UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



|FORM 10-K
|---------

x        Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended November 30, 2008

 ̈        Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______.



|Commission file number: 000-52409
|---------------------------------

CHINA ENERGY CORPORATION(Name of small business issuer in its charter)

|Nevada                                                         |                | 98-0522950                            
|-------------------------------------------------------------- | -------------- | --------------------------------------
|(State or other jurisdiction of incorporation or               |                | (IRS Employer Identification No.)     
|organization)                                                  |                |                                       
|                                                              
|6130 Elton Avenue, Las Vegas, NV                               |                | 89107                                 
|(Address of principal executive offices)                       |                | (Zip Code)                            
|                                                              
|Issuer's telephone Number                                      | 1-888-597-8899 |                                       
|Securities registered under Section 12(b) of the Exchange Act: |                |                                       
|                                                              
|Common Stock, $0.001 par value Common                          |                | OTCBB                                 
|(Title of class)                                               |                | (Name of exchange on which registered)

Check whether the issuer is not required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act.   ̈

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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   ̈

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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.   ̈

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

State issuers revenue for its most recent fiscal year: $ 19,562,793 for the fiscal year ended November 30, 2008.

The Companys common stock is listed on the OTCBB under the stock ticker symbol CHGY. The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the most recent price at which the common equity was sold: $ 468,424 as of March 16, 2009.

The number of shares outstanding of each of the issuer's classes of common equity, as of November 30, 2008 was 45,000,000. DOCUMENTS INCORPORATED BY REFERENCE: None

Transitional Small Business Disclosure Format (Check one): Yes   ̈ ; No  x



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TABLE OF CONTENTSPART IPageItem 1.
     Business
     4Item 1A.
     Risk Factors
     14Item 1B.
     Unresolved Staff Comments
     17Item 2.
     Properties
     17Item 3.
     Legal Proceedings
     19Item 4.
     Submission of Matters to a Vote of Security Holders
     19PART IIItem 5.
     Market for Registrants Common Equity, Related Stockholder Mattersand Issuer Purchase of Equity Securities
     20Item 6.
     Selected Financial Data
     22Item 7.
     Managements Discussion and Analysis of Financial Condition andResults of Operation
     23Item 7A.
     Quantitative and Qualitative Disclosures About Market Risk
     33Item 8.
     Financial Statements and Supplementary Data
     33Item 9.
     Change In and Disagreements With Accountants on Accounting andFinancial Disclosure
     48Item 9A(T).
     Controls and Procedures
     48Item 9B.
     Other Information
     49PART IIIItem 10.
     Directors, Executive Officers and Corporate Governance
     49Item 11.
     Executive Compensation
     51Item 12.
     Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters
     52Item 13.
     Certain Relationships and Related Transactions, and DirectorIndependence
     52Item 14.
     Principal Accountant Fees and Services
     53PART IVItem 15.
     Exhibits and Financial Statement Schedules
     54Signatures
     55


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|PART I
|------

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things:

|· | general economic and business conditions, both nationally and in our markets,                                         
|- | ----------------------------------------------------------------------------------------------------------------------
| 
|· | our expectations and estimates concerning future financial performance, financing plans and the impact of competition,
| 
|· | our ability to implement our growth strategy,                                                                         
| 
|· | anticipated trends in our business,                                                                                   
| 
|· | advances in technologies, and                                                                                         
| 
|· | other risk factors set forth herein.                                                                                  
| 

In addition, in this report, we use words such as "anticipates," "believes," "plans," "expects," "future," "intends," and similar expressions to identify forward-looking statements.

China Energy Corporation (CEC or the Company) undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

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ITEM 1.BUSINESS

We, China Energy Corporation (CEC), produce coal through our subsidiary Inner Mongolia Tehong Coal Group Co, Ltd. (Coal Group) and supply heating and electricity requirements throughout the XueJiaWan district through our subsidiary Inner Mongolia Zhunger Heat Power Co., Ltd. (Heat Power). We acquired our subsidiaries on November 30, 2004.



|Inner Mongolia Tehong Coal Group Co., Ltd. (Coal Group)
|---------------------------------------------------------

Coal Group produces coal from the LaiYeGou coal mine located in Erdos City, Inner Mongolia, Peoples Republic of China (PRC). Coal Groups trade consists of production and processing of raw coal for domestic heating, electrical generation and coking purposes for subsequent steel production. The principal sources of revenue are generated from local heating power industry.

Coal Group has the capability of producing 800,000 tons of coal per year based on current levels of input and enhancement of productions lines currently completed.

The raw coal produced is non caking coal and has a high ash melting point with high thermal value used almost exclusively as fuel for steam-electric power generation. It has low sulphur and low chemical emission which satisfies government environmental protection standards with heating capability of 6,800 -7,000 Kilocalories (Kcal).

The following consists of tonnage of coal produced and purchased from external sources in the past 5 years:

Year
     Produced
     External Sources2004
     506,913
     34,2952005
     612,739
     100,3582006
     549,970
     3,5722007
     459,055
     132,7642008
     264,098
     50,000


Production levels dropped in 2008 as a result of the mine being shut down for 3 months as a result of expansion effortst and also for a further 2 months as a result of the mandatory shut down as per the PRC Government during the summer Olympics.



|Inner Mongolia Zhunger Heat Power Co., Ltd. (Heat Power)
|----------------------------------------------------------

Heat Power currently supplies heating requirements throughout the XueJiaWan district in Ordos City, Inner Mongolia with its thermoelectric plant and 21 heating plants previously used exclusively for heating supply operations and now being used as heat transfer stations. These plants are operated by Heat Power employees. In 2003, the Autonomous Region Planning & Reform Committee appointed Heat Power to establish a thermoelectric plant providing heating and electricity capable of expanding coverage in the area serving a larger population base.

Heat Power supplies heating to users directly and supplies electricity through a government controlled intermediary, Inner Mongolia Electric Power Group Co., Ltd. (Electric Power Group). Heat Power will, therefore, be operating two processes, one for heating and one for co-generation of electricity supply.

Heat Power is not a regulated utility company and therefore such regulations are only applicable to the entity providing service to the end users. Electric Power Group is subject to these applicable rules and regulations consisting of compliance to safety and environmental standards and pricing structures set by the Inner Mongolia Government.

Heat Power does not supply steam or hot water. Only heating is supplied to private dwellings, factories as well as municipal facilities.

Heat Power obtains its supply of powdered coal required to generate heat and electricity production from Zhunger County Guanbanwusu Coalmine (Guanbanwusu), an unrelated, unassociated 3rdparty. It also obtains its supply through various other coal mines in the area.



|Pacific Projects Inc. (PPI)
|-----------------------------

On December 30, 2007, CEC acquired PPI, a Nevada company with no assets, liabilities, or equity. CEC holds 100% of the issued and outstanding shares of PPI, or 5,000 common shares with a par value of $ 0.001.

On December 31, 2007, PPI entered into a Trust Agreement with all the registered shareholders of Coal Group, and that of Heat Power, whereby under the terms of the Trust Agreement, all the shareholders are obligated to hold their interests in Coal Group and



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Heat Power (represented by their registered paid up capital contributions to date) in trust for PPI, for an 8 year term, extendable for another 5 more years. Coal Group is a wholly owned subsidiary of CEC and Heat Power is 51% owned by Coal Group and 49% owned by CEC.

PPI will raise adequate funding to convert Coal Group and Heat Power to Foreign Invested Enterprise (hereinafter referred to as FIE) eligible businesses wherein a FIE business license is issued. This new procedure was necessitated on account of change in laws in the Peoples Republic of China (hereinafter referred to as the PRC) wherein all foreign companies incorporated outside the PRC having an interest in PRC domestic companies are required to purchase FIE business licenses for their wholly owned or controlled subsidiaries in the PRC.

On September 8, 2006, new regulations came into effect concerning the merger and acquisition of domestic PRC companies by foreign investors (herein referred to as the New Regulations) promulgated by the Ministry of Commerce and other regulatory departments.

Under the New Regulations, CEC is required to undergo an application process to convert Coal Group and Heat Power from domestic PRC companies to FIEs wherein a FIE business license is obtained. In doing so, the acquisition of both the companies by CEC under the New Regulations is classified under a type of acquisition called Equity Acquisition wherein CEC, being the foreign investor, shall invest cash equity interest into both companies with the acquisition price to be determined by an asset valuation of both companies prepared by a PRC asset valuation company as approved by the Ministry of Commerce of the PRC. The asset valuation will be based on PRC generally accounting standards and not based on US Generally Accepted Accounting Principles. The acquisition price and hence asset valuation cannot exceed certain guidelines as mentioned below.

The registered paid up capital of Coal Group as of to date is 60 million RMB or approximately $ 8.5 million and 2.5 times this amount is $ 21.25 million. The 49% registered paid up capital of Heat Power (CECs total interest in Heat Power) as of to date is 24.5 million RMB or approximately $3.4 million and 2 times this amount is $ 6.8 million. The total acquisition price per company is capped per the following guidelines provided by the Ministry of Commerce:

|Registered paid up capital  | Total Investment                                                 
|--------------------------- | -----------------------------------------------------------------
|Less that $ 2.1 million     | Cannot exceed 1.43 times the amount of registered paid up capital
|$ 2.1 to $ 5 million        | Cannot exceed 2 times the amount of registered paid up capital   
|$ 5 million to $ 12 million | Cannot exceed 2.5 times the amount of registered paid up capital 
|More than $ 12 million      | Cannot exceed 3 times the amount of registered paid up capital   

Coal Groups registered paid up capital is between $5 and $ 12 million and therefore the acquisition price under the New Regulations cannot exceed 2.5 times the registered paid up capital amount. Therefore upon granting of the FIE license, the CEC will be liable for no more than approximately $ 21.25 million given that no further capital contributions are made to Coal Group. Heat Powers total registered paid up capital is approximately $ 7 million and therefore the acquisition prices cannot exceed 2 times the registered paid up capital amount. CECs interest in Heat Power is 49% and therefore the maximum acquisition price is approximately $ 6.8 million ($ 7 million * 49%*2).

PPI intends to fund the acquisition price by funds raised pursuant to the Share Trust Agreement entered into on January 3, 2008 with Georgia Pacific Investments Inc. (hereinafter referred to as GPI) and Axim Holdings Ltd (hereinafter referred to Axim) wherein proceeds from the sale of the CECs shares held by Axim and GPI are to be allocated to purchase the FIE business license at the deemed acquisition price.

GPI holds 20,589,107 shares and Axim holds 10 million shares, total 30,589,107 shares, of which were obtained by control group shareholders of CEC.

From the sale of the 30,589,107 shares, all the net proceeds (gross proceeds less $0.20 per share accruing to the beneficial shareholders of Axim and GPI in proportion of ownership, less the brokerage commissions less expenses relating directly to the sale of the shares) shall be remitted to PPI to be used for funding of the acquisition price of the FIE business licenses mentioned above under the terms set out in the Trust Agreement.



|Please refer to Exhibit 10.2 and 10.3.
|--------------------------------------

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|History and result of operations
|--------------------------------

CEC was incorporated in the state of Nevada on October 11, 2002 for the purpose of producing coal to meet the increasing demand in power and heating industries and also to provide heat and electricity to networks in rural developments. CEC is considered a shell company until it entered into the Share Exchange Agreement to acquire its subsidiaries, Coal Group and Heat Power, on November 30, 2004.

Although CEC is the legal survivor of this acquisition and is the registrant with the Securities and Exchange Commission, under accounting principles generally accepted in the United States, the transaction was accounted for as a reverse merger, whereby Coal Group is considered the acquirer of CEC for financial reporting purposes as its shareholders control a majority of the post transaction combined company. Among other matters, this requires CEC to present in all financial statements and other public information filings, prior historical and other information of Coal Group, and requires a retroactive restatement of Coal Group historical shareholder investment for the equivalent number of shares of common stock received in the merger. Accordingly, our financial statements present the results of operations of Coal Group and Heat Power that reflect the acquisition of November 30, 2004 under the purchase method of accounting. Subsequent to November 30, 2004, the operations of the Company reflect the combined operations of CEC, Coal Group and Heat Power.

Since the inception of Coal Group in 2000, its trade consists of production and processing of raw coal for both domestic heating and electrical generation purposes and acting as a brokerage in facilitating coal trade buyers and sellers. Our brokerage activities to date have been limited as our focus is on direct supply of raw coal.

Through Heat Power, we operate a thermoelectric plant and 21 heat transfer stations located in XueJiaWan, Ordos City in which we have a monopoly for heating supply granted to us by the Inner Mongolia government.

For the years ended November 30, 2008 and 2007, we generated net income of $ 3,890,712 and $ 2,973,838, respectively.

Our principal business office is located at No.57, Xinhua East Street, Hohhot City, Inner Mongolia. Our administrative branch office for North American investor relations and U.S. regulatory reporting is located at 6130 Elton Ave., Las Vegas, Nevada 89107.



|Principal Products, Services and Their Markets
|----------------------------------------------



|Coal Group
|----------



|Acquisition of LaiYeGou Mine and Mining Right
|---------------------------------------------

The LaiYeGou mine was acquired in June 1999. Property acquisition in China is through 50 or 70 year lease and this is the only type of ownership permitted in China. Coal Group has leased the land surrounding the mine and the mine itself for a period of 50 years. Since acquisition of LaiYeGou in 1999, Coal Groups activities has been coal production for the purpose of supplying raw materials to heating and power industries, retail customers and coking factories for steel production.

All land in China belongs to the PRC Government. To extract resources from land, Coal Group is required to obtain a mining right. The jurisdiction responsible for issuing such rights is the Provincial Bureau of National Land and Resource, a division of the PRC Government. In December 2005, Coal Groups mining right was assessed to be approximately $ 3.7 million for a period of 14 years commencing November 2005. This mining right is regarded as an Intangible Asset to be amortized over a period of 14 years. As of November 30, 2008, we have fulfilled our obligations and have made full payment for the right.

The LaiYeGou coal mine is an underground operation capable of producing 800,000 metric tons of coal per year after undergoing expansion efforts. Occupying an area of 230.3 hectares (approximately 569 acres) at Dongsheng Coalfield near Dongsheng City, LaiYe Gou has established proven and probable reserves of 27.09 million tons. The product mined, is high quality, non-caking, coal that has low sulphur, low phosphorus and low ash contents which does not fuse together or cake when heated but burns freely and is used mainly for heating and electric power generation.

With such minimal harmful chemical contents, it meets the stringent environmental standards set by the Central Government of China. It is ideal for general heating applications as well as for power generation, with a heat rating of 6,8007,000 kcal.

The following definitions apply to our mining operations as per Industry Guide 7 of the Securities Act Industry Guides.

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| | Definitions.
| | ------------

|(1) | Reserve. That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|   

Note: Reserves are customarily stated in terms of ore when dealing with metalliferous minerals; when other materials such as coal, oil, shale, tar, sands, limestone, etc. are involved, an appropriate term such
as recoverable coal may be substituted.

|(2) | Proven (Measured) Reserves.Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from
the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are
well-established.        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) | Probable (Indicated) Reserves.Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measure) reserves, but the sites for
inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of
observation.
|   



| | Proven and Probable Reserve Survey
| | ----------------------------------

Our survey of reserves is performed by No. 153 Exploration Team of Inner Mongolia Coalfield Geological Bureau, surveying the district of Hongjingta area consisting of 7,800 hectares (approximately 19,266 acres). LaiYeGou is
included in Hongjingta and is 230.3 hectares (approximately 569 acres) or 3% of the total survey area. The survey consists of 3,454 samples including 184 outcrops (a body of rock exposed at the surface of the Earth), 140 trenches and 32 drilling
samples. The distance between each sample is 4,428 hectares (approximately 10,937 acres).



| | Accuracy and Risks
| | ------------------

The accuracy and risks associated with Proven Reserves are less than of Probable Reserves due to the assumption of continuity of coal layers between sample points. The following consists of the classifications of the types
of coal layers which are determined to be continuous:

(Gangue Coal: Commercially valueless rock material containing minimal amounts of coal)



| | Non Reserve Coal:
| | -----------------

Non reserve coal also consists of coal bearing body in trenches, outcrops, drilling and other underground workings that have been sampled which require further exploration work.



| | Continuous Reserve Coal:
| | ------------------------

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These types of reserve and non reserve coal sampled are extrapolated to be continuous between sampling points of which may not be consistent.



| | Proven and Probable Reserves
| | ----------------------------

The reserves in the LaiYeGou Coal Mine are as follows as of March 2005 in thousand ton units:

|Proven reserves                | 21,160
|------------------------------ | ------
|Probable reserves              | 4,930 
|Total reserve***               | 26,090
|                              
|                              
|Insitu proven reserve consumed | 6,590 
|Probable reserves**            | 4,939 
|Reserve developed *            | 14,570
|Total                          | 26,090

*These reserves were developed during our expansion of LaiYeGou.

