**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10−Q**
 (Mark
        One)
  **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
        the
        quarterly period ended: June 30, 2008
  **o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
        the
        transition period from ____________ to _____________
  Commission
        File Number: 333-108690
 
 **CHINA
        NEW ENERGY GROUP COMPANY**
 (Exact
        Name of Registrant as Specified in Its Charter)
 
 **Delaware**
              
              **65-0972647**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 **17th
        Floor, HongJi Building, JinWei Road**
 **HeBei
        District, Tianjin, China**
 
 (Address
        of principal executive offices, Zip Code)
  (86
        22) 2626 9216
 (Registrant’s
        telephone number, including area code)
  
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Indicate
        by check mark whether the registrant (1) has 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 o
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        the definitions of “large accelerated filer,” “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
                  Accelerated Filer ̈
              Accelerated
                  Filer oNon-Accelerated Filer ̈(Do not check if a smaller reporting company)
              Smaller
                  reporting company o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).  Yes o No x
 
 The
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of August __, 2008 is as follows:
 
 Class
                  of Securities
              
              Shares
                  OutstandingCommon
                  Stock, $0.001 par value
              
              100,000,041
 
 
  **TABLE
        OF CONTENTS**
 
 **PART
                  I****FINANCIAL
                  INFORMATION**ITEM
                  1.
              FINANCIAL
                  STATEMENTS
              
              1ITEM
                  2.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS
              
              14ITEM
                  3.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              21ITEM
                  4.
              CONTROLS
                  AND PROCEDURES
              
              21**PART
                  II****OTHER
                  INFORMATION**ITEM
                  1.
              LEGAL
                  PROCEEDINGS
              
              22ITEM
                  2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              
              22ITEM
                  3.
              DEFAULTS
                  UPON SENIOR SECURITIES
              
              22ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              22ITEM
                  5.
              OTHER
                  INFORMATION
              
              22ITEM
                  6.
              EXHIBITS
              
              22
 
 
  **PART
        I** ****
 
 **FINANCIAL
        INFORMATION**
  **ITEM
        1.**  **FINANCIAL
        STATEMENTS.** ****
 
 **CHINA
        NEW ENERGY GROUP COMPANY**
 
 **UNAUDITED
        FINANCIAL STATEMENTS**
 
 **THREE
        MONTHS ENDED MARCH 31, 2008 AND 2007**
 
 **TABLE
        OF CONTENTS**
 
 **Page**Condensed
                  Consolidated Balance Sheets
              
              2Condensed
                  Consolidated Statements of Operations and Comprehensive
                  Loss
              
              3Condensed
                  Consolidated Statements of Cash Flows
              
              4Condensed
                  Consolidated Statement of Changes in Stockholders’ Equity
              
              5Notes
                  to Consolidated Financial Statements
              
              6-13
 
 1
  **China
        New Energy Group Company**
 **Condensed
        Consolidated Balance Sheets**
 
 (Unaudited)June 30,
              
              December 31,2008
              
              2007**Assets**Plant
                  and equipmentPlant
                  in service
              
              $
              9,602,656
              
              $
              8,970,843Construction
                  work in progress
              
              
              4,041,542
              
              
              3,057,90313,644,198
              
              
              12,028,746Less
                  - Allowance for depreciation
              
              
              445,523
              
              
              322,16713,198,675
              
              
              11,706,579**Current
                  assets**Cash
                  and Bank Deposits
              
              
              1,285,093
              
              
              2,311,028Accounts
                  Receivable
              
              
              1,262,807
              
              
              869,459Inventories
              
              
              186,572
              
              
              373,490Deposit
                  & Other receivable
              
              
              451,876
              
              
              448,186**Total
                  current assets**
              
              
              3,186,348
              
              
              4,002,163Intangible
                  assets, net
              
              
              2,167,853
              
              
              2,033,152**Total
                  assets**
              
              
              18,552,876
              
              
              17,741,894**Liabilities
                  and stockholders' equity****Current
                  liabilities**Accounts
                  Payable
              
              
              1,616,394
              
              
              1,266,968Accruals
                  & Other payable-Related
              
              
              406,905
              
              
              148,010Accruals
                  & Other payable - Third Party
              
              
              1,587,184
              
              
              2,389,047Accrued
                  derivative liability
              
              
              910,000
              
              
              -Business
                  tax payable
              
              
              460,049
              
              
              1,242,024Short-term
                  loan
              
              
              660,000
              
              
              -**Total
                  current liabilities**
              
              
              5,640,532
              
              
              5,046,049**Commitments
                  and Contingencies****Minority
                  Interest**
              
              
              113,832
              
              
              97,875**Stockholders'
                  equity**Common
                  stock, 100,000,041 shares authorized and issued,par value
                  $.001
              
              
              100,000
              
              
              100,000Additional
                  paid in capital
              
              
              5,350,097
              
              
              5,619,219Earned
                  Sunplus
              
              
              2,418,477
              
              
              1,903,034Retained
                  earnings
              
              
              4,400,639
              
              
              4,786,707Other
                  Comprehensive Income
              
              
              529,299
              
              
              189,010**Total
                  stockholders' equity**
              
              
              12,798,512
              
              
              12,597,970**Total
                  liabilities and stockholders' equity**
              
              $
              18,552,876
              
              $
              17,741,894
  **The
        accompanying notes are an integral part of these consolidated financial
        statements**
  2
  **China
        New Energy Group Company**
 **Condensed
        Consolidated Statements of Operations and Comprehensive Loss**
 
 (Unaudited)
              
              (Unaudited)For the three months periods
                ended
              
              For the six months periods
                endedJune 30,
              
              June 30,2008
              
              2007
              
              2008
              
              2007Revenue
              
              $
              2,340,880
              
              $
              1,583,003
              
              
              2,442,635
              
              $
              1,601,476Cost
                  of revenue
              
              
              (600,033
              )
              
              (384,592
              )
              
              (675,970
              )
              
              (399,263
              )Operating
                  margin
              
              
              1,740,847
              
              
              1,198,411
              
              
              1,766,665
              
              
              1,202,213ExpensesSelling,
                  general and administrative
              
              
              (235,185
              )
              
              (63,241
              )
              
              (499,442
              )
              
              (268,432
              )Income
                  from operations
              
              
              1,505,662
              
              
              1,135,170
              
              
              1,267,223
              
              
              933,781Change
                  in derivative liability
              
              
              (910,000
              )
              
