
  Following is a summary of the status of warrants outstanding at December 31, 2008:
  Outstanding Options


Exercisable OptionsExercise

Price


Number


Average Remaining

Contractual Life


Average

Exercise Price


Number


Average Remaining

Contractual Life$
2.00



6,200,000



4.00


$
2.00



6,200,000



4.00
  NOTE 11 - EARNINGS PER SHARE
  For the year ended December 31, 2008, all warrants and options were excluded from the calculation of diluted earnings per share because the exercise prices of $2.00, $2.50, and $3.00 were higher than the average trading price of the Company’s stock, making these warrants anti-dilutive. There were no options or warrants outstanding as of December 31, 2007. The basic and diluted earnings per share for the year ended December 31, 2008 and 2007 were $0.02 and $0.16, respectively.
  NOTE 12 – STATUTORY RESERVES
  The Company’s PRC subsidiaries are required to make appropriations to reserve funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory surplus reserve should be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the statutory public welfare fund are at 10% of the after tax net income determined in accordance with PRC GAAP. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. Effective January 1, 2006, the Company is only required to contribute to one statutory reserve fund at 10% of net income after tax per annum. This contribution will be made to meet 50% of the respective companies’ registered capital.
  As of December 31, 2008 and 2007, the Company allocated $1,457,432 and $1,195,744, respectively, to the statutory reserves. The additional amount that still needs to be allocated to statutory reserves to meet the 50% of registered capital as of December 31, 2008 is approximately $6,348,811.
  NOTE 13 – TAXES
  Income Taxes
  Income taxes expenses (credit) consist of:
  Year ended December 31,2008


2007Current:PRC

$
369,640


$
––United States


––



––Total current


369,640



––Deferred


––



––Total

$
369,640


$
––
  22
  Fujian Zhongde has been subject to a PRC 33% standard enterprise income tax. In 2006, Fujian Zhongde became a wholly-owned foreign enterprise (“WOFE”). PRC income tax laws provide that certain WOFEs may be exempt from income taxes for two years, commencing with their first profitable year of operations, after taking into account any losses brought forward from prior years, and thereafter 50% exempt for the next three years. In December 2006, Fujian Zhongde applied for PRC approval of these income tax exemptions. In March 31, 2007, the PRC tax authorities approved a full income tax exemption for the year 2007 and a 12% income tax rate for years 2008, 2009 and 2010.
  Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the old laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% replaces the 33% rate applicable to both DES and FIEs, except for High Tech companies that pay a reduced rate of 15%. For companies established before March 16, 2007 continue to enjoy tax holiday treatment approved by local government for a grace period of either for the next 5 years or until the tax holiday term is completed, whichever is sooner.
  The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2008 and 2007:
  December 31,

December 31,2008

2007U.S. Statutory rates


35
%


35
%Foreign income not recognized in USA


(35
)


(35
)China income taxes


25



33Tax exemption


(13
)