** Probable reserves are assigned to existing facilities whereby existing infrastructure and equipment allows these reserves to be mined at current production levels.

*** Reserves are insitu (in the ground)

With the exception of reserves currently developing, all other reserves have been assigned to existing facilities and determined for sorting or for packaging of mixed coal.



| | Coal Specifications
| | -------------------

The British Thermal Unit (BTU) per pound is 12,322.98. One BTU is equal to the amount of heat required to raise the temperature of one pound of liquid water by 1 degree Fahrenheit at its maximum density, which occurs at a temperature of 39.1 degrees Fahrenheit. One Btu is equal to approximately 251.9 calories or 1055 joules.)

Coal produced from LaiYeGou does not undergo any washing or any other preparation prior to sale to customers as its raw form is satisfactory in meeting the needs and requirements of its customers. As a result, LaiYeGou does not have wash plant facilities nor it is necessary to account for dilution of its products.

The sulphur content is 0.5 pounds per million BTU and deemed to be compliant coal as non compliance coal emits greater than 3.0 pounds of sulphur dioxide per million BTU when burned.



| | Mining Method
| | -------------

Coal Group currently uses the Long Wall production of mining will be used whereby large rectangular blocks of coal are defined during the development stage of the mine and are then extracted in a single continuous operation. Each defined block of coal, know as a panel, is created by driving a set of headings from main or trunk roadways in the mine, some distance into the panel.

The panel or block of coal up to 1,000 feet wide and two or three miles long is completely extracted. The working area is protected by movable hydraulic powered roof supports called shields. The longwall employs a shearer, with two rotating cutting drums, which is dragged mechanically back and forth across the coal face. The coal which is cut falls onto a heavy chain conveyor which delivers it to a belt conveyor system for removal out of the mine. The longwall shields advance with the machine as mining proceeds and provide not only high levels of production but also increased miner safety.

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Longwall mining systems employ sensors to detect how much coal remains in the seam being mined as well as robotic controls to enhance efficiency. Microprocessors record seam data as a longwall miner makes it initial pass, subsequent passes then follow the previous route resulting in high efficiencies.

With the use of a longwall system, the amount of coal which is recovered in a given area increases from 50% to as much as 80%. The carefully planned longwall process has a positive influence on minimizing the effects of subsidence. Gradual or occasionally abrupt collapse of rock layers sometimes occurs between an underground mine and the surface. With the longwall operation such ground movements are completed in a shorter period of time and the settling process occurs in a more uniform and predictable manner helping to minimize surface impacts. Longwall production has increased the largest amount of tonnage among underground mining methods.



|Employees
|---------

There is approximately 150 staff working in the mine under the supervision of one contractor, Wu Lingwen. Coal Group has an agreement with Wu Lingwen for a period of 3 years commencing March 1, 2006. The agreement was renewed for a further 2 years. Wu Lingwen shall be responsible for all areas of production and processing.



|Screening, Crushing and Loading Facilities
|------------------------------------------

Our screening facilities consist of a filter which divides three types of coal according to customer specifications. We use manual screening method to filter the coal consisting of two screens of different filters and steel frame to support the facility.

We do not have crushing facilities. We also do not have washing facilities and therefore do not incur losses of product from this process.

Our loading facilities consist of equipment leased by contractor. We require the use of 4 Loaders with the capacity of 1.5 tons each.



|Transportation Infrastructure
|-----------------------------

Currently our customers provide their own transportation of goods from production to their desired location. There are however transportation challenges customers face where routes are inefficient however where the contract is granted through Government appointment, transportation is guaranteed from LaiYeGou coal mine to the final destination. Where contracts are privately arranged, transportation is arranged through hire of 3rdparty transporters by customers. In some instances, coal is purchased by 3rdparties close in proximity to train stations where transportation to customers destinations is more efficiently arranged. However, transportation to destinations is limited to where routes are in place. Coal Group does not own any transportation equipment for the purpose of delivering its goods.



|Resources and Utilities
|-----------------------

The source of water for the mine is from Zhunger Keyuan Water Supply Co., Ltd, a public utility company owned by the Government.

The source of power is provided by the Agricultural Power Supply Bureau and the Erdos Power Industry Bureau, public utility companies owned by the Government.



|Coal Group Markets
|------------------

Coal Groups main product is Raw coal or Mixed coal consisting of large, middle and powdered coal; accounting for more than 90% of our sales. Coal Group does not specifically sell large mass coal, median mass coal and powder coal unless it is requested by the customer.



|Large Mass Coal
|---------------

Production of this mass coal fulfills the needs of its retail customers in Hohhot and in BaoTou, the second largest city in Inner Mongolia with a population of 1.96 million. Retail customers purchase large mass coal for individual or commercial resale. Most coal mines in the area do not engage in individual sale and have minimum purchase requirements and therefore deter the type of customers Coal Group attracts to its customer base.

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| | Middle Mass Coal
| | ----------------

The price of middle mass coal in generally is lower than of large mass or powdered coal and therefore it is not as frequently produced resulting in lower levels of supply.



| | Powdered Coal
| | -------------

Powdered coal is generally for the use of power stations for electricity and heat generation purposes. Coal Group supplies Zhejiang Fuxing Electric and Fuel Co., Ltd., which services the ZhejiangFuXing & JiangSu region with its electricity and heating generation needs.



| | Mixed Coal
| | ----------

The composition of mixed coal is classified into three specifications according to mass size. Coal is screened according to clients request. Large mass coal is mainly for civil use, middle mass coal is mostly used in coking industry and powered coal is mainly used in electricity generating.



| | The size specifications and price per ton is as follows:
| | --------------------------------------------------------

|Type of Coal     | Specification in Centimeters | Percentage Coverage | Unit Price Per Ton
|---------------- | ---------------------------- | ------------------- | ------------------
|Large mass coal  | >20                          | 30%                 | $ 74              
|Middle mass coal | 1-20                         | 40%                 | $ 57              
|Powered coal     | <1                           | 30%                 | $ 43              

These specifications are similar for coal purchased from other companies.



| | Pricing
| | -------

The following are annual production per ton and weighted average prices received in the past five years:

|Year | Annual Production Per ton | Weighted Average Price
|---- | ------------------------- | ----------------------
|2004 | 506,913                   | $ 10                  
|2005 | 612,739                   | $ 24                  
|2006 | 549,970                   | $ 24                  
|2007 | 459,055                   | $ 25                  
|2008 | 264,098                   | $ 58                  



| | Contracts to be Awarded
| | -----------------------

Each year, the China Coal Industry Association convenes a supply and sale meeting whereby contracts to supply coal to power stations are awarded to suppliers based on levels of production.

Coal Group is classified as one of the top 20 coal producers and, as a result, will be awarded contracts to service various regions. The meeting attendees included National Planning and Reforming Committee, Railway Ministry Communication Ministry, National Electric Power Corporation, Coal Industry Association, and the Provincial Planning and Reforming Committee.

Coal Group obtains its contracts by maintaining its current levels of production. It is classified as a mid scale coal mine by the China Coal Industry Association. Production of less than 300 thousand tons are classified as small scale mines, 300 thousand to 900 thousand classified as mid size scale mines and 900 thousand and above classified as large scale mines. There are currently no other requirements to be awarded such contracts. The level of production required per year for segregation of large, mid or small scale mine is determined upon review of previous data of production of coal and projected requirements with the consideration of growth in various areas.

As new rural areas are developed, there will be the need to supply heating and electricity to new users and thus the requirement of raw coal material. With the increase in demand, the government will award contracts to service these areas as needed.

LaiYeGou being a mid scale mine, grants Coal Group contracts not only to supply its products but also the guarantee of transportation routes. Government granted transportation routes are far more reliable and cost effective compared to the hire of 3rdparty contractors to deliver products.

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|LaiYeGou Expansion
|------------------

In response to the escalating demand for its coal products, Coal Group invested in infrastructure improvements necessary for increasing annual production capability of the LaiYeGou Coal Mine to 800,000 tons per year. Infrastructure improvements commenced in May 2006 and were recently completed. The cost of the expansion is approximately $ 10 million and was financed through shareholder and bank loans. Please see Sources of Capital.



|Heat Power
|----------

Heat Power was founded in September 2003 in XueJiaWan Town, Inner Mongolia. Since its inception, Heat Power operated an existing Heat Power plant in XueJiaWan as part of its agreement with the Zhunger County Government to phase out the existing heating plant for development of a more efficient and effective plant with heating and electricity generation capabilities as per the monopoly granted as mentioned below.



|Heat Supply License
|-------------------

On July 29, 2003 Heat Power was granted the license and monopoly by the Zhunger County Government to provide the entire XueJiaWan area including Donghua and Yinze residential area, centralized heating service. The monopoly was granted for an undetermined period of time given Heat Power maintains production capabilities and predetermined prices set by the Zhunger County Government.



|Thermoelectric Plant
|--------------------

The thermoelectric plant was constructed by December 2005 and put into operation effective September 2006. The thermoelectric plant allows for a centralized heat and electricity supply in the area with 110,400,000 Mega Joules and 144,000 Megawatts, respectively generated per year.

Heat Power will provide electricity to users by merging an electrical network with Electric Power Group, a Government owned enterprise. Heat Power has also constructed additional heat transfer stations, total 21 to date, to improve the efficiencies and reliability of the thermoelectric plant. There are 21 heat transfer stations. Heat Power is also in the process of construction additional boilers necessary supplement to ensure stable and reliable heat supply.

Heat Power will require approximately 120,000 tons of powdered coal to sustain current operations. Guanbanwusu will supply the required 180,000 tons of coal per year on a non contracted basis.



|Supply of Powered Coal
|----------------------

The powdered coal required to generate heating is supplied by Guanbanwusu and has a heating capability of 4600-4,900 kcal and is low sulphur, low phosphorus, medium ash, and high ash melting point, which satisfies the Government Environmental Protection Standard and is regarded as environmentally friendly coal. The coal shall have a minimum heating capacity of 4,600 Kcal or reduction of price per ton is implemented. Guanbanwusu is responsible for transporting coal to the plants.

Heat Power also obtains its supply of powdered coal from other suppliers of which there is no formal agreement. Suppliers are hesitant to enter into agreements for a fixed price as a result of the price of coal fluctuating on an upward trend.



|Tax Exemption
|-------------

The Ministry of Finance and National Tax Administration Bureau has granted Value Added Tax (VAT) exemptions for heat supply industries operating in Inner Mongolia where VAT applicable on revenue or expenses will not be required to be remitted or withheld, respectively. The exemption is effective until 2010.

Expenses paid for construction are subject to VAT. Please see below Taxation Rates. Tax exemptions were granted mainly as a result of the government encouraging economic development in the area. XueJiaWan, prior to construction of the thermoelectric plant, did not have efficient methods of providing heating and electrical requirements to users, resulting in large amounts of raw material coal being consumed with very low levels of output of heating and electricity. The thermoelectric plant allowed for a more efficient and effective means for distribution with a centralized heat and electricity supply throughout the area.

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|Heat Power Markets
|------------------

Heat Powers marketing efforts are solely devoted to obtaining heat supply monopolies and contracts with monopolized divisions for supply of electricity through the Inner Mongolian government and related city planning authorities. To obtain these monopolies, Heat Power must demonstrate that it can meet the following requirements:

|1) | Reputation and operating history of the company.The company shall have a good reputation record, including never having been involved in illegal operations or default on payment of taxes.                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) | Production capability requirements.No operating history is requested, but the company shall have the capability to manage the heat supply station and enlarge its production capacity if needed. The PRC Government does not specify production capabilities, only that heat supply stations are operational.
|  
|3) | Reputation of directors and officers.The Companys directors, supervisor or top management must obey China Company Act and the Controlled Regulation of Artificial Person Registration.                                                                                                                  
|  

As per the above, Heat Power and its management meet these requirements. Contracts are awarded through government appointment through evaluating these criteria in submission of contract bids. In addition, these contracts must specify prices charged which may be capped for a certain period as determined and approved by the local price control committee. Competition in obtaining monopolies is largely mitigated by a good review of operating history. To the best of managements knowledge, there are few entities which have the ability to maintain production and expansion capabilities and have a good operating history.

The monopoly is granted for an undetermined period of time given that production capabilities and prices are maintained. So as long as heat is supplied to the specified area, there are no termination provisions.



|Outlook on future demand for coal
|---------------------------------

Integral to Chinas industrial expansion and related energy demand escalation at the present time, the PRC Government is encouraging sectors to build more power stations, coking factories, calcium carbide factories and silicon iron factories across the country. As a consequence, the future demand in China for coal; a key factor underpinning the output of power stations and such factories reaching 1.650 billion metric tons during the present calendar year, 1.820 billion metric tons in 2010 and 2.100 billion metric tons by 2020. However, estimates of supply deficiencies also are sizable at 250 million metric tons and 700 million metric tons in 2010 and 2020, respectively.

Diesel is an alternative competing factor to coal however it is generally not used as most energy generation plants and users are only equipped to receive coal as a raw material. The use of diesel is also not cost effective as it is 4 times higher in price compared to coal products; however, diesel has a higher energy rate per ton compared to coal.

In addition to the excess demand, transporting coal from Shanxi Provice to Hebei Province proves to be a challenge as transportation routes are currently inefficient and or non-existent. Currently, the development and improvement of roads and railways cannot keep up with levels of demand. There are plans for city planners to rectify this issue with allocating resources to bettering and building transportation systems; however, to our knowledge, these improvements are not expected to materialize for at least the next 5 years which could result in lost sales and other opportunities for expansion.

As for Coal Group, methods of circumventing transportation challenges are to receive contracts granted by the Government whereby transportation is guaranteed from LaiYeGou coal mine to final destination. Where contracts which are privately arranged, transportation is arranged through hire of 3rdparty transporters or by customers. In some instances, coal is purchased by 3rdparties close in proximity to train stations where transportation to customers destinations is more efficiently arranged for. However, transportation to destinations is limited to where routes are in place.

Heat Powers transportation from Guanbanwusu to its plants is provided by Guanbanwusu.

Heating requirements are supplied throughout the XueJiaWan area through underground pipelines. Existing pipelines are used and in new areas expanded, the PRC Government has constructed new networks for this area.

- 12 -

---



|Advertising and marketing strategy
|----------------------------------



|DistributionCoal Group
|----------------------

Coal Group does not have methods of distribution as sales of its large, middle mass and powdered coal are largely being transported by customers. Coal Group will transport products by truck and by railway for certain customers that request this service.



|Heat Power
|----------

|Supply of powdered coal is delivered to Heat Powers plants facilitated by Guanbanwusu. Guanbanwusu makes all necessary
|-----------------------------------------------------------------------------------------------------------------------
|arrangements with third party transporters. The distance between the mine and operations is approximately 3 km.        

The transportation industry is fairly competitive and Heat Power or Guanbanwusu could retain other transporters should there be a need.



|Subcontractors
|--------------

Coal Group hires contractors to hire staff to work in the LaiYeGou coal mine. There is currently 1 contract hiring 150 employees.



|CompetitionCoal Group
|---------------------

Due to existing market conditions as discussed above in the Outlook on Future Demand of Coal, we do not have competition in the usual sense of the term. There are approximately 30,000 coal mining companies throughout China; however, since demand currently exceeds supply; competition is not a concern in the operation of our business.

We expect that Chinas coal industry will remain a large, growing and chronically under-supplied customer base for the foreseeable future.