              -
              
              
              (910,000
              )
              
              -Other
                  income/(loss), net
              
              
              9,063
              
              
              7,590
              
              
              8,939
              
              
              6,319Total
                  other expenses
              
              
              (900,937
              )
              
              7,590
              
              
              (901,061
              )
              
              6,319Income
                  before income tax
              
              
              604,725
              
              
              1,142,760
              
              
              366,162
              
              
              940,100Income
                  tax
              
              
              (391,276
              )
              
              (312,486
              )
              
              (391,276
              )
              
              (312,486
              )213,449
              
              
              830,274
              
              
              (25,114
              )
              
              627,614Minority
                  interest
              
              
              (10,434
              )
              
              (7,802
              )
              
              (9,268
              )
              
              (5,525
              )Net
                  income/(loss)
              
              $
              203,015
              
              $
              822,472
              
              
              (34,382
              )
              $
              622,089Income
                  (loss) per average share outstanding
              
              $
              0.00203
              
              $
              0.00822
              
              
              (0.00034
              )
              $
              0.00622Average
                  shares outstanding during the period
              
              
              100,000,041
              
              
              100,000,041
              
              
              100,000,041
              
              
              100,000,041
  **The
        accompanying notes are an integral part of these consolidated financial
        statements**
  3
  **China
        New Energy Group Company**
 **Condensed
        Consolidated Statements of Cash Flows**
 
 (Unaudited)For the six months periods endedJune 30,2008
              
              2007**Cash
                  flows from operating activities**Net
                  (loss)/profit
              
              $
              (34,382
              )
              $
              622,089Adjustments
                  to reconcile net income/(loss) to net cash used in operating
                  activities:Depreciation
              
              
              83,066
              
              
              83,068Amorization
              
              
              4,257
              
              
              3,824Change
                  in derivative liability
              
              
              910,000
              
              
              -Minority
                  interest
              
              
              15,957
              
              
              5,525Changes
                  in assets and liabilities:Accounts
                  receivables
              
              
              (393,348
              )
              
              183,234Inventory
              
              
              186,918
              
              
              314,755Deposits
                  and other receivables - Third Party
              
              
              3,141
              
              
              (141,061
              )Accounts
                  payables
              
              
              349,426
              
              
              394,953Accrued
                  liabilities and other payables-Third Party
              
              
              (801,863
              )
              
              (144,516
              )Business
                  taxes & government suncharge
              
              
              (781,975
              )
              
              (648,862
              )**Net
                  cash (used in)/provided by operating activities**
              
              
              (458,803
              )
              
              673,009**Cash
                  flow from investing activities**Acquisition
                  of assets
              
              
              (424
              )
              
              (12,305
              )Acquisition
                  of work in progress
              
              
              (1,466,903
              )
              
              (333,502
              )Increase
                  in short-term loan
              
              
              660,000
              
              
              -**Net
                  cash (used in) investing activities**
              
              
              (807,327
              )
              
              (345,807
              )**Cash
                  flow from financing activities**Cash
                  advanced from directors/shareholders
              
              
              252,064
              
              
              37,678**Net
                  cash provided by financing activities**
              
              
              252,064
              
              
              37,678Cummlative
                  Translation Adjustment
              
              
              (11,869
              )
              
              133**Cash
                  and cash equivalents:****Net
                  (decrease) increase**
              
              
              (1,025,935
              )
              
              365,013**Balance
                  at beginning of period**
              
              
              2,311,028
              
              
              316,575**Balance
                  at end of period**
              
              
              1,285,093
              
              
              681,588**Supplemental
                  cash flow information:**Cash
                  paid for income taxes
              
              
              -
              
              
              -Cash
                  paid for interest
              
              $
              -
              
              
              -
  **The
        accompanying notes are an integral part of these consolidated financial
        statements**
  4
  **China
        New Energy Group Company**
 **Condensed
        Consolidated Statements of Changes in Stockholders’ Equity**
 **For
        Three Months Ended March 31, 2008 (Unaudited) and Year Ended December 31,
        2007**
 STATUTORYNUMBER
                    OF
                  
                  PAID-IN
                    REGISERED
                  
                  ADDITIONAL
                    PAID-IN
                  
                  SURPLUS
                    RESERVE
                  
                  RETAINED
                  
                  CUMULATIVE
                    TRANSLATON
                  
                  TOTAL
                    STOCKHOLDERS'SHARES
                  
                  CAPITAL
                  
                  CAPITAL
                  
                  FUND
                  
                  EARNINGS
                  
                  ADJUSTMENT
                  
                  EQUITYUS$
                  
                  US$
                  
                  US$
                  
                  US$
                  
                  US$
                  
                  US$Balance,
                      December 31,2005
                  
                  
                  100
                  
                  $
                  100
                  
                  $
                  5,355,882
                  
                  $
                  233,524
                  
                  $
                  1,569,100
                  
                  $
                  -
                  
                  $
                  7,158,606Recapitalization
                      upon reverse merger
                  
                  
                  99,999,941
                  
                  
                  99,900
                  
                  
                  (99,900
                  )Transfer
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  659,869
                  
                  
                  (659,869
                  )
                  
                  -
                  
                  
                  -Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,934,450
                  
                  
                  -
                  
                  
                  1,934,450Cumulative
                      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  16,035
                  
                  
                  (36,366
                  )
                  
                  -
                  
                  
                  5,339
                  
                  
                  (14,992
                  )Balance,
                      December 31,2006
                  
                  
                  100,000,041
                  
                  
                  100,000
                  
                  
                  5,272,017
                  
                  
                  857,027
                  
                  
                  2,843,681
                  
                  
                  5,339
                  
                  
                  9,078,064Transfer
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  889,863
                  
                  
                  (889,863
                  )
                  
                  -
                  
                  
                  -Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,832,889
                  
                  
                  -
                  
                  
                  2,832,889Cumulative
                      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  347,202
                  
                  
                  156,144
                  
                  
                  -
                  
                  
                  183,671
                  
                  
                  687,017Balance,
                      December 31,2007
                  
                  
                  100,000,041
                  
                  
                  100,000
                  
                  
                  5,619,219
                  
                  
                  1,903,034
                  
                  
                  4,786,707
                  
                  
                  189,010
                  
                  
                  12,597,970Net
                      profit for the six months ended June 30, 2008
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (34,382
                  )
                  