(33
)Total provision for income taxes


12
%


––
%
  The estimated tax savings for the years ended December 31, 2008 and 2007 amounted to $376,984 and $1,175,963. The net effect on earnings per share had the income tax been applied would decrease earnings per share from $0.02 to $0.01 in 2008 and $0.16 to $0.10 in 2007.
  As of December 31, 2008 CCE had an unrecognized deferred United States income tax liability relating to undistributed earnings of Fujian Zhongde. These earnings are considered to be permanently invested in operations outside the United States. Generally, such earnings become subject to United States income tax upon the remittance of dividends and under certain other circumstances. Determination of the amount of the unrecognized deferred United States income tax liability with respect to such earnings is not practicable because the amount of PRC foreign tax credits available to offset United States income taxes will depend on the timing of future remittances, if any, and such timing is not known or predictable. China Clean Energy Inc. was incorporated in the United States and has incurred net operating losses for income tax purposes.for the periods ended December 31, 2008. The net operating loss carry forwards for United States income taxes, which may be available to reduce future years’ taxable income, amounted to $2,467,591 and $744,850 for the years ended December 31, 2008 and 2007, respectively. These carry forwards will expire, if not utilized, through 2024 and 2028. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset benefit to reduce the asset to zero. The valuation allowance as of December 31, 2008 was $902,246 and the valuation allowance was increased by $602,959 for the year ended December 31, 2008. Management will review this valuation allowance periodically and make adjustments as warranted.
  23
  Value Added Tax
  Enterprises or individuals who sell commodities, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax, VAT, in accordance with Chinese laws. The VAT standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on sales of the finished product. A preferential rate is also applied for exporting products.
  VAT on sales and VAT on purchases amounted to $2,063,352 and $1,837,530 for the year ended December 31, 2008 and $2,601,059 and $1,001,619 for the year ended December 31, 2007, respectively. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent because the VAT taxes are not impacted by the income tax holiday. As of December 31, 2008 and 2007, the VAT payable amounted to $72,729 and $320,397, respectively.
  NOTE 14 – RELATED PARTY TRANSACTIONS
  Fujian Zhongde purchases raw materials from companies affiliated with the Company’s majority stockholder. Yang Fan, one of the shareholders of this “affiliated” company, Fujian Zhongde Waste Oil Co. Ltd., is the niece of Ms. Yang Qin, director of China Clean Energy Inc. and a major shareholder of the company. In the year ended December 31, 2008 and 2007, such purchases totaled $869,553 and $5,668,371, respectively. As of December 31, 2008 and 2007, there were no outstanding payables due to these companies.
  NOTE 15 – SEGMENT INFORMATION
  The Company operates in one industry segment – the synthesis and distribution of renewable fuel products and specialty chemicals to customers in both the PRC and abroad. Substantially all of the Company’s identifiable assets at December 31, 2008 were located in the PRC.
  Net sales for the years ended December 31, 2008 and 2007 consist of:
  2008





2007Sales


GP%


Sales


GP%Domestic Sale

$
12,137,363



22
%

$
4,403,686



29
%International Sale


6,032,472



22
%


17,352,323



26
%Total Sales

$
18,169,835



22
%

$
21,756,010



27
%
  24
  NOTE 16 – CONCENTRATIONS AND RISKS
  The Company’s demand deposits are in accounts maintained with stateowned banks within the People’s Republic of China. Total cash deposited with these banks at December 31, 2008 and 2007 amounted to $2,902,707 and $1,133,555, respectively, of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
  For the year ended December 31, 2008, no customer (for specialty chemical products) accounted for over 10% of net sales. In 2007, two customers (for biodiesel products) accounted for 14.56% and 11.97%, respectively, of net sales. The accounts receivable due from these customers amounted to $0 and $1,000,922, respectively, as of December 31, 2008 and 2007.
  For the year ended December 31, 2008, no supplier for feedstock and raw materials accounted for over 10% of the total raw material purchase. In 2007, two suppliers for feedstock and raw materials accounted for 38.06% and 14.99%, respectively, of the total raw material purchase. The accounts payable due to these suppliers amounted to $0 and $19,959, respectively, as of December 31, 2008 and 2007.
  The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the economy in the regions where the Company’s customers are located. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
  The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. Under existing PRC foreign exchange regulations, payment of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of the PRC to pay capital expenses, such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions.
  25
 Item 9A(T).
Controls and Procedures.
 
 Evaluation of Disclosure Controls and Procedures
 
 As required by Rule 15d-15(b) of the Exchange Act, our Chief Executive Officer and Interim Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic filings with the Securities and Exchange Commission and to ensure that information required to be disclosed in our periodic filings with the Securities and Exchange Commission is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosures.
 
 There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 Management’s Annual Report on Internal Control Over Financial Reporting
 
 Our management is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and (iii) compliance with applicable laws and regulations. Our internal controls framework is based on the criteria set forth in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
 Management’s assessment of the effectiveness of the smaller reporting company’s internal control over financial reporting is as of the year ended December 31, 2008. We believe that internal control over financial reporting is effective. We have not identified any, current material weaknesses considering the nature and extent of our current operations and any risks or errors in financial reporting under current operations.
 
 This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Annual Report.
  26
  PART IV
 
 Item 15.
Exhibits and Financial Statement Schedules.
 