There are pressures from the PRC Government to use nuclear power instead of coal due to environmental concerns; however, coal reserves in China are abundant and less expensive and a switch to other forms of resources to generate energy is unlikely.

Heat Power does not have competition as it receives a monopoly to supply heating and electricity requirements to serviced areas. Competition in obtaining monopolies is largely mitigated by a good review of operating history by the PRC Government.

The monopoly is granted for an undetermined period of time given that production capabilities and prices are maintained. As long as heat is supplied to the specified area, there are no termination provisions.



|Patents, Trademarks and Labor Contracts
|---------------------------------------

We do not have any trademarks on our trade name or logo or patents on our products or production processes.



|Employees
|---------



|Principal Business Office
|-------------------------



|Coal Group
|----------

Coal Group has a total of 30 full time employees, and 150 contracted staff to operate the LaiYeGou coal mine. The 30 employees fill positions in its Administration, Accounting, Sales, Finance & Securities, and Management department.

The Administration department is responsible for human resources, training, and payroll. The department also evaluates all processes to ensure certain levels of efficiency are maintained and provides any support services to other departments should the need arise.

The Accounting department is responsible for compliance with accounting principles and national tax laws, bookkeeping, preparing budgets and analysis of financial reports.

The Sales department is responsible for launching advertising campaigns, market research and customer service.



|- 13 -
|------

---

The Finance and Securities department is responsible for all corporate matters relating to preparation of contracts and maintaining corporate books and records.

The Management department is responsible for overall direction and marketing efforts. This department oversees all other departments.



|Heat Power
|----------

Heat Power has 250 full time employees filling positions in our Administration, Finance, Heat Station Management and Project Management Departments and also at the thermoelectric plant.

Heat Powers Administration and Finance departments have similar functions as Coal Group as above.

Its Heat Station Management department is responsible for inventory levels, purchasing, transportation, maintenance, safety, and overall management of the efficiency and operation of thermoelectric plant including heat transfer stations and boilers.

The Project Management department is responsible for design and production process specifications of new projects and appointing and managing subcontractors.

Heat Power has over 200 employees working in its heating stations in XueJiaWan consisting of engineers, technicians and management staff overseeing operations.



|Administrative Branch Office
|----------------------------

We have 3 consultants in our Administrative Branch Offices. Consultants provide translation and EDGAR filing services. The consultants also have access to legal counsel for the purpose of preparing the necessary reports to comply with regulations applicable to fully reporting companies. Mr. Ding provides this office space rent free.



|Management believes that relations with its employees are good.
|---------------------------------------------------------------

ITEM 1A.RISK FACTORS



|***You should read the following risk factorscarefully before purchasing our common stock. ***RISKS RELATING TO OUR BUSINESS
|----------------------------------------------------------------------------------------------------------------------------

Our management lacks technical training with operating a mine and as a result may cause the Company to suffer irreparable harm due managements lack of training.

The lack of technical training of our management requires us to rely on professional engineers as an integral part of our operations. As a result of managements lack of training, we may not take into account standard engineering or managerial approaches other mineral explorations companies commonly use. Consequently without the technical expertise of either retained staff or contracted 3rdparties, we could suffer irreparable harm in our operations, earnings and ultimate financial success.

Compliance and enforcement of environmental laws and regulations may cause us to incur significant expenditures and resources of which we may not have.

Extensive national, regional and local environmental laws and regulations in the PRC affect our operations. These laws and regulations set various standards regulating certain aspects of health and environmental quality, which provide for user fees, penalties and other liabilities for the violation of these standards. We believe we are currently in compliance with all existing PRC environmental laws and regulations. However, as new environmental laws and legislation are enacted and the old laws are repealed, interpretation, application and enforcement of the laws may become inconsistent. Compliance in the future could require significant expenditures, which may adversely effect our operations. The enactment of any such laws, rules or regulations in the future may have a negative impact on our projected growth, which could in turn decrease our projected revenues or increase our cost of doing business.

- 14 -

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The potential liability for violation of environmental standards consists of loss of our business licenses causing irreparable damage to our reputation and payment of penalties which range depending on the nature of the violation and history of previous violations made. There is currently no fixed amount set by the Government and penalties are determined on a case by case basis. In addition, the project which we undertake will be ceased until compliance with environmental standards is adhered to.

We are required to renew our business license every 10 years where if we are in violation of any environmental or company act laws, our business may be suspended until such violations are remedied.

If our business license is not granted renewal, our operations will be suspended causing not only loss in profits but loss of existing and potential customer base, damage to our reputation, and related costs incurred for business interruption.

Heat Power may be entitled to tax concessions in areas described as West Region Development Plan for a set period of time however may lose this benefit at anytime as determined by the Government.

Tax concessions are granted by the Provincial Government to encourage development in rural areas in XueJiaWan. Heat Power is currently under application for these tax concessions. Income taxes are exempt for 5 years upon initial operation and subject to a 50% lower rate until 2010. The Government may at its discretion terminate such tax concessions at any time and we may not have the resources to cover our income taxes as they become due as our budgets are based upon granting of these tax concessions.

We are dependent on a few key personnel, being our officers and directors

We are substantially dependent upon the efforts and skills of our executive officers, WenXiang Ding, YanHua Li and Fu Xu. The loss of the services of any of the executive officers could have a material adverse effect on our business.

Our shareholders may not be able to enforce U.S. civil liabilities claims.

Our assets are located outside the United States and are held through a wholly-owned subsidiary incorporated under the laws of Nevada. Our current operations are conducted in China. In addition, our directors and officers are residents of countries other than the United States. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of China would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in these countries against us or such persons predicated upon the securities laws of the United States or any state thereof.

We carry no insurance policies and are at risk of incurring personal injury claims for our subcontractors, and incurring loss of business due to theft, accidents or natural disasters.

We currently carry no policies of insurance to cover any type of risk for our contractors. It is common practice in China not to carry such insurance. Should any of such events occur, we are liable for all costs incurred to replace, repair any damage and or compensate for incidences. The costs incurred may adversely affect our operations and we may not have the necessary capital to sustain minimum working capital needs. Social insurance may mitigate such costs however may not be sufficient to cover the full cost or compensation depending on the severity of the incident.

We require the approval from the Inner Mongolia Government for all of our expansion projects and, as a result, could face delays for an indefinite period of time should the Government determine that such expansion project is not in accordance with the rate of economic growth projected over a certain period of time.

All approvals are made under the National Planning and Reform Committee of the Inner Mongolian Government. The approval process varies depending on size of expansion plans and on average takes approximately 2.5 months.

The prices we charge to supply heating in Zhunger County is determined by the Inner Mongolia Zhunger Pricing Bureau (the Bureau) and we may not be able to recoup increases in the cost of raw materials or expenses for an undetermined period of time until application to increase prices is approved.

We are under application to increase the pricing structures of heat supply with Bureau as a result of increases in the cost of coal. Should our application be rejected, this may affect our ability to meet our working capital needs and we may require capital from other sources such as shareholder or bank loans which may not be available to us.



|- 15 -
|------

---

In recent years, the price of raw materials has increased leading to increases in cost of heat supply. To increase the price charged to supply heating we must receive approval from the Bureau. The approval process begins with preparation of cost analysis and thereon a hearing will be arranged determining whether the increase is justified.

During this time, the Bureau may grant us a subsidy when the price of raw material increase is more than 10% of the heat supply price. We are under no circumstances permitted to increase heat supply prices in order to recoup raw material costs.

Our rate of profit is capped by government regulations as prices for heat supply are determined by the Bureau and we may not be able recoup our costs or cover our working capital needs.

Our level of profit is capped by the Bureau as determined from time to time upon review of economic circumstances such as the price of raw materials in comparison with the price point of heat usage charges. The level of profit will not exceed the amount the Bureau determines to be the price charged.

We are operating under conditions where political and legal uncertainties exist whereby changes in the political climate may cause us to incur costs to rectify any changes either local, provincial or central governments may impose on us at any time.

Chinese government policy is volatile as property rights are insecure and the rule of law is still in its infancy. We are subject to unpublished regulations from local, provincial, and national governments, which often have different and sometimes conflicting agendas and demands. This may affect our operations in all aspects from the price we charge for coal, heat, hot water, electricity supply and the approval process of new expansion projects. The price we charge may be lower than desired and new expansion projects may be delayed indefinitely as a result of conflict with various levels of government.

As a member of the Local Coal Sales Association the minimum price at which we sell coal in any area in China is determined by the Local Coal Sales Association and if there is any decrease in demand for a particular type of coal, we cannot lower our prices beyond the minimum set price to adjust for a decrease in demand without loss of our membership.

If the demand for a particular type of coal decreases, we are not able to decrease our prices in order to generate cash flow when needed until the Local Coal Sales Association determines that such a decrease is warranted. We may not be able to sell coal at such minimum prices and as a result may not be able to meet working capital needs and expansion projects may be delayed indefinitely.

The following are minimum price at which we are required to sell coal:

The price for mass coal (large, middle, and powdered individually sold) must be at least $13.30 per ton and the prices for mixed coal (assortment of mass coal) must be at least $11.50 per ton. Prices set by the Coal Sales Association are reviewed periodically as market conditions change. Enforcement of these price points are also governed under this authority.



|RISKS RELATING TO OUR COMMON SHARES
|-----------------------------------

Broker-dealers may be discouraged from effecting transactions in our shares because they are considered penny stocks and are subject to the penny stock rules.

Rules 15g-1 through 15g-9 promulgated under theSecurities Exchange Act of 1934(the Securities Exchange Act) impose sales practice and disclosure requirements on NASD broker-dealers who make a market in "penny stocks". A penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share.

Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.

In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.

Our stock is controlled by principal shareholders for the foreseeable future and as a result, will be able to control our overall direction.

- 16 -

---

Our 5% shareholders own an aggregate of 74% of our outstanding shares. As a result, the insiders could conceivably control the outcome of matters requiring stockholder approval and could be able to elect all of our directors. Such control, which may have the effect of delaying, deferring or preventing a change of control, is likely to continue for the foreseeable future and significantly diminishes control and influence which future stockholders may have in the Company. See "Principal Stockholders."



|FORWARD LOOKING STATEMENTS
|--------------------------

This Form 10K includes forward-looking statements which include words such as "anticipates", "believes", "expects", "intends", "forecasts", "plans", "future", "strategy" or words of similar meaning. Various factors could cause actual results to differ materially from those expressed in the forward looking statements, including those described in "Risk Factors". We urge you to be cautious of these forward-looking statements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Currency Exchange Between Chinese Renminbi and United States Dollars

While our consolidated financial statements are reported in United States dollars, a significant portion of our business operations are conducted in the Chinese currency Renminbi (RMB). In order to provide you with a better understanding of these operations as discussed in-depth in the section titled "Description of Business", we provide the following summary regarding historical exchange rates between these currencies:

China previously did not allow it's currency to float on the open market. Rather, the currency was tied to the U.S. dollar. This means the RMB exchange rate versus the U.S. dollar was changed very infrequently. When it was changed, it tends to be very significant. During a period of high inflation, a country with a fixed exchange rate such as China will use foreign currency reserves to hold their rate steady until those reserves are exhausted. In this instance the exchange rate change will tend to be significant.

|On July 21, 2005, China changed it policy and no longer values its RMB in terms of US dollars. With this change, the Renminbi is expected to increase.
|------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                      
|ITEM 1B.                                                                                                                                              
|None                                                                                                                                                  
|                                                                                                                                                      
|ITEM 2.                                                                                                                                               
|Principal Business Office                                                                                                                             
|                                                                                                                                                      
|**Coal Group**                                                                                                                                        
|*Principal Business Office*                                                                                                                           

Our principal business office is located at No.57, Xinhua East Street, Hohhot City, Inner Mongolia, where our sales, legal, administration, accounting, finance and management departments are located. The third floor is approximately 5,050 square feet and is kept in good condition.

The office building was purchased by our President, Mr. Ding, in July 1998 on behalf of Coal Group and he subsequently transferred title to Coal Group once it obtained a business license. The full purchase price has been paid and no amounts remain outstanding for this property. The building has 3 floors and is 14,674 square feet.

We occupy the 3rdfloor and the 1stand 2ndfloors are occupied by XianGrong Commercial & Trade Co., Ltd where they operate a restaurant. Coal Group provides this space in exchange for property maintenance and catering services. Catering services and various banquets held throughout the year for promotion purposes cost approximately $25,000. Only expenses exceeding $25,000 are paid.

The land on which the office building is situated is leased from the PRC Government or previous holders of the lease for a period of 50 years, expiring in 2048. A lease from the PRC Government grants use of land by obtaining a State Owned Land Usage Certificate and a lease obtained through previous lease holders grants use of land by obtaining a Collective Land Usage Certificate. Land in China cannot be owned and the only form of ownership is by way of lease for a period of up to 50 years. A regulation Coal Group must comply with in order to keep the lease is the use of the land as specified in the business license. Any changes in use must be approved by the PRC Government.

- 17 -

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|Investment
|----------

In August 2005, Coal Group entered into and agreement with Deheng Assets Management Co., Ltd. (Deheng Assets) to purchase 2 office buildings located at Building 3 in Hongqi Street in Hohhot City (Property Certificate No. 2003001090) and Building 8 in Hongqi Street in Hohhot City (Property Certificate No. 2003002197). Coal Group intends to hold this property as an investment and currently has no plans for improvements to this property. Coal Group plans to lease the units for commercial use.

The 2 buildings are currently vacant with the exception of 3 floors which were previously occupied by 1 tenant. The space is rented on a month to month basis. Coal Group may consider renovation plans in the next fiscal year.



|LaiYeGou MineLocation & Access
|------------------------------

The location of the LaiYeGou mine is south-east of Bianjia Road and is approximately 230 hectares. The location is central as it intersects with national highways making access to the mine central to regional areas through No. 210 National Highway. The distance from LaiYeGou to each location is as follows:

- Dongsheng  70 km
- Baotou City  170km
- XueJiaWan Town  145km
- Yulin City, Shangxi Province - 215 km
- Wuhai City - 370 km

There are other transportation routes. BaoShen Railway crosses Dongsheng where Dongsheng Coalfield and Shenfu Coalfield are located. These mines are 35 km away from a railway collection station and therefore a convenient location where Coal Group is able to purchase raw materials and transport it to customers.

Access to the property is monitored strictly by mine managers. Prior to entering the premises, mine managers assess condition and safety reports from the previous day and determine location and safety parameters for employees. Condition and safety reports are prepared on a daily basis and serves as a basis for permitting entry to the mine and locations where employees are assigned to work.



|Ownership & Previous Operations
|-------------------------------

The LaiYeGou mine was acquired in June 1999. The land in which the mine is located is leased for a period of 50 years from the PRC Government. As mentioned previously, land in China cannot be owned and the only form of ownership is by way of lease for a period of up to 50 years. A regulation we must comply with in order to keep the lease is the use of the land as specified in the business license. Any changes in use must be approved by the PRC Government.

Since acquisition of LaiYeGou, Coal Groups activities have been coal exploration for the purpose of supplying raw materials mostly to heating and power industries and retail customers.

In order to maintain our business license, we are required to pass random periodic safety inspections which check for gas and water seepage, ventilation, communication methods between in and outside of mine, any breach of environmental laws and certifications of employees who work in the mine. Mine managers and staff must be trained and have mine management qualification certificates obtained through the Coal Safety Production Bureau. To date, we have not breached any of the rules and regulations rendering our mine unsafe. Mine managers on site perform daily safety inspections.



|Current Conditions
|------------------

The LaiYeGou coal mine is an underground operation where capacity is 800,000 metric tons per year. Since acquisition, we have made enhancements such as reconstruction of wider laneways for access to the mine and from mine to coal field, construction of 7 work stations and emergency exits, and improvements to the draught system.



|Equipment Used
|--------------

The main equipment used on the mining site consists of drilling machines, a central transformer substation, and safety equipment such as a gas controller and exhaust fan which are located inside the mine. This equipment is kept in good condition. The useful life of the equipment is 10 years. The source of power utilized for the equipment comes from a 10KV single circuit supplied by Changzhang



|- 18 -
|------

---

Town and is converted to 380 volts by our transformer. The voltage used on the surface of the mine and inside the mine varies from 220 to 380 volts and 127 to 380 volts, respectively.



|Proven and probable Reserves
|----------------------------

Occupying an area of 230 hectares at Dongsheng Coalfield near Dongsheng City, this underground coal mine has established proven and probable reserves of 26.09 million metric tons. The product mined is high quality, coal that has low sulphur, low phosphorus and low ash contents. The estimate of proven and probable reserves was made by Inner Mongolia Coal Field Geology Bureau, an independent 3rdparty.