                  -
                  
                  
                  (34,382
                  )Transfer
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  351,686
                  
                  
                  -351,686
                  
                  
                  -
                  
                  
                  -Cumulative
                      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (269,122
                  )
                  
                  163,757
                  
                  
                  -
                  
                  
                  340,289
                  
                  
                  234,924Balance,
                      June 30, 2008
                  
                  
                  100,000,041
                  
                  $
                  100,000
                  
                  $
                  5,350,097
                  
                  $
                  2,418,477
                  
                  $
                  4,400,639
                  
                  $
                  529,299
                  
                  $
                  12,798,512
  **The
        accompanying notes are an integral part of these consolidated financial
        statements**
 
 5
 
  **China
          New Energy Group Company**
 **Notes
        to the Condensed Consolidated Financial Statements**
  **1.
        The Company**
  China
        New
        Energy Group Company, formerly Travel Hunt Holdings, Inc., or the Company,
        was
        incorporated under the laws of the State of Florida on December 17, 1999.
        On
        July 15, 2003, the Company acquired all the outstanding shares of the Company’s
        common stock, an inactive Florida corporation with no assets or liabilities
        for
        700,000 common shares of Travel Hunt Holdings, Inc. The transaction was
        accounted for as a combination of entities under common control and accordingly
        we recorded the merger at historical cost. Accordingly, all shares and per
        share
        amounts have been retroactively restated. From and after April 26, 2007,
        the
        Company ceased its prior business operations and began exploring potential
        targets for a business combination through a purchase of assets, share purchase
        or exchange, merger or similar type of transaction.
  On
        August
        29, 2007, the Board of Directors approved a 1 for 10 reverse stock split
        in
        connection with the reincorporation of the Company from Florida to Delaware.
        This reincorporation and reverse stock split was effected on October 11,
        2007.
  The
        reincorporation merger agreement provided for the merger of the Company with
        and
        into Travel Hunt Holdings, Inc., a Delaware corporation (referred to for
        purposes of this section as TVLH-Delaware), and resulted in:
  ·
a
        change of domicile of the Company from the State of Florida to the State
        of
        Delaware;
  ·
the
        right of the Company's shareholders to receive one (1) share of common stock,
        par value $0.001 per share, of TVLH-Delaware for each ten (10) shares of
        the
        Company's common stock, par value $0.001 per share, owned as of the effective
        time of the reincorporation merger;
  ·
the
        persons presently serving as the Company's executive officers and directors
        serving in their same respective positions with TVLH-Delaware;
  ·
the
        adoption of a new Certificate of Incorporation under the laws of Delaware
        pursuant to which the Company's authorized capital stock remained 110,000,000
        shares of authorized capital stock, consisting of 100,000,000 shares of common
        stock, par value $0.001 per share, and 10,000,000 shares of "blank check"
        preferred stock, par value $0.001 per share, with the right conferred upon
        the
        Board of Directors to set the dividend, voting, conversion, liquidation and
        other rights, as well as the qualifications, limitations and restrictions,
        with
        respect to the preferred stock as the Board of Directors may determine from
        time
        to time; and the adoption of new Bylaws under the laws of the State of Delaware.
  On
        March
        28, 2008, the Company completed a shares exchange transaction with the
        stockholders of Willsky Development, Ltd., a British Virgin Islands corporation,
        or Willsky Development, and thereby acquired all of the issued and outstanding
        capital stock of Willsky Development which in turn owns 99% of the outstanding
        capital stock of Tianjin
        SingOcean Public Utility Development Co., Ltd., or SingOcean .
        The
        remaining 1% of SingOcean is owned by Tianjin Nanyang Mechanical and Electrical
        Equipments Installment Project Co. SingOcean owns 100% of each of Acheng
        SingOcean and Dashiqiao SingOcean, and 99% of Hunchun SingOcean. The remaining
        1% of Hunchun SingOcean is owned by an individual. Aching SingOcean and
        Dashiqiao SingOcean are divisions of SingOcean and not separate entities.
        These
        divisions are principally responsible for the construction and operation
        of the
        natural gas distribution networks in the cities of Acheng and Dashiqiao,
        respectively. Hunchun SingOcean is an equity joint venture and is principally
        responsible for the construction and operation of the natural gas distribution
        networks in the City of Hunchun.
 
 On
        May
        27, 2008, the Company changed its name to China New Energy Group
        Company.
 
 6
  **China
          New Energy Group Company**
 **Notes
          to the Condensed Consolidated Financial Statements**
 The
        following chart reflects the Company’s organizational structure as of the date
        of this report.
 
 
 
 The
        Company is a vertically integrated natural gas company engaged in the
        development of natural gas distribution networks, the distribution of natural
        gas to residential and industrial customers in small and medium sized cities
        in
        China and the exploration and recovery of natural gas reserves.
 
 The
        Company currently owns the exclusive rights to develop distribution networks
        to
        provide natural gas to industrial, commercial and domestic consumers in the
        cities of Dashiqiao, Acheng and Hunchun. Currently, these distribution networks
        provide natural gas to an aggregate of approximately 45,000 consumers in
        these
        cities, and we anticipate that we will be able to extend these distribution
        networks to serve approximately 160,000 consumers by 2010.
 
 The
        Company also owns the exclusive rights to develop a coal bed methane, or
        CBM,
        reserve near Hunchun, which contains approximately 3.3 billion cubic meters
        of
        CBM. We have successfully completed construction of an exploratory well and
        have
        begun preparations to construct two wells to provide natural gas to the City
        of
        Hunchun. We anticipate that two additional wells will be drilled in the near
        future to supply natural gas to as many as eight additional nearby
        cities.
 
 **2.
        Summary of Significant Accounting Policies**
 
 **(a)
        Basis of Presentation**
 The
        financial statements are prepared in accordance with the accounting principles
        generally accepted in the United States of America (“US GAAP”).
 
 **(b)
        Use of Estimates**
 In
        preparing consolidated financial statements in conformity with US GAAP,
        management is required to make estimates and assumptions that affect the
        reported amounts of assets and liabilities and the disclosure of contingent
        assets and liabilities at the date of the financial statements and revenues
        and
        expenses during the reported periods. Significant estimates include
        depreciation. Actual results could differ from those estimates.
 