 (a)  The following financial statements and financial statement schedules are included in Item 8 herein:
 
 1.  Financial Statements
 
 Report of Independent Registered Public Accounting Firm
 Report of Independent Registered Public Accounting Firm
 Consolidated Balance Sheets as of December 31, 2008 and 2007
 Consolidated Statements of Income and Other Comprehensive Income for the Years ended

December 31, 2008 and 2007
 Consolidated Statements of Shareholders’ Equity and Comprehensive Income
 Consolidated Statements of Cash Flows for the Years ended December 31, 2008 and 2007
 Notes to Consolidated Financial Statements
 
 2.  Financial Statement Schedules
 
 None
 
 3.  Exhibits
 
 See Index to Exhibits
  27
  SIGNATURES
 
 In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 Dated: June 8, 2010
 
 CHINA CLEAN ENERGY INC./s/ Tai-ming OuTai-ming OuPresident and Chief Executive Officer andChairman of the Board of Directors(Principal Executive Officer)
 
 28
  Index to Exhibits
 
 Exhibit 
No.

Description3.1

Composite Certificate of Incorporation of China Clean Energy Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form SB-2 of China Clean Energy Inc. filed with the Securities and Exchange Commission on February 1, 2008)3.2

Bylaws of China Clean Energy Inc. (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on October 30, 2006)10.1

Amended and Restated Consulting Agreement, dated January 18, 2007, between Fujian Zhongde Technology Co., Ltd. and Allstar Capital Inc. (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on January 22, 2007)10.2

Engagement Letter, dated September 19, 2006, between China Clean Energy Resources, Ltd. and Westminster Securities Corporation (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on January 22, 2007)10.3

Credit Facility, dated February 1, 2005, between DBS Bank Ltd. and Fujian Zhongde Technology Co., Ltd. (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on January 22, 2007)10.4

Land Investment Agreement, dated December 25, 2006, between Fujian Zhongde Technology Co., Ltd and Fuzhou City Jiangyin Industry District Management Committee (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on January 22, 2007)10.5

Supplier Agreement, dated March 5, 2007 between China Clean Energy Inc. and Fujian Quanzhou Zhong Yuan Long Chemistry Industry Co., Ltd. (incorporated by reference to Exhibit 10.13 of Amendment Number 2 to the Registration Statement on form SB-2/A of China Clean Energy Inc. filed with the Securities and Exchange Commission on May 25, 2007)10.6

Supplier Agreement, dated March. 06, 2007 between China Clean Energy, Inc. and Meiweike (Shaxian) Linchan Chemistry Co., Ltd. (incorporated by reference to Exhibit 10.14 of to Amendment Number 2 to the Registration Statement on form SB-2/A of China Clean Energy Inc. filed with the Securities and Exchange Commission on May 25, 2007)10.7

Supplier Agreement, dated March. 05, 2007 between China Clean Energy, Inc. and Xinjiang Guansheng Technology Chemistry Co., Ltd. (incorporated by reference to Exhibit 10.15 of to Amendment Number 2 to the Registration Statement on form SB-2 of China Clean Energy Inc. filed with the Securities and Exchange Commission on May 25, 2007)10.8

Form of Securities Purchase Agreement, dated January 9, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008).10.9

Form of Registration Rights Agreement, dated January 9, 2008 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)
  29
  10.10

Form of Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)10.11

Form of Lock-up Letter Agreement (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)10.12

2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)10.13

Form of 2008 Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)10.14

Form of 2008 Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)10.15

Employment Agreement, dated as of January 9, 2008, by and between China Clean Energy Inc. and Tai-ming Ou (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)10.16

Employment Agreement, dated as of January 9, 2008, by and between China Clean Energy Inc. and Ri-wen Xue (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)10.17

Employment Agreement, dated as of January 9, 2008, by and between China Clean Energy Inc. and Yun He (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K of China Clean Energy Inc. filed with the Securities and Exchange Commission on January 10, 2008)14.1

Code of Ethics (incorporated by reference to Exhibit 14.1 to the Annual Report on Form 10-KSB of China Clean Energy Inc. filed with the Securities and Exchange Commission on March 11, 2008)21.1

List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Registration Statement on Form SB-2 of China Clean Energy Inc. filed with the Securities and Exchange Commission on February 1, 2008)31.1*

Section 302 Certification of Principal Executive Officer31.2*

Section 302 Certification of Principal Financial Officer32.1*

Section 906 Certification of Principal Executive Officer32.2*

Section 906 Certification of Principal Financial Officer
 
 * Filed herewith.