The coal produced meets the stringent environmental standards set by the Central Government of China. The companys environmentally friendly coal is ideal for general heating applications as well as for power generation, with a heat rating of 6,8007,000 kcal.



|Heat Power
|----------



|Principal Business Office
|-------------------------

Heat Powers Administration, Finance, and Heat Station and Project Management Departments are located in newly constructed thermoelectric plant in Yingze Residential Area, Xuejiawan Town, Zhunger County. The office space is approximately 24,272 square feet.



|XueJiaWan Thermoelectric Plant and Office Space
|-----------------------------------------------

The 3.96 hectares land where the office building is constructed and where our thermoelectric plant is located is leased from the PRC Government for a period of 50 years, expiring in 2053. Land in China cannot be owned and the only form of ownership is by way of lease for a period of up to 50 years. A regulation we must comply with in order to keep the lease consists of using the land as specified in the business license.



|Administrative Branch Office
|----------------------------

Our administrative branch office for North American investor relations and U.S. regulatory reporting is located at 6130 Elton Ave., Las Vegas, Nevada 89107.

Our telephone number and fax is 1-888-597-8899. The facility includes answering and English/Chinese translation services, EDGAR filing services, fax services, reception area and shared office and boardroom meeting facilities. This office is provided rent free by our President, Mr. Ding, and is kept in good condition. There are currently no proposed programs for the renovation, improvement or development of the facilities that we currently use. We believe that this arrangement is suitable given the nature of our current operations, and also believe that we will not need to lease additional administrative offices for at least the next 12 months.

|ITEM 3. | LEGAL PROCEEDINGS                                  
|------- | ---------------------------------------------------
|None.   |                                                    
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our Annual Meeting of Stockholders held on December 1, 2008 the following individuals were elected unanimously to the Board of Directors to serve until the next Annual Meeting of Stockholders:

|Name                 | Position                  | Period Serving                  | *Term (1)*
|-------------------- | ------------------------- | ------------------------------- | ----------
|WenXiang Ding        | CEO, President, Director, | December 1, 2008  November 30, | 1 year    
|                     | Secretary, Treasurer      | 2009                            |           
|**YanHua Li**        | Director                  | December 1, 2008  November 30, | 1 year    
|                     |                           | 2009                            |           
|**Fu Xu**            | CFO                       | December 1, 2008  November 30, | 1 year    
|                     |                           | 2009                            |           
|**Locksley Samuels** | Director                  | December 1, 2008  November 30, | 1 year    
|                     |                           | 2009                            |           

- 19 -

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(1)       Directors hold office until the next annual stockholders meeting or until a successor or successors are elected and appointed.

We approved the appointment of Robert G. Jeffrey as our independent accountants for the fiscal year ended November 30, 2008.

|PART II
|-------
|       
|ITEM 5.
|       



|Stockholders of Our Common Shares
|---------------------------------

Market Information.In May 2007, our common stock became eligible for quotation on the Over-the-Counter Bulletin Board under the symbol CHGY.

The following table shows the high and low closing bid prices as quoted on the OTCBB for the fiscal quarters indicated and the quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

|2008           | High | Low 
|-------------- | ---- | ----
|First Quarter  | 0.42 | 0.41
|Second Quarter | 1.02 | 1.01
|Third Quarter  | 0.95 | 0.94
|Fourth Quarter | 0.42 | 0.42



|Rule 144 Shares
|---------------

A total of 45,000,000 shares of our common stock are available for resale in accordance with the volume and trading limitations of Rule 144 of the Act. In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a companys common stock for at least one year is entitled to sell within any three month period a number of shares that does not exceed the greater of:

|1. | 1% of the number of shares of the companys common stock then outstanding which, in our case, will equal 450,000 shares; or                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | the average weekly trading volume of the companys common stock during the four calendar weeks preceding the filing of a notice on form 144 with respect to the sale.
|  

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the company.

Under Rule 144(k), a person who is not one of the companys affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.



|Stock Option Grants
|-------------------

On February 11, 2008, the Board of Directors approved the granting of options to purchase a total of 4,500,000 shares of common stock as described in the 2008 Stock Option Plan (the 2008 Plan) to directors, officers, employees and consultants of the Company. The following is intended as a brief description of the 2008 Plan and is qualified in its entirety by the full text of the 2008 Plan which is attached as Exhibit 10.4.



| | Administration
| | --------------

The 2008 Plan will be administered by the Board of Directors. The Board of Directors may appoint a committee of the Board of Directors (the Committee) comprised of two or more of directors, each of whom will be a Non-Employee Director within the meaning of Rule 16b-3 under theSecurities Exchange Act of 1934, as amended, and an Outside Director within the meaning of



|- 20 -
|------

---

Section 162(m) of the Code, to administer the 2008 Plan. Subject to the terms of the 2008 Plan, the Board of Directors or the Committee may determine and designate those employees, directors and consultants to whom options should be granted and the nature and terms of the options to be granted.



| | Eligibility
| | -----------

All of our employees, including our executive officers and directors who are also employees, are eligible to participate in the 2008 Plan. Directors who are not employees, as well as our consultants and advisers, are eligible to receive options under the 2008 Plan, except that such persons may only receive non-qualified options. Additionally, options granted to non U.S. residents may also only receive non-qualified options.



| | Exercise of Stock Options
| | -------------------------

The exercise price per share for each option granted under the 2008 Plan shall be determined by the Board of Directors or the Committee.

Subject to earlier termination upon termination of employment and the incentive stock option limitations as provided in the 2008 Plan, each option shall expire on the date specified by the Board of Directors or the Committee.

The options will either be fully exercisable on the date of grant or shall be exercisable thereafter in such installments as the Board of Directors or Committee may specify. Upon termination of employment or other service of an option holder, an option may only be exercised for a period of three months or, in the case of termination due to disability or death, a period of 12 months.



| | Transferability
| | ---------------

Options granted under the 2008 Plan may not be transferred except by will or the laws of the descent and distribution and, during his or her lifetime, options may be exercised only by the optionee.



| | Certain Adjustments
| | -------------------

In the event of any change in the number or kind of our outstanding common shares by reason of a stock dividend, stock split, recapitalization, combination, subdivision, rights issuance or other similar corporate change, the Board of the Committee shall make such adjustment in the number of common shares that may be issued under the 2008 Plan, and the number of common shares subject to, and the exercise price of, each then-outstanding option, as it, in its sole discretion, deems appropriate.



| | Amendment or Discontinuance
| | ---------------------------

The Board may amend or discontinue the 2008 Plan, provided that no amendment may, without an optionees consent, materially and adversely affect any rights under any option previously granted to the optionee under the 2008 Plan. Additionally, the approval of our shareholders is required for any amendment that would:

- increase or decrease the number of common shares that may be issued under the 2008 Plan; or
- materially modify the requirements as to eligibility for participation in the 2008 Plan.

Our issued and outstanding shares could be sold at the appropriate time pursuant to Rule 144 of the Securities Act.



|Dividends
|---------

We do not anticipate that we will declare any dividends in the foreseeable future. Although there are no restrictions that limit our ability to pay dividends on our shares, our intention is to retain future earnings for use in our operations and the expansion of our business. We also do not have any securities authorized for issuance under equity compensation plans.

- 21 -

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|DESCRIPTION OF SECURITIES
|-------------------------

Pursuant to our articles of incorporation, the total authorized capital is 200,000,000 shares with a par value of $0.001 per share, of which 45,000,000 were outstanding as of March 16, 2009.

All of our authorized shares are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of shares are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of shares are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available. However, our present intention is not to pay any cash dividends to holders of shares but to reinvest earnings, if any. In the event of our liquidation, dissolution or winding up the holders of shares are entitled to share pro-rata in all assets remaining after payment of liabilities.

Shares have no pre-emptive, conversion or other subscription rights. There are no redemption or sinking fund provisions applicable to the shares.

Our articles and by-laws do not contain any provisions that would delay, defer or prevent our change in control.



|Dividend Policy:
|----------------

We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Should we declare a dividend in the future, such dividend will be paid to shareholders on a pro rata basis in accordance with their shareholdings at such time.



|Share Purchase Warrants:
|------------------------

We have not issued and do not have outstanding any warrants to purchase our shares.



|Options:
|--------

On February 11, 2008, the Board of Directors approved the granting of options to purchase a total of 4,500,000 shares of common stock as described in the 2008 Stock Option Plan (the 2008 Plan) to directors, officers, employees and consultants of the Company. Please refer to the above.



|Convertible Securities:
|-----------------------

We have not issued and do not have outstanding any securities convertible into shares or any rights convertible or exchangeable into shares.



|Changes in Control:
|-------------------



|There are no arrangements which may result in a change in control.
|------------------------------------------------------------------

ITEM 6.SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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|ITEM 7.   | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|--------- | -------------------------------------------------------------------------------------
|         
|OVERVIEW. |                                                                                      



|Critical Accounting Estimates
|-----------------------------

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The application of GAAP involves the exercise of varying degrees of judgment. The resulting accounting estimates will not always precisely equal the related actual results. Management considers an accounting estimate to be critical if:

- assumptions are required to be made; and
- changes in estimates could have a material effect on our financial statements.

Managements Discussion and Analysis of Financial Condition and Results of Operation

The following is an analysis of our revenues and gross profit, details and analysis of components of expenses, and variance; November 30, 2008 compared to November 30, 2007.

|              | 2008         | % Sales | 2007         | % Sales
|------------- | ------------ | ------- | ------------ | -------
|Sales         | $ 19,562,793 | 100%    | $ 20,251,033 | 100%   
|Cost of Sales | 13,691,217   | 70%     | 13,597,468   | 67%    
|Gross Profit  | $ 5,817,576  | 30%     | $ 6,653,565  | 33%    

**Sales**



|Coal Group
|----------

Sales for Coal Group were $ 12,875,532 in 2008 compared to $14,625,907 in 2007. The $ 1,750,375 decrease was as a result of reduced capacity of railway transportation, decreased capacity of the LaiYeGou coal mine during expansion efforts and also because of the temporary shut down of operations for the purpose of complying with PRC Government regulations to improve the air quality during the 2008 Summer Olympics. Coal Group also was affected by the economic downturn experienced this year.

Coal Group has completed its expansion of the LaiYeGou coal mine and does not expect to encounter further interruptions in its business operations. With regard to the transportation challenges, Coal Group has secured contracts with customers which were equipped to transport their orders directly from the LaiYeGou coal mine. In previous years, transportation of coal products by customers proved to be difficult as roads were being reconstructed and a limited amount of transportation units were able to access the mine. With improved access points and securing contracts with customers with transportation units, we expect our sales to increase in line with demand and the increases in the price of coal.

The Government has taken steps to remedy this problem by guaranteeing transportation routes via train and truck transportation however the standardization of these systems has not been established wherein such routes can be used as a reliable source of transport. Also, these routes are only available to coal production entities providing raw materials to public utility companies. Transportation aid is expected to continue until the conditions of public routes are improved and new and more efficient routes are established.

Coal Group revenues are determined by Government regulation as a minimum price per ton is enforced. Coal Groups selling price per ton has consistently been above this minimum set standard. A significant amount of revenues were generated from the coal mine. In addition we met the demands of customers by supplementing coal mine production with outside purchases.

Coal Group does not typically sign contracts to fix its prices per ton. This allows Coal Group to sell its products at the going market rate which, to the best of managements knowledge, will continue its upward trend in price. Locking in a fixed price does not allow Coal Group to capitalize on the increase in demand for its products.

- 23 -

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|Heat Power
|----------

Revenues generated by Heat Power were $ 6,687,261 in 2008 compared to $ 5,625,126 in 2007. The $ 1,062,135 increase was a result of the increase in the number of users as a result of the continued growth in the XueJiaWan area. It is expected that this area will expand further in the next 2 fiscal years. Although Heat Power experienced an increase in revenues during this period, the projected level of revenues based on number of users was not met. This was as a result of the temporary shut down of the thermoelectric plant during the 3rd quarter for the 2008 Summer Olympics as instructed by the PRC Government for the purpose of improving the air quality. Heat Power was instructed to temporarily shut down operations from June 9thuntil September 20th. We do not expect to encounter further interruptions to our operations in the foreseeable future.

Revenues generated are a function of Government regulation as the prices charged are approved by the Government. The Government reviews the pricing of heating from time to time as market conditions change. Also, the cost of raw materials being coal are also regulated by the Government as the price point which we obtain from suppliers is controlled as the Government ensures that such prices are affordable for utility companies. The incentive for the supplier to supply at such prices is that transportation routes are guaranteed and arranged by the Government, thereby saving transportation costs on part of the supplier. Such savings outweigh the reduction in the selling price for the supplier.

**Cost of Sales**

Cost of goods sold expenses as of November 30, 2008 are as follows:

2008
     2007Salaries
     $ 849,445
     $ 526,409Operating supplies
     703,106
     610,669Depreciation and depletion
     2,043,128
     1,622,067Coal
     7,620,871
     7,751,372Freight
     570,980
     758,188Exploration and other fees
     1,134,910
     -Utilities
     499,563
     360,427Other costs
     269,214
     1,968,336Total
     $ 13,691,217
     $13,597,468


Salaries increased as a result of additional staff being employed during expansion efforts of the LaiYeGou coal mine. Our coal consumption decreased as a result of the temporary shut down of operations of Heat Power during the 2008 Olympics. The cost of freight decreased as a result. Our utility costs increased to higher levels as rates increased significantly during the 4thquarter. The cost of coal increase significantly as Coal Group increased purchases from external sources. Coal Group expended its exploration efforts in a nearby mine in Loasangou to test whether acquisition of this mine is commercially viable and a worthy investment. Exploration efforts were contracted to Coalfield Geological Bureau. Coal Group does not intend on pursuing further exploration efforts in Laosangou as result of findings.

***Administrative and Selling Expenses***

2008
     % Expenses
     2007
     % ExpensesSalaries and Wages
     $ 362,320
     15%
     $ 321,248
     17%Depreciation
     511,832
     21
     462,934
     24Postage and office
     108,745
     5
     89,316
     5Travel
     110,977
     5
     161,146
     8Repairs
     41,542
     2
     32,565
     2Professional and other fees
     109,241
     4
     83,645
     4Pollution control
     154,772
     6
     71,972
     4Fuel
     82,346
     3
     87,150
     4Other expenses
     932,849
     39
     629,513
     32Total expenses
     $ 2,414,624
     100%
     $ 1,939,489
     100%


Salaries and Wages.Wages increased as a result of retaining additional staff at the thermoelectric plant and also as a result of increase in base salaries and bonuses. We believe that such increase is in line with market rates in comparable industries in the region.

- 24 -

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Postage and Office.The increase was attributed to various promotional materials being printed for Coal Group announcing our expansion efforts. With capacity to produce up to 800,000 tons per year as a result of enhancements made, we hope to secure long term contracts. Our marketing efforts prevailed throughout the temporary shut down of operations as a result of expansion efforts of the LaiYeGou coal mine and the summer Olympics. We expect such expenses to increase for the foreseeable future as such efforts have been effective in increasing our revenues.

Travel.Travel expense decreased as we did not incur additional costs for employees operating the thermoelectric plant for training. We expect to conduct our training on site. Our travel costs were mostly incurred by engineering consultants to the thermoelectric plant and also travel incurred by sales staff in their marketing initiatives. We expect such expenses to recur on an ongoing basis.

Repairs.Minor repairs were made to mining equipment as part of overall yearly maintenance schedule.