 7
  **China
          New Energy Group Company**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **(c)
        Principles of consolidation**
 The
        consolidated financial statements include the accounts of the Company and
        all of
        its subsidiaries. All significant intercompany transactions and accounts
        have
        been eliminated in consolidation. Certain prior year amounts have been
        reclassified to conform with current year classifications.
 
 **(d)
        Cash and Cash Equivalents**
 The
        Company considers all highly liquid investments with original maturities
        of
        three months or less at the time of purchase to be cash equivalents. As of
        June
        30, 2008 and 2007, the Group did not have any cash equivalents.
 
 **(e)
        Plant and Equipment**
 Plant
        and
        equipment is stated at cost. Depreciation is provided principally by use
        of the
        straight-line method over the useful lives of the related assets, except
        for
        leasehold properties, which are depreciated over the terms of their related
        leases or their estimated useful lives, whichever is less. Expenditures for
        maintenance and repairs, which do not improve or extend the expected useful
        life
        of the assets, are expensed to operations while major repairs are
        capitalized.
 
 The
        estimated useful lives are as follows:
 
 Leasehold
                  improvements
              3
                  yearsComputer
                  equipment
              3
                  yearsFurniture
                  & fixture
              5
                  yearsOffice
                  equipment
              5
                  yearsExploration
                  equipment
              
              5
                  yearsMotor
                  vehicle
              
              5
                  yearsGas
                  transportation vehicle
              
              5
                  yearsGas
                  station
              
              40
                  years and 50 yearsUnderground
                  gas pipeline
              
              40
                  years and 50 years
 
 The
        gain
        or loss on disposal of property, plant and equipment is the difference between
        the net sales proceeds and the carrying amount of the relevant assets, and,
        if
        any, is recognized in the statement of operations.
 
 **(f)
        Intangible Assets**
 Intangible
        assets consist of gas well exploration right in Hunchun and land use right
        in
        both Daishiquiao City and Acheng City. The gas well exploration right is
        amortized using the straight-line method over their estimated useful life
        of 50
        years.
 
 According
        to Chinese rules, land belongs to the nation. Land use right refers to the
        purchase of the legal right to use land from the government. The term of
        the
        land use right is 50 years. The land use right is amortized using the
        straight-line method over their estimated useful life 50 years.
 
 **(g)
        Inventories**
 Inventories
        consist of IC card, gas meter, PE valves and natural gas and are valued at
        the
        lower of cost or market value using weighted average cost method of accounting.
 
 **(h)
        Goodwill**
 Goodwill
        represents the excess of the purchase price over the fair value of the net
        tangible and identifiable intangible assets acquired in a business combination,
        In accordance with Statement of Financial Accounting Standards No. 142 or
        SFAS
        No. 142, “Goodwill” and Other Intangible Assets”, goodwill is no longer subject
        to amortization. Rather, goodwill is subject to at least an annual assessment
        for impairment, applying a fair-value based test fair value is generally
        determined using a discounted cash flow analysis.
 
 8
  **China
          New Energy Group Company**
 **Notes
          to the Condensed Consolidated Financial
          Statements**
 **(i)
        Impairment of Assets**
 In
        accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
        "Accounting for Impairment or Disposal of Long-Lived Assets", the Company
        evaluates its long-lived assets to determine whether later events and
        circumstances warrant revised estimates of useful lives or a reduction in
        carrying value due to impairment. If indicators of impairment exist and if
        the
        value of the assets is impaired, an impairment loss would be recognized.
        As of
        June 30, 2008 and 2007, no impairment loss has been recognized.
 
 **(j)
        Income Taxes**
 The
        Group
        accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes".
        Under SFAS No. 109, deferred tax assets and liabilities are recognized for
        the
        future tax consequences attributable to differences between the financial
        statement carrying amounts of existing assets and liabilities and their
        respective tax bases. Deferred tax assets and liabilities are measured using
        enacted tax rates expected to apply to taxable income in the years in which
        those temporary differences are expected to be recovered or settled. Under
        SFAS
        No. 109, the effect on deferred tax assets and liabilities of a change in
        tax
        rates is recognized in income in the period that includes the enactment
        date.
 
 **(k)
        Revenue Recognition**
 Natural
        gas revenues are recorded based on the amount of product delivered to customers
        through its pipeline and checked by its gas meter.
 
 Construction
        revenues are recognized upon the completion of the installation of gas pipeline
        jobs by the contractor, the installation is checked and accepted by the
        Company’s technical staff and accepted by the customer.
 
 **(l)
        Foreign Currency Transactions**
 The
        Group
        functional currency is Renminbi (“RMB”) and its reporting currency is U.S.
        dollars. The Company’s consolidated balance sheet accounts are translated into
        U.S. dollars at the year-end exchange rates and all revenue and expenses
        are
        translated into U.S. dollars at the average exchange rates prevailing during
        the
        periods in which these items arise. Translation gains and losses are deferred
        and accumulated as a component of other comprehensive income in stockholders’
equity. Transaction gains and losses that arise from exchange rate fluctuations
        from transactions denominated in a currency other than the functional currency
        are included in the statement of operations as incurred. The translation
        and
        transaction gains and losses were immaterial for the period ended June 30,
        2008
        and 2007.
 
 The
        PRC
        government imposes significant exchange restrictions on fund transfers out
        of
        the PRC that are not related to business operations. These restrictions have
        not
        had a material impact on the Company because it has not engaged in any
        significant transactions that are subject to the restrictions.
 
 **(m)
        Fair Value of Financial Instruments**
 SFAS
        No.
        107, “Disclosures about Fair Values of Financial Instruments”, requires
        disclosing fair value to the extent practicable for financial instruments
        that
        are recognized or unrecognized in the balance sheet. The fair value of the
        financial instruments disclosed herein is not necessarily representative
        of the
        amount that could be realized or settled, nor does the fair value amount
        consider the tax consequences of realization or settlement.
 
 For
        certain financial instruments, including cash, accounts and other receivables,
        accounts payable, accruals and other payables, it was assumed that the carrying
        amounts approximate fair value because of the near term maturities of such
        obligations. The carrying amounts of long-term loans approximate fair value
        as
        the interest on these loans is minimal.
 
 **(n)
        Earnings Per Share**
 Basic
        earnings per share is computed by dividing the earnings for the year by the
        weighted average number of common shares outstanding for the period. Diluted
        earnings per share reflects the potential dilution of securities by including
        other potential common stock, including stock options and warrants, in the
        weighted average number of common shares outstanding for a period, if
        dilutive.
 