Professional and other Fees.Professional fees were paid for a procedural audit by various professionals to assess the overall operations of the thermoelectric plant and heat transfer stations as a result of our request to increase usage fees. In order to increase usage fees, we must comply with such audit as part of our application process. Fees were also paid to environmental professionals of which assisted in the implementation of environmental protection policies and procedures. Fees paid to environmental professionals are expected to be an ongoing expense. We also retained engineer professionals to evaluate the overall efficiencies of the LaiYeGou coal mine.

Pollution control.Heat Power experienced an increase in anti pollution fees as assessed by the Environmental Protection Bureau. The fee is based on water usage by the thermoelectric plant, and heat transfer stations.

Interest Income (2008-$ 190,941 vs. 2007-$ 9,670), Interest Expense (2008-$ 953,791 vs. 2007-$707,588)

Interest income increase as a result of interest earned on loans granted to suppliers and associated firms by promissory notes and deposits on secured agreements. Interest expense increased as a result of loans obtained from the Agriculture and Baotou Commercial Banks as mentioned above in Sources of Capital.



|Subsidy Income (2008 - $ 2,958,951 vs. 2007 - $ 659,247)
|--------------------------------------------------------

Heat Power received government grants from the Zhunger Finance Department, Zhunger National Taxation Bureau for supplying heating to local secondary schools and for VAT exemptions for the period.



|Effect of Government regulation on our revenues and costs
|---------------------------------------------------------

A significant amount of our revenues and costs are set by government regulation due to the nature of our business as the industry of coal production sale and power generation is highly regulated by various bureaus or the Inner Mongolia Government. The following is a listing of costs for operation of Coal Group, LaiYeGou Coal mine and Heat Power and the effect of pricing by various government regulators:

|Coal Group:                                                 |                                       
|----------------------------------------------------------- | --------------------------------------
|Composition:                                                | Pricing determined by:                
|Revenue: Selling price of coal                              | Government *                          
|Fixed Costs:                                                |                                       
|Depreciation                                                | Tax Bureau                            
|Salary                                                      | Market                                
|Welfare benefits, labor union expense and education expense | Government - Administration of Finance
|Social insurance                                            | Government - Administration of Finance
|Vehicle insurance                                           | Government - Administration of Finance
|Utilities                                                   | Government - Local Price Bureau       
|Variable Costs:                                             |                                       
|Cost of coal                                                | Market                                
|Sales tax(9% of value-added tax payable)                    | Tax Bureau                            
|Stamp duty tax                                              | Tax Bureau                            
|Repairs                                                     | Market                                
|Entertainment & promotion                                   | Market                                
|Office                                                      | Market                                
|Travel                                                      | Market                                
|Freight                                                     | Market                                
|Consultation and other                                      | Market                                

- 25 -



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*The government ensures that power plants obtain raw material coal at a reasonable price and therefore such selling price to power plants is regulated by the National Electric Power Co.

LaiYeGou Coal Mine

|Composition:                           | Price Determined by:                       
|-------------------------------------- | -------------------------------------------
|Raw material:                          |                                            
|Explosive material                     | Government - Local Price Bureau            
|Cost of sales:                         |                                            
|Electricity                            | Government - Local Price Bureau            
|Transportation                         | Market                                     
|Loading                                | Market                                     
|Salaries                               | Market                                     
|Safety fund                            | Government - Coal Management Bureau        
|Overhead                               | Market                                     
|                                      
|General and Administrative expenses:   |                                            
|Amortization                           | Tax Bureau                                 
|Salaries                               | Market                                     
|Welfare benefits                       | Government - Administration of Finance     
|Depreciation                           | Tax Bureau                                 
|Entertainment & promotion              | Market                                     
|Electricity                            | Government - Local Price Bureau            
|Repairs                                | Market                                     
|Travel                                 | Market                                     
|Conference                             | Market                                     
|Occupancy                              | Market                                     
|Research and development               | Market                                     
|Advertising                            | Market                                     
|Labor union fees                       | Government - Administration of Finance     
|Employee education/training            | Market                                     
|Labor protection fees/Social insurance | Government - Administration of Finance     
|Insurance                              | Market                                     
|Professional fees                      | Market                                     
|                                       |                                            
|Selling expenses:                      |                                            
|Travel                                 | Market                                     
|Loading                                | Market                                     
|Custody charges                        | Market                                     
|Coal management                        | Coal Management Bureau                     
|Site management                        | Market                                     
|Management fees                        | Market                                     
|Irrigation construction fund           | Determined by the Administration of Finance
|Auto                                   | Market                                     

Heat Power:

|Composition:                              | Price Determined by:                                
|----------------------------------------- | ----------------------------------------------------
|Revenue: Selling price of Electricity     | Government - Inner Mongolia Electric Power Co., Ltd.
|Revenue: Selling price of Heating service | Government - Inner Mongolia Zhunger Pricing Bureau  
|Expenses:                                 |                                                     
|Cost of coal and freight                  | Market                                              
|Utilities                                 | Government - Local Price Bureau                     
|Repairs                                   | Market                                              
|Salaries                                  | Market                                              
|Welfare benefits                          | Market                                              
|Depreciation                              | Tax Bureau                                          

- 26 -



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To the best of managements knowledge, we are subject to the following material laws and regulations:

Also refer to Risks Relating to Our Business- Compliance and enforcement of environmental laws and regulations may cause us to incur significant expenditures and resources of which we may not have.



|China National Labor Laws
|-------------------------

(Source- U.S. Department of State- Country Report on Human Rights Practices-2003 China). We are subject to the following labor laws and to the best of our knowledge, we are not in violation of any labor laws in effect.

The Right to organize and Bargain Collectively:Chinas National Labor Law, which entered into force on January 1, 1995, permits workers in both state and private enterprises in China to bargain collectively. The National Labor Law provides for collective contracts to be developed through collaboration between the labor union (or worker representatives in the absence of a union) and management, and should specify such matters as working conditions, wage scales, and hours of work. The law also permits workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract.

Minimum Age for Employment of Children:Chinas National Labor Law forbids employers to hire workers less than 16 years of age and specifies administrative review, fines and revocation of business licenses of those businesses that hire minors. Laborers between the ages 16 and 18 are referred to as juvenile workers and are prohibited from engaging in certain forms of physical work including labor in mines.

Acceptable Conditions of Work:The Labor Law provides for broad legal protections for workers on such matters as working hours, wages, and safety and health. The Trade Union Law invests unions with the authority to protect workers against violations of their legal rights or contractually agreed conditions of work. The Law on the Prevention and Treatment of Occupational Diseases, and the Production Safety Law identify responsibilities for work-related illness and accidents, and provide for specific penalties for violation of the law. However, there remained a substantial gap between the laws formal provisions for work conditions and the actual situation in the workplace.

There is no national minimum wage. The Labor Law allows local governments to determine their own standards for minimum wages. Local governments generally set their minimum wage at a level higher than the local minimum living standard but lower than the average wage. Widespread official corruption and efforts by local officials to attract and keep taxpaying, job-producing enterprises that might otherwise locate elsewhere undercut enforcement of the minimum wage provisions.

The Labor Law mandates a 40-hour standard work week, excluding overtime, and a 24-hour weekly rest period. It also prohibits overtime work in excess of 3 hours per day or 36 hours per month and mandates a required percentage of additional pay for overtime work.



|Compliance with China National Labor Laws
|-----------------------------------------

We have complied with these China National Labor Laws as discussed above. Our administration department takes a pro-active approach to ensuring that we and our employees adhere to labor laws.

The Role of the National Department and Reform Commission (NDRC)

The NDRC in its efforts to improve the efficiencies in coal mine operation, communication and transportation is taking the approach of shutting down smaller mines or any mine which does not meet its specified basic production requirements. The LaiYeGou mine is considered one of the larger mines in the area and therefore is not subject to these production requirements. Our production levels are determined by market demand.



|Heating Pricing Regulated by Zhunger Pricing Bureau
|---------------------------------------------------

The price charged to supply heating to XueJiaWan users is regulated and controlled by the Inner Mongolia Zhunger Pricing Bureau, a division of the Inner Mongolia Government. The pricing structure is approximately as follows per square foot:

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|1. Residential: $ 0.142. Commerce: $ 0.263. Office: $ 0.24
|----------------------------------------------------------

These prices are effective March 2, 2006 as stated on the Heating Price Standard issued by the XueJiaWan Town Zhunger County.

Please refer to Risks Relating to Our Business- The prices we charge to supply heating in any area in China is determined by the Inner Mongolia Zhunger Pricing Bureau and we may not be able to recoup increases in the cost of raw materials or expenses for an undermined period of time until application to increase prices is approved.



|Coal Prices Regulated by Coal Sales Association
|-----------------------------------------------

The price for mass coal (large, middle, and powdered individually sold) must be at least $13.30 (110 RMB) per ton and the prices for mixed coal (assortment of mass coal) must be at least $11.50 (95 RMB) per ton. Prices set by the Local Coal Sales Association are reviewed as market conditions change.

Please refer to Risks Relating to Our Business- As a member of the Local Coal Sales Association the minimum price at which we sell coal in any area in China is determined by the Local Coal Sales Association and if there is any decrease in demand for a particular type of coal, we cannot lower our prices beyond the minimum set price to adjust for a decrease in demand without loss of our membership.



|Research and Development
|------------------------

We are not devoting any resources to research and development efforts on our products. The development efforts in expanding our production cycle and of constructing of new thermoelectric plants are subcontracted out to 3rdparties.



|Compliance with Environment and Safety laws
|-------------------------------------------



|Coal Group
|----------

The safety of Coal Groups coal mine employees is governed under Coal Laws of China under the authority of the Coal Safety Production Bureau. Such laws coincide with application and maintenance of its business license obtained through the Department of Geology and Mineral Resources. Coal Group is required to pass random periodic safety inspections which check for gas and water seepage, ventilation, communication methods between in and outside of the mine, any breach of environmental laws and certifications of employees who work in the mine. Mine managers and staff must be trained and have mine management qualification certificate obtained through the Coal Safety Production Bureau. Mine managers on site perform daily safety inspections.



|Heat Power
|----------

Safety in Heat Powers thermoelectric plant and heating plants are also regularly reviewed and monitored. On a quarterly basis, tests are preformed on pressure vessels, insulation, levels of toxicity and moisture, and overall operational efficiency by local Work Safe Labor Departments and Electric Power companies operated by the PRC Government.

Heat Power also performs annual servicing of the plant and a major inspection and thorough evaluation every 3 years. Such inspections are contracted out to civil engineering companies.

The potential liability for violation of environmental standards consists of loss of our business licenses causing irreparable damage to our reputation and payment of penalties which vary depending on the nature of the violation and history of previous violations made. There is currently no fixed amount set by the Government and penalties are determined on a case by case basis. In addition, the project which we undertake will be ceased, pending compliance with environmental standards.



|Performance indicators
|----------------------

Our performance is affected by trends and uncertainties which we experience. Financial Measures:

1.      Achieve consistent sales levels of $ 25,000,000 each fiscal year.

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Our sales are summarized as follows:

Year Ended Nov Year Ended Nov30, 2008
     30, 2007(Audited)
     (Audited)Sales
     $ 19,562,793
     $ 20,251,033


|2. | Cash flows generated from collection of accounts receivables and customer advances (unearned revenues) of $ 800,000 per month.
|-- | ------------------------------------------------------------------------------------------------------------------------------
|  
|3. | Age of accounts receivable average 1 months.                                                                                  
|  

It is common in the coal industry to consider accounts receivables within 1 year old to be current. This is a common perception not only in the industry in which we operate but also among other industries in China. The majority of our outstanding accounts are less than 6 months old.

|4. | Increase of the number of coal customers to 500.                                                                                    
|-- | ------------------------------------------------------------------------------------------------------------------------------------
|  
|5. | Secure 50 contracted coal customers, preferably obtaining deposits prior to delivery of goods.                                      
|  
|6. | Secure a further monopoly contracts with the Inner Mongolia Government to provide heating requirements in undeveloped rural regions.
|  



|Current trends in the Industry
|------------------------------

Given the increase in demand for coal production for electricity and heating production, the Central Government is encouraging sectors to build more power stations, coking factories, calcium carbide factories and silicon iron factories across the country. A challenge in meeting this demand is transporting coal to nearby regions, such as Shanxi and Hebei Provinces, as transportation routes are currently inefficient or non existent. These routes are expected to be completed in the next 5 years. As a result, sales to these regions during this period may not be at levels we desire.

For Coal Group, methods of circumventing transportation challenges are to receive contracts granted by the Government where transportation is guaranteed from LaiYeGou coal mine to the final destination. Where contracts are privately arranged, transportation is arranged through the hiring of 3rdparty transporters or by customers. In some instances, coal is purchased by 3rdparties in close proximity to train stations where transportation to customer destinations is more efficiently arranged. However, transportation to destinations is limited to those for which routes are in place.

For Heat Power, transportation of coal to our facility is provided by Guanbanwusu.

Coal Group does not have competition in the usual sense of the term that most other businesses experience. There are approximately 30,000 coal mining companies throughout China; however, since demand currently exceeds supply, competition is not a variable which warrants concern in the operations of our business.

Chinas coal industry remains large and growing. Its customer base is chronically under-supplied. There are pressures from the Government to use nuclear power instead of coal due to environmental concerns; however, coal reserves in China are abundant and less expensive and a switch to other forms of resources to generate energy is unlikely.

The electricity and heating supply industry is also growing; however, the government is taking steps to monitor and control economic growth in the rural areas to ensure that the economy is developing at a stable rate.



|Liquidity and Capital ResourcesWorking Capital Needs:
|-----------------------------------------------------

As of November 30, 2008 we had a working capital deficit of $ 22,000,986.

We estimate our cash requirements for the next 12 months Coal Group will require approximately $ 6,000,000 and Heat Power will require approximately $ 5,000,000, a total of $ 11,000,000 in order to cover our working capital needs as follows:

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Coal Group
     Heat PowerMaterials
     300,000
     4,000,000Labor/Overhead
     3,500,000
     800,000Selling/Administrative expense
     2,200,000
     200,000Total
     $ 6,000,000
     $ 5,000,000


We currently are able to sustain our working capital needs through profits we generate and bank and shareholder loans.

We anticipate sales will generate the cash flow from collection of accounts receivables, customer deposits and proceeds from bank and shareholder loans to be sufficient to sustain our working capital needs. However we may require other sources of capital.



|Sources of Capital:
|-------------------

Coal Group obtained loans from the Agriculture and Baotou City Commercial Bank amounting to $ 5,558,888 to assist in funding working capital needs. The terms and principle amount of the loans granted are as follows:

Due date
     Interest rate
     PrincipleOctober 22, 2009
     8.316%
     $ 2,633,156March 30, 2009
     8.964%
     1,462,866April 23, 2009
     8.964%
     1,462,866Total
     
     $ 5,558,888


Shareholders loans are granted from time to time as required to meet current working capital needs.We have no formal agreementthat ensures that we will receive such loans. We may exhaust this source of funding at any time.

We may also receive capital contributions from our shareholders.

Plans for Expansion:

**Coal Group**

Coal Group has recently completed its expansion of the LaiYeGou Coal mine and has increased its capacity to 800,000 tons of per year. Coal Group does not intend to take on any further projects requiring substantial capital in the next 12 months.



|Heat Power
|----------

The thermoelectric plant was put into operation September 2006. Heat Power does not intend to take on any other projects requiring substantial capital in the next 12 months. Heat Power is currently constructing additional boilers to supplement the thermoelectric plant operation.

We do not know of any trends, events or uncertainties that are likely to have a material impact on our short-term or long-term liquidity other than those factors discussed above.



|Cash FlowsOperating Activities:
|-------------------------------

Our cash flows provided by operating activities were $ 5,264,271 for 2008 and $ 13,391,569 for 2007. The following summarizes the inflow and outflow of cash for these periods:

- 30 -

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2008
     2007Net income
     $ 3,890,712
     $ 2,973,838Increase in accounts receivable
     (723,446)
     (2,309,175)Increase in customer advances
     1,689,854
     1,928,308Decrease (increase) in advances to suppliers
     (3,279,091)
     1,199,215Decrease (increase) in inventory
     (508,824)
     472,142Increase in deferred income
     1,188,747
     1,664,841Increase in other accounts payable
     526,325
     2,237,280Other
     2,479,994
     (5,225,120)Net Cash Provided (Consumed) By Operating Activities
     $ 5,264,271
     $ 13,391,569


Accounts Receivable.The increase in accounts receivables are mainly attributed to Heat Powers user fees made on account. The age of such accounts was less than 3 months. Coal Groups sales on account were also outstanding for less than 6 months.