 9
  **China
          New Energy Group Company**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **(o)
        Accumulated Other Comprehensive Income**
 Accumulated
        other comprehensive income represents the change in equity of the Group during
        the periods presented from foreign currency translation
        adjustments.
  **(p)
        Profit Appropriation**
 In
        accordance with PRC regulations, the Company is required to make appropriations
        to the statutory surplus reserve, based on after-tax net income determined
        in
        accordance with PRC GAAP. Appropriation to the statutory surplus reserve
        should
        be at least 10% of the after-tax net income determined in accordance with
        the
        PRC GAAP until the reserve is equal to 50% of the entity’s registered capital.
        Statutory surplus reserve is non-distributable other than in liquidation.
 
 **(q)
        Stock-Based Compensation**
 In
        March
        2004, the FASB issued a proposed statement, Share-Based Payment, which addresses
        the accounting for share-based payment transactions in which an enterprise
        receives employee services in exchange for equity instruments of the enterprise
        or liabilities that are based on the grant-date fair value of the enterprise's
        equity instruments or that may be settled by the issuance of such equity
        instruments. The proposed statement would eliminate the ability to account
        for
        share-based compensation transactions using Accounting Principles Board ("APB")
        Opinion No. 25, Accounting for Stock Issued to Employees, and generally would
        require instead that such transactions be accounted for using a fair-value-based
        method. In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment,
        which is a revision of SFAS No. 123. Generally, the approach in SFAS No.
        123(R)
        is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
        requires all share-based payments to employees, including grants of employee
        stock options, to be recognized in the income statement based on their
        grant-date fair values. Pro forma disclosure is no longer an alternative.
 
 As
        permitted by SFAS No. 123, for 2005, the Company accounted for share-based
        payments to employees using APB Opinion No. 25's intrinsic value method and,
        as
        such, generally recognized no compensation cost for employee stock options.
 
 Effective
        January 1, 2006, we have adopted SFAS No. 123(R)'s fair value method of
        accounting for share based payments. Accordingly, the adoption of SFAS No.
        123(R)'s fair value method may have a significant impact on the Company's
        results of operations as we are required to recognize the cost of employee
        services received in exchange for awards of equity instruments based on the
        grant-date fair value of those awards. SFAS No. 123(R) permits public companies
        to adopt its requirements using either the "modified prospective" method
        or the
        "modified retrospective" method.
 
 The
        Company adopted SFAS No. 123(R) using the modified prospective method. In
        April
        2005, the SEC delayed the effective date of SFAS No. 123(R), which is now
        effective for public companies for annual, rather than interim periods that
        begin after June 15, 2005. The impact of the adoption of SFAS No. 123(R)
        cannot
        be predicted at this time because it will depend on levels of share-based
        payments granted in the future.
 
 **(r)
        Seasonality**
  Our
        pipeline distribution networks are primarily located in northeastern China,
        which is extremely cold during the winter months. During such time, we are
        unable to construct primary gas pipelines. However, if a primary pipeline
        is
        already in place, we are able to connect new customers to our distribution
        network during the winter months.
 
 Additionally,
        gas consumption by residential customers is higher in the winter months for
        heating purposes, and we see a corresponding increase in usage fees during
        that
        time.
 
 10
  **China
          New Energy Group Company**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **(s)
        New Accounting Pronouncements**
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” and is effective for fiscal years
        beginning after November 15, 2007. This Statement permits entities to choose
        to
        measure many financial instruments and certain other items at fair value.
        The
        objective is to improve financial reporting by providing entities with the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. The Company is currently assessing the impact the
        adoption of this pronouncement will have on the financial
        statements.
 
 In
        December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
        Consolidated Financial Statements-an amendment of ARB No. 51” and is effective
        for fiscal years beginning after December 5, 2008. This Statement establishes
        accounting and reporting standards for the noncontrolling interest in a
        subsidiary and for the deconsolidation of a subsidiary. The Company is currently
        assessing the impact the adoption of this pronouncement will have on the
        Company’s financial statements.
 
 In
        December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”.
        SFAS 141 (Revised) is effective for fiscal years beginning after December
        13,
        2008. This Statement establishes principles and requirements for how the
        acquirer of a business recognizes and measures in its financial statements
        the
        identifiable assets acquired, the liabilities assumed, and any noncontrolling
        interest in the acquiree. The Statement also provides guidance for recognizing
        and measuring the goodwill acquired in the business combination and determines
        what information to disclose to enable users of the financial statements
        to
        evaluate the nature and financial effects of the business combination. The
        Company is currently assessing the impact the adoption of this pronouncement
        will have on the Company’s financial statements.
 
 In
        February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
        Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157”
(“FSP FAS 157-2”), which delays the effective date of Statement of Financial
        Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”)
        for all non-financial assets and non-financial liabilities, except those
        that
        are recognized or disclosed at fair value in the financial statements on
        a
        recurring basis (at least annually) for fiscal years beginning after November
        15, 2008, and interim periods within those fiscal years for items within
        the
        scope of this FSP. We are currently evaluating the impact of adopting FSP
        FAS
        157-2 for non-financial assets and non-financial liabilities on our financial
        position, cash flows, and results of operations. We have considered all other
        recently issued accounting pronouncements and do not believe the adoption
        of
        such pronouncements will have a material impact on our consolidated financial
        statements.
 