As of November 30, 2008, Coal Group did not have any receivables. For Heat Power, the collection of accounts for users of our heating and electrical network varies from 4-6 months. As of November 30, 2008, approximately 87% of Heat Powers accounts were outstanding for less than 6 months.

Customer Advances.The majority of customer advances received were from Heat Powers users as a result of providing heat and hot water supply from newly constructed thermoelectric plant and boilers converted from previous operations. Advances on sales of coal are also a normal business practice that ensures that the customer obtains Coal Groups Product at the market price determined on the date of purchase.

Advances to Suppliers.Advances increased as a result of advances made to suppliers of materials required for the LaiYeGou coal mine expansion. Prepayment is also a common business practice in China as it allows for a determined price and in some instances will grant us discounts on purchases.

Inventory.The majority of the inventory relates to Heat Powers supply of coal for use in thermoelectric operations and consists of operating supplies used by Heat Power for heat generation such as raw coal and boiler fittings.

Other Accounts Payable.These amounts consist of accruals made for freight, repairs and maintenance of heating plants, labor union fees, social insurance, and technical training for our employees. Heat Power previously accrued a hold back fee on 5-10% of the value of materials used in Heat Powers construction of the thermoelectric plant to be held back for the duration of the warranty period. Upon expiration the holdback fee is payable to the vendors and resulted in the decrease in other accounts payable compared to 2007.

Deferred income.These amounts consist of Heat Powers receipt of reimbursements from various real estate development companies for the costs of constructing pipelines to connect to rural areas being developed. The income will be recognized based on a 10 year straight line depreciation of equipment used in thermoelectric plant operations.



|Investing Activities:
|---------------------

Our cash consumed by investing activities were $ 923,282 in 2008 and $ 13,721,760 in 2007. Heat Power procured various fixed assets necessary for the thermoelectric plant and the decrease in construction in progress compared to 2007 levels was as a result of amounts subsequently transferred to fixed assets heat transfer stations were completed during 2008. Construction in progress charges consist of expenses paid for LaiYeGou coal mine expansion and also Heat Power construction of additional boilers and conversion of existing heating plants previously used in exclusive heat supply operations prior to construction of the thermoelectric plant.

The Company granted notes to two vendors previously of which $ 2,233,935 were repaid. The full balance is expected to be repaid by 2ndquarter ended. The Company had previously made investments in two other companies of which such investments were converted to promissory notes during the 3rdquarter of which $3,853,884 were repaid

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The Company has a $ 255,776 investment in Litai Coking Co. Ltd. Litai Coking Co. Ltd. is a customer of the Company owned coal mine. This investment is a 20% equity interest which has been accounted for by the equity method of accounting. LiTai Coking Co. Ltd was not operating in 2008 and did not generate an income or loss.



|Financing Activities:
|---------------------

Our cash flows consumed by financing activities were $ 5,611,438 in 2008 and cash flows provided by financing activities in 2007 were $ 1,709,673.

All land in the China belongs to the PRC. To extract resources from land, Coal Group is required to obtain a mining right. The jurisdiction responsible for issuing such rights is the Provincial Bureau of National Land and Resource, a division of the PRC Government. In December 2005, Coal Groups mining right was assessed to be approximately $ 3.7 million for a period of 14 years commencing November 2005. This mining right is regarded as an Intangible Asset to be amortized over a period of 14 years. As of November 30, 2008, we have fulfilled our obligations by payment of our remaining balance of $ 1,712,837.

Coal Group also obtained additional loans from the Agriculture and Baotou Commercial Bank to fund working capital needs as mentioned above in Sources of Capital.

A substantial portion of the cost of construction of the thermoelectric plant has been provided by shareholder loans. The outstanding balance of these loans at November 30, 2008 is as follows:

Ordos City YiYuan Investment Co. Ltd.
     
     $ 1,535,992Hangzhou Dayovan Group, Ltd.
     
     5,101,839Xinghe County Haifu Coal Transportation & Sales Co., Ltd.
     
     1,760,278WenXiang Ding
     
     1,810,856Total
     $10,208,965




|Material Commitments
|--------------------

We are committed to payment of bank loans, shareholder loans and payment of mining rights as mentioned above. We have title to all our capital assets consisting of production equipment, automobiles, and office equipment.

Heat Powers offices are currently leased on a month to month basis and Coal Group occupies space purchased in 1998. Coal Group holds title to this property in the form of a 50 year lease from the Government. There are no amounts owing.

Heat Power is obligated to make interest payments on a loan obtained through Coal Group as mentioned above.



|Seasonal Aspects
|----------------

Coal Groups business is seasonal in that sales are particularly low in February, due to the Chinese New Year holiday. During this time our business is closed for 2 weeks. As a result, sales in March are usually higher.

Heat Power sales level relating to heat generation is not provided from October through April as the climate in the region is high, reducing heating requirements.



|Off Balance Sheet ArrangementsWe have no off balance sheet arrangements.
|------------------------------------------------------------------------

- 32 -

---

ITEM 7A.              QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 8.                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



|November 30, 2008 and 2007
|--------------------------

|                                                           | Page
|---------------------------------------------------------- | ----
|Accountants Audit Report                                  | F-1 
|Consolidated Balance Sheets                                | F-2 
|Consolidated Statements of Operations and Earnings         |     
|Accumulated                                                | F-3 
|Consolidated Statements of Changes in Stockholders Equity | F-4 
|Consolidated Statements of Cash Flows                      | F-5 
|Notes to Consolidated Financial Statements                 | F-6 

- 33 -

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CHINA ENERGY CORPORATION

Consolidated Financial Statements

NOVEMBER 30, 2008



- 34 -

---

REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM



|To the Board of Directors  China Energy Corporation
|----------------------------------------------------

I have audited the accompanying consolidated balance sheets of China Energy Corporation as of November 30, 2008 and 2007, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the years ended November 30, 2008 and 2007. These consolidated financial statements are the responsibility of the Company management. My responsibility is to express an opinion on these financial statements based on my audits.

I conducted the audits 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, I express no such opinion. 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 Energy Corporation as of November 30, 2008 and 2007 and the results of its operations and cash flows for the years ended November 30, 2008 and 2007 in conformity with U.S. generally accepted accounting principles.



|/s/ Robert G. Jeffrey, Certified Public AccountantsMarch 16, 2009Wayne, New Jersey
|----------------------------------------------------------------------------------



|-F1-
|----

- 35 -

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CHINA ENERGY CORPORATIONCONSOLIDATED BALANCE SHEETSNovember 30, 2008ASSETS
     November 30, 2008
     November 30, 2007Current Assets:Cash
     $ 296,455
     $ 1,478,264Accounts receivable
     4,724,882
     3,683,819Advances to suppliers
     4,637,041
     1,180,386Other accounts receivable
     2,128,642
     914,451Inventory
     685,985
     152,133Total current assets
     12,473,005
     7,409,053Fixed Assets:Plant property, and equipment
     33,668,657
     28,987,311Construction in progress
     10,710,321
     7,626,021Total fixed assets
     44,378,978
     36,613,332Less, accumulated depreciation and depletion
     4,700,282
     2,903,646Net fixed assets
     39,678,696
     33,709,686Other Assets:Investment property, net of depreciation of $120,686 and $69,755
     1,979,029
     1,872,366Intangible asset, net of amortization of $940,055 and $585,225
     3,468,906
     3,347,484Long term investment
     255,776
     3,889,182Long term notes receivable
     2,832,107
     4,790,480Total other assets
     8,535,818
     13,899,512Total Assets
     $60,687,519
     $55,018,251LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Notes payable
     $ 5,558,888
     $10,552,091Accounts payable
     7,780,928
     6,011,492Advances from customers
     4,675,139
     2,721,869Accrued liabilities
     291,373
     1,754,584Shareholder loans
     10,208,965
     7,568,227Other accounts payables
     5,958,701
     4,746,160Total current liabilities
     34,473,994
     33,354,423Long Term Obligations
     -
     1,623,399Deferred Income
     3,018,568
     1,664,841Stockholders Equity:Common stock: authorized 200,000,000 shares of $.001 par value; 45,000,000 issuedand outstanding
     45,000
     45,000Additional paid-in capital
     8,655,805
     8,655,805Paid in capital  stock options
     315,000
     -Retained earnings
     9,952,519
     6,692,664Statutory reserves
     1,819,915
     1,189,058Other comprehensive income
     2,406,721
     1,793,061Total stockholders equity
     23,194,960
     18,375,588Total Liabilities and Stockholders Equity
     $60,687,519
     $55,018,251The accompanying notes are an integral part of these financial statements


-F2-

- 36 -

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CHINA ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF INCOMEFor the Years Ended November 30, 2008 and 20072008
     2007Revenue
     $19,562,793
     $20,251,033Cost of sales
     13,691,217
     13,597,468Gross profit
     5,871,576
     6,653,565Administrative and selling expenses
     2,414,624
     1,939,489Operating income
     3,456,952
     4,714,076Other income (expense):Interest income
     190,941
     9,670Interest expense
     (953,791)
     (707,588)Nonoperating income
     311,281
     141,973Nonoperating expense
     (691,897)
     (116,774)Subsidy income
     2,958,951
     659,247Income Before Income Taxes
     5,272,437
     4,700,604Provision for Income Taxes
     1,381,725
     1,726,766Net Income
     3,890,712
     2,973,838Other Comprehensive Income:Profit on foreign currency conversion
     613,660
     917,124Total Comprehensive Income
     $ 4,504,372
     $3,890,962Net Income per share -Basic and Diluted
     $.09
     $.07Weighted average number of shares outstanding
     45,000,000
     45,000,000The accompanying notes are an integral part of these financial statements-F3-


- 37 -

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CHINA ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITYFor the Years Ended November 30, 2008, and 2007Additional
     Paid in
     
     
     OtherCommon Stock
     Paid in
     Capital
     Retained
     Statutory
     ComprehensiveShares
     Amount
     Capital
     Stock Options
     Earnings
     Reserves
     Income
     Total**Balance, November 30, 2006**
     45,000,000
     $45,000
     $8,655,805
     $ -
     $ 4,164,902
     $ 742,982
     $ 875,937
     $14,484,626**Net income for period**
     
     
     
     
     2,973,838
     
     
     2,973,838**Other comprehensive income**
     -
     -
     -
     
     -
     -
     917,124
     917,124**Allocation of statutory reserve**
     -
     -
     -
     -
     (446,076)
     446,076
     -
     -**Balance, November 30, 2007**
     45,000,000
     45,000
     8,655,805
     
     6,692,664
     1,189,058
     1,793,061
     18,375,588**Value of stock options granted**
     
     
     
     315,000
     
     
     
     315,000**Net income for period**
     
     
     
     
     3,890,712
     
     
     3,890,712**Other comprehensive income**
     -
     -
     -
     -
     -
     -
     613,660
     613,660**Allocation of statutory reserve**
     -
     -
     -
     -
     (630,857)
     630,857
     -
     -**Balance, November 30, 2008**
     45,000,000
     $45,000
     $8,655,805
     $315,000
     $9,952,519
     $1,819,915
     $2,406,721
     $23,194,960The accompanying notes are an integral part of these financial statements.


-F4-

- 38 -

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CHINA ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended November 30, 2008 and 20072008
     2007CASH FLOWS FROM OPERATIONS:Net income
     $ 3,890,712
     $ 2,973,838Charges not requiring the outlay of cash:Depreciation and amortization
     2,554,954
     1,847,819Interest accrued but not paid on shareholder loans
     214,323
     392,756Value of stock option grant
     315,000
     -Equity interest in loss of investment company
     -
     17,670Loss on sales of fixed assets
     -
     264Changes in assets and liabilities:Increases in accounts receivable
     (723,446)
     (2,309,175)Increases in customer advances
     1,689,854
     1,928,308Increases in other receivables
     (1,169,247)
     (610,918)Decrease (increase) in advances to suppliers
     (3,279,091)
     1,199,215Decrease (increase) in inventory
     (508,824)
     472,142Receipts of deferred income
     1,188,747
     1,664,841Increases in accounts payable
     474,943
     3,508,079Increases in accrued liabilities
     90,021
     181,077Increases in other accounts payable
     526,325
     2,237,280Increase in notes receivable
     -
     (111,627)Net Cash Provided By Operating Activities
     5,264,271
     13,391,569CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of computers, automobiles, and equipment
     (2,357,340)
     (3,783,188)Increases in construction in progress
     (4,501,147)
     (6,343,383)Increased investment in intangible
     (152,614)
     -Decrease in long term notes receivables
     2,233,935
     -Proceed of sales of fixed assets
     -
     22,230Decrease in deferred charges
     -
     35,228Decrease in long term investments
     3,853,884
     (3,652,647)Net Cash Consumed By Investing Activities
     (923,282)
     (13,721,760)CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of advances from shareholders
     (428,209)
     3,767,314Borrowing under short term notes
     -
     (1,131,618)Borrowing under shareholder loans
     2,239,065
     -Repayments of short term notes
     (5,709,457)
     -Repayments of long term obligations
     (1,712,837)
     (926,023)Net Cash (Consumed) Provided By Financing Activities
     (5,611,438)
     1,709,673Exchange rate effect on cash
     88,640
     (800,907)Net Change in Cash Balances
     (1,181,809)
     578,575Cash balance, beginning of period
     1,478,264
     899,689Cash balance, end of period
     $296,455
     $1,478,264




|The accompanying notes are an integral part of these financial statements-F5-- 39 -
|-----------------------------------------------------------------------------------

---

CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
November 30, 2008



|ORGANIZATION and BUSINESS1. Organization of the Company
|-------------------------------------------------------

China Energy Corporation (Energy) is a Nevada corporation, formed October 11, 2002 as Omega Project Consultations, Inc. The name was changed to China Energy Corporation on November 3, 2004. On November 30, 2004, Energy acquired all of the equity interests of Inner Mongolia Tehong Coal Group Co., Ltd. (Coal Group) a corporation organized under the laws of the Peoples Republic of China (China), in return for shares of common stock. This acquisition has been treated in substance as a capital transaction; it was accounted for as a reverse merger, a procedure that treats the transaction as though Coal Group had acquired Energy.

Historical financial and other information of Coal Group will be presented in all public filings. Under the accounting for a reverse merger, the assets and liabilities of Energy, which were nil at the time, were recorded on the books of Coal Group, the continuing company, and the stockholders equity accounts of Coal Group were reorganized to reflect the shares issued in this transaction.



|Business
|--------

Coal Group was organized in China on August 8, 2000 as Inner Mongolia Zhunger Tehong Coal Co., Ltd. The name was changed in December 2003. Coal Group owns a coal mine in the Inner Mongolia District from which it produces coal. It also buys, sells, and transports coal, serving the Inner Mongolia District. The principal customer of the coal mine is a nearby coking factory. The Company does not view this concentration as a significant risk.

A wholly owned subsidiary of Coal Group, Inner Mongolia Zhunger Heat Power Co., Ltd. (Heat Power), a China Corporation, supplies heating and electricity to a portion of the XueJaiWan area of the Inner Mongolia District.

During 2003, Heat Power was granted a license, which constitutes a monopoly, to supply heating to the entire XueJiaWan area. To provide for this requirement, construction began in 2004 on a thermoelectric plant, which was completed in September 2006. This facility produces heat as a byproduct of power generation and has replaced the facilities which had produced heating. The electricity is sold to a local government agency which supplies the electricity needs of the XueJiaWan area. Coal to power this thermoelectric plant comes from a local coal mine with which Heat Power has a supply contract. Energy does not believe this concentration constitutes a significant risk.



|Basis of Consolidation
|----------------------

The consolidated financial statements include the accounts of Energy and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



|Cash
|----

For purposes of the statements of cash flows, the Company considers all short term debt securities purchased with a maturity of three months or less to be cash equivalents.



|Concentrations Of Credit Risk
|-----------------------------

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash, short term receivables, advances to suppliers, accounts payable and accrued liabilities, advances from customers, and short term loans payable. These instruments are denominated in the currency of China. At November 30, 2008, Company cash balances were on deposit at financial institutions in China.