 **3.
        Reverse Merger**
  On
        March
        28, 2008, we completed a reverse acquisition transaction with Willsky
        Development whereby we issued to the shareholders of Willsky Development
        94,908,650 shares of our common stock in exchange for all of the issued and
        outstanding capital stock of Willsky Development. Willsky Development thereby
        became our wholly owned subsidiary and the former shareholders of Willsky
        Development became our controlling stockholders.
  For
        accounting purposes, the share exchange transaction was treated as a reverse
        acquisition with Willsky Development as the acquirer and Travel Hunt Holdings,
        Inc. as the acquired party. When we refer in this report to business and
        financial information for periods prior to the consummation of the reverse
        acquisition, we are referring to the business and financial information of
        Willsky Development on a consolidated basis unless the context suggests
        otherwise.
  In
        connection with consummation of the transactions contemplated by the Share
        Exchange Agreement, we issued Warrants for the purchase of a number of
        shares of our common stock equal to an aggregate of two percent (2%) of our
        issued and outstanding common stock as of immediately after the closing of
        our
        next private placement transaction in which we receive gross proceeds of
        at
        least $8,000,000 million. If no such private placement transaction has been
        consummated on or before September 30, 2008, then the Warrants shall become
        exercisable for an aggregate total of 3,500,000 shares of our common stock.
        The
        term of the Warrants is 5 years and each has an exercise price equal to 150%
        of
        the purchase price per share paid by the investors in such private placement
        transaction, provided that (i) if securities other than the shares of common
        stock are issued in such private placement transaction, then the exercise
        price
        shall be 150% of the price attributable to a share of common stock at the
        valuation attributable to us in the transaction on “post-money” basis, and (ii)
        if such private placement transaction is not consummated on or before September
        30, 2008, then the exercise price per share of Common Stock shall be 150%
        of the
        price attributable to a share of our common stock at a valuation attributable
        to
        us of $15,000,000.
  11
  **China
          New Energy Group Company**
 **Notes
          to the Condensed Consolidated Financial Statements**
 The
        fair
        value of the share purchase warrants issued on March 28, 2008, was in the
        amount
        of $910,000, which was determined using the Black-Scholes option value model
        with the following assumptions:
 Expected
                    Dividend Yield
                
                
                0.00
                %Risk
                    Free Interest Rate
                
                
                4.00
                %Expected
                    Volatility
                
                
                00.00
                %Expected
                    Option Life (in years average)
                
                
                5.00
 
 The
        fair
        value amount is included on the balance sheet as accrued derivative liability
        in
        the amount of $910,000 with a like amount included as other expense on the
        statement of operations.
 
 The
        Company also issued Promissory Notes in the aggregate principal amount of
        $660,000 bearing interest at the rate of 2.5% per annum. The principal and
        accrued interest is payable on September 30, 2008, except that the Notes
        will
        accelerate and become payable upon the consummation of a private placement
        transaction in which the Company sells or issues shares of common stock in
        which
        gross proceeds are $1,000,000 or more. If the principal and accrued interest
        is
        not paid in full at maturity or upon the acceleration described above, or
        upon
        an event of default, the notes will become convertible into shares totaling
        15%
        of then outstanding common stock. Management has not recorded the beneficial
        conversion feature of this convertible note since it intends to pay the Notes
        in
        cash as they become due.
 
 **4.
        Retirement and Welfare Benefits**
 
 The
        Group
        has no retirement plans or post-employment benefit for its
        employees.
  **5.
        Concentrations and Credit Risk**
 
 The
        Group
        operates principally in the PRC and grants credit to its customers in this
        geographic region. Although the PRC is economically stable, it is always
        possible that unanticipated events in foreign countries could disrupt the
        Company’s operations.
 
 Financial
        instruments that potentially subject the Group to a concentration of credit
        risk
        consist of cash and accounts receivable.
  The
        Company does not require collateral to support financial instruments that
        are
        subject to credit risk.
 
 12
  **China
          New Energy Group Company**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **6.
        Commitments and Contingencies**
 
 The
        Company is obligated to provide uninterrupted piped gas to connected users
        and
        to ensure the safety in the process of piped gas operation. The volume of
        gas to
        be supplied by the Company will grow with the increase of gas users. The
        Company
        has selected three qualified gas resource suppliers to ensure the stable
        operation to meet its’ obligation.
 
 From
        time
        to time, the Company may become involved in various lawsuits and legal
        proceedings which arise in the ordinary course of business. The Company is
        currently not aware of any such legal proceedings or claims that we expect
        will
        have a material adverse affect on our business, financial condition or operating
        results.
 
 However,
        litigation is subject to inherent uncertainities, and an adverse result in
        these
        or other matters may arise from time to time that may harm our
        business.
 
 **7.
        Operational Rights and Right to Supply and Operate Gas
        Pipeline**
 
 The
        Company has signed the “Investment Agreement of Piped Gas Project Construction
        in Dashiqiao” which states that the Company is in charge of operations and
        management of the piped gas project in Dashiqiao. On June 16, 2005, the
        Dashiqiao City Construction Bureau gave the Company a certificate which
        confirmed that the Company has exclusive operational rights for thirty years
        in
        Dashiqiaocity.
 
 The
        Company has signed an agreement which states that the Company has the exclusive
        right to supply natural gas and to operate the gas pipeline system in Hunchun
        for fifty years.
 
 The
        Company has signed an “Investment Agreement of Pipes Gas Project Construction in
        Acheng” which states that the Company has the exclusive right to invest in and
        operate gas pipeline system in Acheng for thirty years.
 
 **8.
        Environmental Matters**
 
 The
        Company does not anticipate any material future cash requirements relating
        to
        environmental issues. If circumstances change the Company will record the
        estimated charges to return sites to their original condition.
 
 13
  **ITEM
                2.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS.******
 
 ***Special
        Note Regarding Forward Looking Statements***
 
 This
        Quarterly Report on Form 10-Q, including the following “Management’s Discussion
        and Analysis of Financial Condition and Results of Operations,” contains
        forward-looking statements that are based on the beliefs of our management,
        and
        involve risks and uncertainties, as well as assumptions, that, if they ever
        materialize or prove incorrect, could cause actual results to differ materially
        from those expressed or implied by such forward-looking statements. The words
        “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,”
“aim,” “will” or similar expressions are intended to identify forward-looking
        statements. All statements, other than statements of historical fact, are
        statements that could be deemed forward-looking statements, including statements
        regarding new and existing products, technologies and opportunities; statements
        regarding market and industry segment growth and demand and acceptance of
        new
        and existing products; any projections of sales, earnings, revenue, margins
        or
        other financial items; any statements of the plans, strategies and objectives
        of
        management for future operations; any statements regarding future economic
        conditions or performance; uncertainties related to conducting business in
        China; any statements of belief or intention; any of the factors and risks
        mentioned in the “Risk Factors” sections of our Current Report on Form 8-K filed
        with the Securities and Exchange Commission on March 31, 2008, as amended
        on
        April 11, 2008 and June 26, 2008, and any statements of assumptions underlying
        any of the foregoing. All
        forward-looking statements included in this report are based on information
        available to us on the date of this report. We
        assume
        no obligation and do not intend to update these forward-looking statements,
        except as required by law.
 
 ***Certain
        Terms***
 
 In
        this
        report, unless indicated otherwise, references to:
  “China
        New Energy,” “the Company,” “we,” “us,” or “our” refer to the combined business
        of all of the entities that form our consolidated business
        enterprise;
  “Willsky
        Development” refer to Willsky Development, Ltd.
  “SingOcean”
        refer to Tianjin SingOcean Public Utility Development Co., Ltd.;
  “Hunchun
        SingOcean” refer to Hunchun SingOcean Ocean Energy Co., Ltd.;
  “Acheng
        SingOcean” refer to Tianjin Sing Ocean Public Utility Development Co., Ltd. -
        Acheng Division;
  “Dashiquio
        SingOcean” refer to Tianjin Sing Ocean Public Utility Development Co., Ltd. -
        Dashiquio Division;
  “China,”
        “Chinese” and “PRC” refer to the People’s Republic of China;
  “BVI”
        refer to the British Virgin Islands;
  “SEC”
        refer to the United States Securities and Exchange Commission;
  “Securities
        Act” refer to the Securities Act of 1933, as amended;
  “Exchange
        Act” refer to the Securities Exchange Act of 1934, as amended;
  “RMB”
        refer to Renminbi, the legal currency of China; and
  “U.S.
        dollar,” “$” and “US$” refer to the legal currency of the United
        States.
  14
  ***Acquisition
        of SingOcean***
 
 On
        March
        28, 2008, we completed a reverse acquisition transaction with Willsky
        Development whereby we issued to the shareholders of Willsky Development
        94,908,650 shares of our common stock in exchange for all of the issued and
        outstanding capital stock of Willsky Development. Willsky Development thereby
        became our wholly owned subsidiary and the former shareholders of Willsky
        Development became our controlling stockholders. For accounting purposes,
        the
        share exchange transaction was treated as a reverse acquisition with Willsky
        Development as the acquirer and Travel Hunt Holdings, Inc. as the acquired
        party. On May 27, 2008, we changed our name from Travel Hunt Holdings, Inc.
        to
        China New Energy Group Company.
 
 ***Overview
        of Our Business***
 
 We
        are a
        vertically integrated natural gas company engaged in the development of natural
        gas distribution networks, the distribution of natural gas to residential
        and
        industrial customers in small and medium sized cities in China and the
        exploration and recovery of natural gas reserves.
 
 We
        currently own the exclusive rights to develop distribution networks to provide
        natural gas to industrial, commercial and domestic consumers in the cities
        of
        Dashiqiao, Acheng and Hunchun. Currently, these distribution networks provide
        natural gas to an aggregate of approximately 45,000 consumers in these cities,
        and we anticipate that we will be able to extend these distribution networks
        to
        connect approximately 53,000 consumers in these cities.
 
 We
        also
        own the exclusive rights to develop a coal bed methane, or CBM, reserve near
        Hunchun, which contains approximately 3.3 billion cubic meters of CBM. We
        have
        successfully completed construction of an exploratory well and have begun
        preparations to construct two wells to provide natural gas to the City of
        Hunchun. We anticipate that two additional wells will be drilled in the near
        future to supply natural gas to as many as eight additional nearby
        cities.
 
 ***Our
        Current Organizational Structure***
  We
        own
        all of the issued and outstanding capital stock of Willsky Development, which
        in
        turn owns 99% of the outstanding capital stock of SingOcean. The remaining
        1% of
        SingOcean is owned by Tianjin Nanyang Mechanical and Electrical Equipments
        Installment Project Co. SingOcean owns 100% of each of Acheng SingOcean and
        Dashiqiao SingOcean, and 99% of Hunchun SingOcean. The remaining 1% of Hunchun
        SingOcean is owned by an individual. Aching SingOcean and Dashiqiao SingOcean
        are divisions of SingOcean and not separate entities. These divisions are
        principally responsible for the construction and operation of the natural
        gas
        distribution networks in the cities of Acheng and Dashiqiao, respectively.
        Hunchun SingOcean is an equity joint venture and is principally responsible
        for
        the construction and operation of the natural gas distribution networks in
        the
        City of Hunchun.
 
 The
        following chart reflects our organizational structure as of the date of this
        report.
 
 15
  
 
 ***Second
        Quarter Financial Performance Highlights***
 
 We
        continued to experience strong demand for our products and services during
        the
        second fiscal quarter of 2008 and growth in our revenues and net income.
 
 The
        following are some financial highlights for the second quarter of 2008:
 
 ·
              Revenues:
                  Our revenues were $2,340,880 for the second quarter of 2008, an
                  increase
                  of 47.9% from the same quarter of last year.
  ·
              Gross
                  Margin: Gross margin was 74.4% for the second quarter of 2008,
                  as compared
                  to 75.8% for the same period in 2007.
  ·
              Operating
                  Expenses: Operating expenses were $235,185 for the second quarter
                  of 2008,
                  an increase from $171,944 of the same period last year.
  ·
              Net
                  Income: Net income was $203,015 for the second quarter of 2008,
                  a decrease
                  of 75.3% from the same period of last year.
  ·
              Fully
                  diluted income per common share was $0.00203 for the second quarter
                  of
                  2008.
  **RESULTS
        OF OPERATIONS**
 
 ***Six
        Months Ended June 30, 2008 Compared to Six Months Ended June 30,
        2007***
 
 The
        following table summarizes the results of our operations during the six-month
        periods ended June 30, 2008 and ended June 30, 2007, and provides information
        regarding the dollar and percentage increase or (decrease) from the six-month
        period ended June 30, 2007 to the six-month period ended June 30, 2008.
 