-F6-



|- 40 -
|------

---

CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
November 30, 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)



|Recognition Of Revenue
|----------------------

Revenue is realized from sales of products. Recognition occurs upon delivery. In determining recognition, the following criteria are considered: persuasive evidence exists that there is an arrangement between the buyer and seller; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured.



|Fair Value Of Financial Instruments
|-----------------------------------

The carrying amounts of the Companys financial instruments, which include cash, receivables and advances, accounts payable, accrued liabilities and amounts due on short term loans, approximate their fair values at November 30, 2008.



|Fixed Assets
|------------

Fixed assets are recorded at cost. Depreciation is computed using the straight line method, with lives of five years for electrical and office equipment, ten years for transportation equipment, and 45 years for buildings.

The cost of the coal mine is being written off by depletion charges as coal is extracted. Cost per ton has been calculated using a geological study to estimate the total quantity of coal available in the mine; depletion charges are calculated by multiplying the cost per ton by the quantities of coal extracted during each period. Costs include the original purchase price of the mine plus costs of mine improvements, principally the cost of road building. Depletion charges have not been significant, because of the low cost of the mine.



|Income Taxes
|------------

Coal Group and Heat Power generate their income in China where Value Added Tax, Income Tax, City Construction and Development Tax and Education Surcharge taxes are applicable. Energy, Coal Group, and Heat Power do not conduct any operations in the U.S.; therefore, U.S. taxes are not applicable.

Deferred income taxes are recorded to reflect the tax consequences or benefits to future years of any temporary differences between the tax basis of assets and liabilities and amounts recorded on the accounting records, and of net operating loss carryforwards.



|Inventories
|-----------

Inventories are valued at the lower of cost or market, with cost being determined on the first in first out basis. At November 30, 2008, inventories consisted solely of operating supplies.



|Use Of Estimates
|----------------

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures 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 estimated.



|Investments
|-----------

Investments in which the Company owns a 20% or greater equity interest are accounted for by the equity method of accounting.



|-F7-
|----

- 41 -

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CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
November 30, 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)



|Advertising Costs
|-----------------

The Company will expense advertising costs when the advertisement occurs. There were no advertising expenses in 2008 and 2007.



|Net Income Per Share
|--------------------

The Company computes net income (loss) per common share in accordance with SFAS No. 128, Earnings Per Share and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net income per common share are computed by dividing the amount available to common shareholders for the period by the weighted average number of shares of common stock outstanding during the period. Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations for all years reflected in the accompanying financial statements.



|Segment Reporting
|-----------------

Management accounts for the operations of the Company in two segments: Coal Group and Heat Power.



|Foreign Currency Translation
|----------------------------

All Company assets are located in China. These assets and related liabilities are recorded on the books of the Company in the currency of China (Renminbi). Since the functional currency is the Renminbi, they are translated into US dollars as follows:

|(a) | Assets and liabilities, at the rates of exchange in effect at the applicable balance sheet dates;                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | Components of stockholders equity, at the exchange rates prevailing at the time respective equity transactions occurred; and,                                                          
|   
|(c) | Revenues and expenses, at the average rates of exchange for each year. Gains and losses arising from the translation of foreign currency will be included in other comprehensive income.

Statutory Reserve

The Company allocates 10% of its after tax profits, if any, to a Statutory Reserve Fund and 5% to a Statutory Public Welfare Fund, as determined from year to year. These funds are allocated appropriately until reserves reaches 50% of Paid in Capital.

Stock Options

Stock options are accounted for upon issuance at fair market value. Such value is determined at the date a commitment is made for issuance. The value of options is included in a separate part of stockholders' equity. Upon exercise or cancellation, the value of such options is transferred to paid in capital.



|3. RELATED PARTY TRANSACTIONS
|-----------------------------

Substantial portions of the cost of construction of the thermoelectric plant and of the costs of expansion projects at Heat Power and the coal mine were provided by shareholder loans. The outstanding balance of these loans at November 30, 2007 was $8,183,786. These loans increased by $1,810,856 during the 2008 year. Interest of $214,323 which accrued on these loans was added to the outstanding balance. The remaining balance at November 30, 2008 was $10,208,965.

These shareholder loans bear interest at 6.31% and are due on demand. They are detailed below:

Ordos City YiYuan Investment Co., Ltd.
     $ 1,535,992Hangzhou Dayovan Group, Ltd.
     5,101,839Xinghe County Haifu Coal Transportation & SalesCo., Ltd.
     1,760,278Wenxiang Ding
     1,810,156Total
     $ 10,208,965


-F8-

- 42 -



---



CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
November 30, 2008



|4. ACCOUNTS RECEIVABLE
|----------------------

The balance of accounts receivable has been reduced by a provision for doubtful accounts in the amount of $1000.

5. ADVANCES TO SUPPLIERS

As is customary in China, the Company has made advances to its suppliers. At November 30, 2008, advances had been made to 60 suppliers; these advances totaled $4,637,041. There is no interest due on these advances; the advances are offset against billings as they are made by the suppliers.



|6. OTHER ACCOUNTS RECEIVABLEOther accounts receivable is composed of the following:
|-----------------------------------------------------------------------------------

Loans to suppliers and other associatedfirms
     
     $ 165,304Deposit funds to secure agreements
     
     1,859,928Employee expense advances
     
     103,410Total
     $2,128,642


7. LONG TERM INVESTMENT

The long term investment is in a company named Litai Coking Co. Ltd. (Litai). Litai is a customer of the Company owned coal mine. This investment is a 20% equity interest which has been accounted for by the equity method of accounting. This resulted in a $ 17,670 loss in the 2007 year. Litai discontinued operations during 2008 as it was unable to meet environmental standards; it is expected to resume operations during 2009.

8. SHAREHOLDER LOANS

The shareholder loans are due on demand and, through November 30, 2007, bore interest at 6.31%; the rate was reduced during 2008 to 3,155%.

9. NOTES PAYABLE

The Company is obligated under three bank loans. These notes do not require collateral. Relevant terms of these debt obligations are presented below.

Bank loan, due 10/22/09, with interest at 8.316%
     $ 2,633,156Bank loan, due 3/30/09, with interest at 8.964%
     1,462,866Bank loan, due 4/23/09, with interest at 8.964%
     1,462,866Total debt
     $5,558,888Total debt
     $5,558,888


10. SEGMENT REPORTING

The Company is made up of two segments of business: Coal Group which derives its revenue from the mining and purchase and sale of coal, and Heat Power which derives its revenue by providing hot water and electricity for use by residents and businesses of a local community. Each of these segments is conducted in a separate corporation and each functions independently of the other.

During the periods reported there were no transactions between the two segments. There also were no differences between the measurements used to report operations of the segments and the consolidated operations of the Company. In addition, there were no differences between the measurements of the assets of the reported segments and the assets reported on the consolidated balance sheets.

-F9-

- 43 -

---

CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
November 30, 2008



|10. SEGMENT REPORTING (CONTD)
|------------------------------

Significant financial statement amounts are presented below, by segment.

|Summary of Segment Operations    |             |             |             |             |            
|-------------------------------- | ----------- | ----------- | ----------- | ----------- | -----------
|For the Years Ended November 30, |             |             |             |             |            
|                                 | 2008        | 2007       
|                                 | Heat Power  | Coal Group  | Total       | Heat Power  | Coal Group 
|                                
|Sales to external customers      | $6,687,261  | $12,875,532 | $19,562,793 | $ 5,625,126 | $14,625,907
|Interest income                  | 190,941     |             | 190,941     | 9,670       | -          
|Interest expense                 | 209,475     | 744,316     | 953,791     | 399,294     | 308,294    
|Depreciation and                 |             |             |             |             |            
|amortization                     | 2,075,770   | 435,025     | 2,510,795   | 1,465,087   | 344,982    
|Segment profit (loss)            | (1,863,604) | 5,320,556   | 3,456,952   | (666,111)   | 5,380,187  
|Significant noncash items:       |             |             |             |             |            
|Segment assets                   | 33,111,586  | 25,596,904  | 58,708,490  | 31,595,892  | 21,549,993 
|Assets not allocable to          |             |             |             |             |            
|segments                         |             |             | 1,979,029   |             |            
|Expenditures for segment         |             |             |             |             |            
|assets:                          |             |             |             |             |            
|Construction in progress         | 3,609,608   | 7,100,713   | 10,710,321  | 3,246,376   | 4,379,645  
|Other assets                     | 3,823,371   | 677,776     | 4,501,147   | -           | 6,343,383  



|-F10-
|-----

- 44 -

---

CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
November 30, 2008



| | 11. EXPENSES
| | ------------

Major items included in the operating expenses reported on the statements of income for the years 2008 and 2007 are detailed below:

General and Administrative Expenses2008
     2007Salaries and wages
     $ 362,320
     $ 321,248Depreciation
     511,832
     462,934Postage and office supplies
     108,745
     89,316Travel
     110,977
     161,146Repairs
     41,542
     32,565Professional and other fees
     109,241
     83,645Pollution control
     154,772
     71,972Fuel
     82,346
     87,150Other expenses
     932,849
     629,513Total expenses
     $2,414,624
     $1,939,489Details of the cost of goods of 2008 and 2007 are as follows:2008
     2007Salaries
     $ 849,445
     $526,409Operating supplies
     703,106
     610,669Depreciation and depletion
     2,043,128
     1,622,067Coal
     7,620,871
     7,751,372Freight
     570,980
     758,188Exploration and other fees
     1,134,910
     -Utilities
     499,563
     360,427Other costs
     269,214
     1,968,336Total cost of goods
     $13,691,217
     $13,597,468-F11-


- 45 -

---

CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 November 30, 2008

12. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

Cash paid for interest during the 2008 period totaled $771,507; cash paid for interest during the 2007 period was $624,305. There was $2,373,379 paid for income taxes during 2008 and $734,485paid during 2007. There was no interest paid on the shareholder loans during either 2008 or 2007.



|13. INCOME TAXES
|----------------

The Company is required to file income tax returns in both the United States and China. Its operations in the United States have been insignificant and income taxes have not been accrued. In China, the Company files tax returns for Heat Power, Coal Group and, although it is part of Coal Group, a separate tax return is required for the operations of the coal mine. During 2008 and 2007, taxes accrued for the coal mine. Net operating losses were reported on the other tax returns. The laws of China permit the carryforward for a period of five years of net operating losses. At November 30, 2008, the Chinese entities had net operating losses of $ 3,248,257 available for future use. If not used, these carryforwards will expire as follows:

2009
     $177,7782010
     142,8432011
     1,118,2262012
     1,076,1722013
     733,238


Under SFAS No. 109, Accounting for Income Taxes, recognition of deferred tax assets is permitted unless it is more likely than not that the assets will not be realized. The Company has recorded deferred tax assets as follows:

Deferred tax assets
     $ 812,064Valuation allowance
     812,064Balancerecognized
     $ -


The amount of deferred tax assets increased during the 2008 year by $ 300,773.

Chinese law provides that losses cannot be carried forward unless approved by the taxing authority. Included in the 2004 losses is a provision for write off of coal inventory of $1,454,663 which had occurred in prior years but not deducted in those years. An application for approval of these losses has been submitted to the taxing authorities, but a response has not yet been received. If this loss is not approved, it is likely that a significant portion of the loss carry forwards would not be available.

The effective income tax rate is reconciled with the statutory rate in the following table.



|                                                                     | Income 
Before 
Income Taxes | Tax 
Provision | Rate of 
Tax
|-------------------------------------------------------------------- | ---------------------------- | -------------- | ------------
|Amounts reported on the 
statement of Income                         | $5,272,437                   | $1,381,725     | 26.21%      
|Losses not used in 
calculation of taxable
income on the tax returns | (254,464)                    | -              | (1.21)      
|Amount calculated with 
statutory note                               | $5,526,901                   | $1,381,725     | 25%         

14. FIXED ASSETS

Fixed assets is composed principally of buildings and equipment, as summarized below.



|                                | Asset       | Accumulated 
Depreciation | Estimated
Useful
Lives
(Years)
|------------------------------- | ----------- | ------------------------- | ------------------------------
|Buildings                       | $ 9,296,242 | $ 671,055                 | 45                            
|Production equipment            | 23,067,374  | 3,570,614                 | 5                             
|Automotive equipment            | 655,903     | 270,605                   | 10                            
|Office furniture and 
equipment | 211,652     | 101,853                   | 5                             
|Other Assets                    | 437,486     | 86,155                    | 5                             
|                                |             |                           |                               
|Totals                          | $33,668,657 | $4,700,282                | -                             





|-F12-
|-----

- 46 -

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CHINA ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
November 30, 2008



|15. STOCK OPTIONS
|-----------------

On February 11, 2008 the Board of Directors approved the adoption of a stock option plan (the 2008 Plan) under which a total of 4,500,000 options to purchase Company common stock may be granted to officers, employees, and consultants of the Company. The full number of authorized options were granted in February 2008. These options are fully vested and may be exercised at anytime before December 31, 2010 at an exercise price of $1 per share. The value of the options was determined to be $315,000 using a Black Sholes valuation model. This value was charged to expense during 2008. There were no options exercised or cancelled during the year ended November 30, 2008.

The outstanding options have not been included in the calculation of the weighted number of shares outstanding which is used to calculate earnings per share because the exercise price of the options is higher than the market price of the stock.

The following table summarizes the assumptions used in the Black Sholes calculation.



|Dividend yield                                   | 0.0%   
|------------------------------------------------ | -------
|Expected volatility                              | 196.73%
|Risk free interest rate                          | 2.13%  
|Expected term (in years)                         | 2.38%  
|Weighted average value of stock options granted. | $.07   



|16. CONTINGENCY
|---------------

China has enacted legislation which appears to restrict the ability of entities considered foreign to China to have ownership interests in operating companies located in China. The Company is one such foreign owner of Chinese operating companies. The Company has taken steps to avoid any adverse impact of this legislation. These steps are more fully described on pages 4 and 5 of this 10-K filing under the heading Pacific Projects Inc. (PPI). Company attorneys, both in China and North America, have advised that because of the Trust arrangements described on pages 4 and 5, the Company continues to enjoy the benefits of ownership of its two Chinese operating companies.

As is traditional in China, except for auto coverage, Coal Group and Heat Power do not carry insurance.

17. RECENT ACCOUNTING PRONOUNCEMENTS

The Company does not anticipate the adoption of recently issued accounting pronouncement to have a significant effect on the Companys results of operations, financial position or cash flows.



|-F13-
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|ITEM 9.     | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING **AND FINANCIAL DISCLOSURE**
|----------- | ----------------------------------------------------------------------------------------
|            |                                                                                         
|None.       |                                                                                         
|           
|ITEM 9A(T). | CONTROLS AND PROCEDURES                                                                 

Evaluation of Disclosure Controls and Procedures.The Securities and Exchange Commission defines the term disclosure controls and procedures to mean a companys controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Our chief executive officer and chief financial officer have concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management, with the participation of our chief executive officer and chief financial officer, as of the end of the period covered by this report, that our disclosure controls and procedures were effective for this purpose, except as noted below under Changes in Internal Controls.

Changes in Internal Controls.As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that as of the end of the period covered by this Annual Report on Form 10-K our disclosure controls and procedures were effective to enable us to accurately record, process, summarize and report certain information required to be included in the Companys periodic SEC filings within the required time periods, and to accumulate and communicate to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Prior to the issuance of our financial statements, we completed the account reconciliations, analyses and our management review such that we can certify that the information contained in our financial statements for the year ended November 30, 2006, fairly presents, in all material respects, the financial condition and results of operations of the Company.

Limitations on Effectiveness of Controls and Procedures.Our management, including our Chief Executive Officer and Chief Accounting Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

- 48 -

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ITEM 9B.OTHER INFORMATION



|None.
|-----



|PART III
|--------

ITEM 10.                     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following information sets forth the names of our officers and directors, their present positions, ages and biographical information within the last 5 years. Also provided is a brief description of the business experience of our directors and executive officers and significant employees during the past five years and an indication of directorships held by the directors in other companies subject to the reporting requirements of the Securities Exchange Act.

Name
     Position
     Period Serving
     *Term (1)*WenXiang Ding
     CEO, President, Director,
     December 1, 2008  November 30,
     1 yearSecretary, Treasurer
     2009YanHua Li
     Director
     December 1, 2008  November 30,
     1 year2009Fu Xu
     CFO
     December 1, 2008  November 30,
     1 year2009Locksley Samuels
     Director
     December 1, 2008  November 30,
     1 year2009


|(1) | Directors hold office until the next annual stockholders meeting or until a successor or successors are elected and appointed.
|--- | -------------------------------------------------------------------------------------------------------------------------------
|   

WenXiang Dingbecame our CEO, President, Director, and Treasurer on November 5, 2004. Mr. Ding is responsible for implementing our investment projects, financial budgets and forecasts, overseeing research and development and human resources and marketing.

Mr. Ding is also responsible for our overall direction and various initiatives as needed from time to time in maintaining the health of the Company. Mr. Ding is currently overseeing our marketing and public relations efforts in maintaining current customers and attracting new customers and also initiating contracts with sectors of the Inner Mongolia Government for expansion of electrical and heating networks.

In August, 2000, Mr. Ding became the Executive Director and General Manager of Coal Group where he brought his experience in the coal industry from serving as the Chief Accountant and, Operations Director of Inner Mongolia Coal of the Peoples Republic of China General Political Department. Mr. Ding also founded Heat Power in September 2003 where he serves as the General Manager. Mr. Dings position as General Manager of Coal Group and Heat Power holds the same responsibilities as his position as our President.

In 1993, Mr. Ding obtained training in coal mine management from the Beijing coal Management Institute. During 2002, he obtained further training in coal mine production and public utility management from the Inner Mongolia Coal Industry Bureau and Erdos City Construction Bureau, respectively.

YanHua Libecame our Director on November 5, 2004. Her responsibilities include overseeing our finance and human resources departments.

Ms. Li is also the General Manager of Inner Mongolia XiangRong Commercial and Trade Co., Ltd. where she oversees the finance department and responsible for operations management and has been for the past 5 years. Ms. Li does not have any technical training in her field of finance, human resources and operations management. Ms. Li is the spouse of Wenxiang Ding.

Fu Xuwas appointed CFO of the Company on February 20, 2008. Mr. Xu will oversee the Companys financial department, and will work closely with the President in implementing investment projects, financial budgets and forecasts.



|- 49 -
|------

---

Mr. Fu Xu obtained his diploma in Financial Management from the Inner Mongolia Finance and Economics Academy in 1989. Mr. Xu brings his experience in financial management and internal audit from his work from previous companies of which he was appointed CFO. From 1989 until 2000, Mr. Xu was the CFO of Inner Mongolia Foreign Trade Group Co., Ltd. From 2000 until 2007, Mr. Xu was the CFO of Inner Mongolia XiRiMu Dry Goods Co., Ltd.

Mr. Xu does not have family relationships with any other director or executive officer of the Company, and neither have been a party to any transaction with the Company during the past fiscal year ended November 30, 2008. The Company currently does not have an employment agreement with Mr. Xu.

Locksley Samuelswas appointed Director on January 31, 2008 and will be responsible for our sales and marketing efforts for Coal Group. Mr. Samuels is currently the President of Eurotrend Manufacturing Co., Ltd., ("Eurotrend") providing services for design, manufacturing and installation of custom kitchen cabinetry. Mr. Samuels has been the President of Eurotrend since its inception in 1984.

Mr. Samuels obtained his Bachelors of Applied Sciences degree in Chemical Engineering from the University of Waterloo in Ontario, Canada in 1975.



|Audit Committee Financial Expert
|--------------------------------

We do not have an audit committee financial expert serving on the audit committee. Under the applicable Securities and Exchange Commission standard, an audit committee financial expert means a person who has the following attributes:

- An understanding of generally accepted accounting principles and financial statements;
- The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
- Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrants financial statements, or experience actively supervising one or more persons engaged in such activities;
- An understanding of internal controls and procedures for financial reporting; and
- An understanding of audit committee functions.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a)of the Exchange Act requires our officers and directors, and persons who own more than 10% of the its common stock, to file reports of ownership and changes of ownership of such securities with the United States Securities and Exchange Commission. As of the year ended November 30, 2008, our officers and directors and person who own more than 10% of our common stock filed timely Form 4s and Form 5s.



|Code of Ethics
|--------------



|We do not have a code of ethics.
|--------------------------------

- 50 -

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|DIRECTORS COMPENSATION
|-----------------------

Our Directors are paid on a salary basis and do not receive compensation for serving on the Board of Directors. Directors are reimbursed for any expenses incurred on behalf of the Company.

ITEM 11.EXECUTIVE COMPENSATION

The table below summarizes all compensation awarded to, earned by, or paid to our executive officers by any person for all services rendered in all capacities to us for the fiscal year ended November 30, 2008 and 2007.

|                 |               | LONG TERM COMPENSATION |         |       |              |               
|---------------- | ------------- | ---------------------- | ------- | ----- | ------------ | --------------
|                 |               |                        |         |       |              | RESTRICTED    
|                 |               |                        |         |       |              | OPTION        
|                 |               |                        |         |       | OTHER ANNUAL | STOCKS/PAYOUTS
|NAME             | TITLE         | YEAR                   | SALARY  | BONUS | COMPENSATION | AWARDED (1)   
|                
|WenXiang Ding    | President,    | 2008                   | $ 6,800 | -0-   | -0-          | 70,000        
|                 | CEO,          |                        |         |       |              |               
|                 | Secretary and |                        |         |       |              |               
|                 | Director      |                        |         |       |              |               
|                 |               | 2007                   | $ 6,800 | -0-   | -0-          | -0-           
|                
|YanHua Li        | Director      | 2008                   | $ 5,100 | -0-   | -0-          | -0-           
|                 |               | 2007                   | $ 5,100 | -0-   | -0-          | -0-           
|                
|Fu Xu            | CFO           | 2008                   | $ 9,000 | -0-   | -0-          | -0-           
|                 |               | 2007                   | N/A     | N/A   | N/A          | N/A           
|                
|Locksley Samuels | Director      | 2008                   | -0-     | -0-   | -0-          | 21,000        
|                 |               | 2007                   | N/A     | N/A   | N/A          | -0-           

(1)Represents expense recognized in accordance with SFAS 123(R) as described in Note 14 of the audited financial statements included in Item 8.

The terms of the employment agreements are summarized as follows:

- Duration of the agreement - usually set for 2 years and renewable at the discretion of management.
- Work content  responsibilities and title held.
- Labor protection laws applicable to the employee  type of training to be received.
- Compensation  frequency of payments and any other benefits received.
- Labor discipline laws applicable to the employee.
- Social insurance  benefits received under the applicable laws such as unemployment insurance, paid maternity leave, etc.
- Occupational training  training period specified and repayment to employer if employee has terminated employment.
- Termination - grounds for termination and procedures.



|Stock Option Grants
|-------------------

On February 11, 2008, the Board of Directors approved the granting of options to purchase a total of 4,500,000 shares of common stock as described in the 2008 Stock Option Plan (the 2008 Plan) to directors, officers, employees and consultants of the Company.



|Consulting Agreements
|---------------------

We do not have any consulting agreements with any of our officers or directors and we will not pay our directors any amount for acting on the Board of Directors. We have employment contracts with Mr. Ding and Ms. Li.

- 51 -

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|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
|-------- | ---------------------------------------------------
|         | MANAGEMENT AND RELATED STOCKHOLDER MATTERS         

The following table sets forth as of March 16, 2009 certain information regarding the beneficial ownership of our common stock by:

|1. | each person who is known by us to be the beneficial owner of more than 5% of the common stock,
|-- | ----------------------------------------------------------------------------------------------
|  
|2. | each of our directors and executive officers and                                              
|  
|3. | all of our directors and executive officers as a group.                                       
|  

The persons or entities listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, except to the extent such power may be shared with a spouse. No change in control is currently being contemplated.

As of March 16, 2009, 45,000,000 shares with a par value of $0.001 per share were issued and outstanding. We are authorized to issue 200,000,000 shares with a par value of $0.001 per share.

Amount and Nature ofTitle of Class
     Name and Address of Beneficial Owner
     *Beneficial Owner*
     % Class(1)Officers and Directors:None
     -
     -
     -Officers and Directors as a Group
     
     -
     -5% Shareholders:Common Stock
     Pacific Projects Inc.
     20,589,107 (2)
     46%No. 5 New Road, Belize City, BelizeCommon Stock
     Axim Holdings Inc.
     10,000,000 (2)
     22%No. 5 New Road, Belize City, BelizeCommon Stock
     YuhHsin Liu
     2,700,000
     6%Room 1308, Wan De Mansion, No.1019 Shen NanZhong Lu, Shenzhen 518046, ChinaOfficers, Directors and 5%
     
     33,289,407
     74%Shareholders as a Group


(1)
     Based on 45,000,000 shares outstanding as of March 16, 2009.(2)
     Shares were issued pursuant to the Share Trust Agreement and Trust Agreement. Please refer to Exhibit 10.2 and 10.3.


|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
|-------- | ------------------------------------------------------------
|         | INDEPENDENCE                                                



| | Acquisition of Subsidiary
| | -------------------------

On November 30, 2004, we entered into a Share Exchange Agreement with Coal Group and Heat Power, both Chinese Corporations, whereby we acquired all the issued and outstanding stock of Coal Group and 49% of the issued and outstanding stock of Heat Power for consideration of 45,000,000 shares of our common stock. These shares were exempt from registration under Regulation S of the Securities Act as they were made to off-shore, non US residents.

The remaining 51% of Heat Power is owned by Coal Group. In September 2003, our President and majority shareholder, Mr. Ding, acquired a 70% interest in Heat Power. That interest was acquired through a contribution of property which is used by Heat Power in its operations. The property has been capitalized at the original cost to Mr. Ding. In February, 2004 Mr. Ding transferred this equity interest to Coal Group. In March 2004, Coal Group sold 15% of its interest to another shareholder. In August of 2004, a further 4% interest was sold to a shareholder leaving 51% to be owned by Coal Group. As a result of the Share Exchange Agreement, Coal Group and the Company together now own 100% of the outstanding capital stock of Heat Power.

- 52 -

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Coal Group and Heat Power thus became our wholly-owned subsidiaries. The shareholders of both companies unanimously agreed to enter into the Agreement for the purposes of restructuring in anticipation of becoming listed on the OTC Bulletin Board. We were formed by the shareholders of Coal Group and Heat Power for this purpose and prior to entering into the Agreement; we had no assets, liabilities or equity and had not issued any of our shares. As a result of entering into the Agreement; the shareholders of Coal Group and Heat Power became our shareholders. The 45,000,000 shares were allocated based on the capital contributions or ownership of Coal Group and Heat Power. The Agreement therefore was a non-arms length transaction.

On December 30, 2007, CEC acquired PPI, a Nevada company with no assets, liabilities, or equity. CEC holds 100% of the issued and outstanding shares of PPI, or 5,000 common shares with a par value of $ 0.001.

On December 31, 2007, PPI entered into a Trust Agreement with all the registered shareholders of Coal Group, and that of Heat Power, whereby under the terms of the Trust Agreement, all the shareholders are obligated to hold their interests in Coal Group and Heat Power in (represented by their registered paid up capital contributions to date) trust for PPI, for an 8 year term, extendable for another 5 more years. Coal Group is a wholly owned subsidiary of CEC and Heat Power is 51% owned by Coal Group and 49% owned by CEC. Please refer to Exhibit 10.1.



|Shareholder Loans
|-----------------

Our shareholders have advanced the following amounts to Heat Power for the purposes of satisfying working capital needs as of November 30, 2008:

Ordos City YiYuan Investment Co. Ltd.
     
     $ 1,535,992Hangzhou Dayovan Group, Ltd.
     
     5,101,839Xinghe County Haifu Coal Transportation & Sales Co., Ltd.
     
     1,760,278WenXiang Ding
     
     1,810,856Total
     $10,208,965


These loans are payable upon demand and interest is charged at 6.31% per annum on balances owing. We have no formalized agreements with our shareholders guaranteeing that certain amounts of funds will be available to us. We may exhaust this source of funding anytime.

We expect this source of funding to continue; however, in the event shareholder loans are no longer granted to us, we may obtain long or short term financing or downsize our operations. There are no formal agreements in place with respect to shareholder loans.

Transactions involving our directors, officers, principal shareholders consist of the above noted principal shareholders providing shareholder loans to fund our thermoelectric plant expansion and working capital needs. There is no formal agreement with principal shareholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Below is the aggregate amount of fees billed for professional services rendered by our principal accountants with respect to the Companys last two fiscal years:

2008
     2007Audit fees
     
     $ 50,000
     $ 50,000Audit-related fees
     
     -
     -Tax fees
     
     -
     -All other fees
     
     -
     -Total
     
     $ 50,000
     $ 50,000


- 53 -



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All of the professional services rendered by principal accountants for the audit of the our annual financial statements that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for last two fiscal years were approved by the Audit Committee.

|ITEM 15.         | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                       
|---------------- | -------------------------------------------------------------------------------------------------
|                
|*Exhibit Number* | Description                                                                                      
|                 |                                                                                                  
|3.1              | Certificate of Incorporation, dated October 14, 2002-Omega Project Consultations Inc. *          
|3.2              | Certificate of Incorporation, dated November 3, 2004- China Energy Corporation *                 
|3.3              | Articles of Incorporation, dated October 11, 2002- Omega Project Consultations Inc. *            
|3.4              | Certificate Amending Articles of Incorporation dated November 3, 2004 changing our name to China
|                 | Energy Corporation and increase our authorized capital to 200,000,000 from 75,000,000. *        
|3.5              | Bylaws, effective October 12, 2002 *                                                             
|10.1             | Share Exchange Agreement between China Energy Corporation and Inner Mongolia Tehong Coal Group   
|                 | Co., Ltd and Inner Mongolia Zhunger Heat Power Co., Ltd., dated November 30, 2004. *             
|10.2             | Trust Agreement between PPI and Coal Group and Heat Power dated December 31, 2007**              
|10.3             | Share Trust Agreement between PPI, Axim and GPI dated January 3, 2008**                          
|10.4             | 2008 Stock Option Plan ***                                                                       
|23.1             | Auditor Consent Letter dated March 12, 2008                                                      
|31.1             | RULE 13A-14(A) CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER                                      
|31.2             | RULE 13A-14(A) CERTIFICATION OF THE CHIEF FINANCIAL OFFICER                                      
|32.1             | SECTION 1350 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICERS                                       
|32.2             | SECTION 1350 CERTIFICATION OF THE CHIEF FINANCIAL OFFICERS                                       

|· | *Incorporated by reference from our Form SB-2 that was originally filed with the SEC on September 27, 2005.
|- | -----------------------------------------------------------------------------------------------------------
| 
|· | **Incorporated by reference from Form 8K filed with the SEC on January 14, 2008.                           
| 
|· | ***Incorporated by reference from Form 8K filed with the SEC on February 13, 2008.                         
| 

- 54 -

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|SIGNATURES
|----------

In accordance with the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

|      |                |     | CHINA ENERGY CORPORATION                      
|----- | -------------- | --- | ----------------------------------------------
|Date: | March 16, 2009 |     |                                               
|     
|     
|      |                |     | /s/ WenXiang Ding                             
|      |                | By: |                                               
|      |                |     | WenXiang Ding                                 
|      |                |     | President, Chief Executive Officer, Secretary,
|      |                |     | Treasurer and Director                        
|     
|      |                |     | /s/ Fu Xu                                     
|      |                | By: |                                               
|      |                |     | Fu Xu                                         
|      |                |     | Chief Financial Officer                       

- 55 -

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