 16
  All
        amounts in thousands of U.S. dollars, except percentages
 
 **Six Months**
                **Ended**
                **June 30,**
                **2008**
              
              **Six Months**
                **Ended**
                **June 30,**
                **2007**
              
              **Percentage**
                **Change**
                **(Decrease)**Revenues
              
              $
              2,443
              
              $
              1,601
              
              
              52.6
              %Cost
                  of revenue
              
              $
              676
              
              $
              399
              
              
              69.4
              %Gross
                  Profit
              
              $
              1,767
              
              $
              1,202
              
              
              47
              %Selling,
                  general and administrative expenses
              
              $
              499
              
              $
              268
              
              
              86.2
              %Operating
                  Income (Expenses)
              
              $
              1,268
              
              $
              934
              
              
              35.8
              %Other
                  Income and (Expenses)Minority
                  interest
              
              $
              (9
              )
              $
              (6
              )
              
              50
              %Other
                  income (expense)
              
              $
              (902
              )
              $
              6
              
              
              15,017
              %Income
                  (loss) before income taxes
              
              $
              357
              
              $
              934
              
              
              (61.1)
              %Income
                  taxes
              
              $
              391
              
              $
              312
              
              
              25.3
              %Net
                  income (loss)
              
              $
              (34
              )
              $
              622
              
              
              -
 
 *Revenues* .
        Revenues are derived primarily from connection fees and sales of natural
        gas.
        Revenues increased $842,000, or 52.6% to $2.44 million for the six months
        ended
        June 30, 2008 from $1.60 million for the same period in 2007. This increase
        was
        mainly attributable to an increase in our customer base.
 
 *Cost
        of Sales.* Cost
        of
        sales consist primarily of the purchase of natural gas from our
        suppliers. ** Our
        cost
        of sales increased $277,000, or 69.4%, to $676,000 for the six months ended
        June
        30, 2008 from $399,000 during the same period in 2007. As a percentage of
        revenues, the cost of sales increased to 27.7% during the six moths ended
        June
        30, 2008 from 24.9% in the same period in 2007, which was mainly attributable
        to
        an increase in our customer base as well as an increase in our purchasing
        price
        of natural gas.
 
 *Gross
        Profit.* Our
        gross profit increased $565,000, or 47%, to $1.767 million for the six months
        ended June 30, 2008 from $1.202 million during the same period in 2007. Gross
        profit as a percentage of revenues was 72.3% for the six months ended June
        30,
        2008, a decrease of 2.8% from 75.1% during the same period in 2007. Such
        percentage decrease was mainly due to an increase in our purchasing price
        of
        natural gas.
 
 *Selling,
        General and Administrative Expenses.* Selling,
        general and administrative expenses, including sales representative commissions,
        promotion fees, salesperson salaries and expenses, depreciation charges and
        other fees increased $231,000, or 86.2%, to $499,000 for the six months ended
        June 30, 2008 from $268,000 during the same period in 2007. As a percentage
        of
        revenues, selling expenses increased to 20.4% for the six months ended June
        30,
        2008 from 16.7% for the same period in 2007. Such dollar increase of selling,
        general and administrative expenses was mainly attributable to an increase
        in
        our operations since June 30, 2007.
 
 17
  *Income
        Taxes* .
        Our
        subsidiaries SingOcean, Acheng SingOcean, Hunchun SingOcean and Dashiqiao
        SingOcean are subject to enterprise income tax, or EIT, at a rate of 25%
        and
        33.0% of assessable profits for the six months ended June 30, 2008 amd 2007,
        respectively, sales tax at a rate of 3% on connection revenue and sales tax
        at a
        rate of 4% on gas sales revenue.
 
 *Net
        Income.* Net
        income decreased $656,000 to a net loss of $34,000 for the six months ended
        June
        30, 2008 from a net income of $622,000 for the same period of 2007, as a
        result
        of the factors described above as well as a derivative liability in the amount
        of $910,000 incurred during the second quarter of 2008 in connection with
        our
        reverse acquisition of Willsky Development.
 
 ***Three
        Months Ended June 30, 2008 Compared to Three Months Ended June 30,
        2007***
 
 The
        following table summarizes the results of our operations during the three-month
        periods ended June 30, 2008 and ended June 30, 2007, and provides information
        regarding the dollar and percentage increase or (decrease) from the three-month
        period ended June 30, 2007 to the three-month period ended June 30, 2008.
 
 All
        amounts in thousands of U.S. dollars, except percentages
 
 **Three Months**
                **Ended**
                **June 30,**
                **2008**
              
              **Three Months**
                **Ended**
                **June 30,**
                **2007**
              
              **Percentage**
                **Change**
                **(Decrease)**Revenues
              
              $
              2,341
              
              $
              1,583
              
              
              47.9
              %Cost
                  of sales
              
              $
              600
              
              $
              385
              
              
              55.8
              %Gross
                  Profit
              
              $
              1,741
              
              $
              1,198
              
              
              45.3
              %Selling,
                  general and administrative expenses
              
              $
              235
              
              $
              63
              
              
              373
              %Operating
                  Income (Expenses)
              
              $
              1,506
              
              $
              1,135
              
              
              32.7
              %Other
                  Income and (Expenses)Minority
                  interest
              
              $
              (10
              )
              $
              (8
              )
              
              25
              %Other
                  income (expense)
              
              $
              (902
              )
              $
              7
              
              
              12,625
              %Income
                  (loss) before income taxes
              
              $
              594
              
              $
              1,134
              
              
              (47.1)
              %Income
                  taxes
              
              $
              391
              
              $
              312
              
              
              25.3
              %Net
                  income (loss)
              
              $
              203
              
              $
              822
              
              
              (75.3)
              %
 
 *Revenues* .
        Revenues are derived primarily from connection fees and sales of natural
        gas.
        Revenues increased $758,000, or 47.9% to $2.341 million for the three months
        ended June 30, 2008 from $1.583 million for the same period in 2007. This
        increase was mainly attributable to an increase in our customer base.
 
 *Cost
        of Sales.* Cost
        of
        sales consists primarily of the purchase of natural gas from our
        suppliers. ** Our
        cost
        of sales increased $215,000, or 56.1%, to $600,000 for the three months ended
        June 30, 2008 from $385,000 during the same period in 2007. As a percentage
        of
        revenues, the cost of sales increased to 25.6% during the three moths ended
        June
        30, 2008 from 24.3% in the same period in 2007, which was mainly attributable
        to
        an increase in our customer base as well as an increase in our purchasing
        price
        of natural gas.
 
 18
  *Gross
        Profit* Our
        gross profit increased $543,000, or 45.3%, to $1.741 million for the three
        months ended June 30, 2008 from $1.198 million during the same period in
        2007.
        Gross profit as a percentage of revenues was 74.4% for the three months ended
        June 30, 2008, a decrease of 1.3% from 75.7% during the same period in 2007.
        Such percentage increase was mainly due to the change in our gas purchasing
        price.
 
 *Selling,
        General and Administrative Expenses.* Selling,
        general and administrative expenses, including sales representative commissions,
        promotion fees, salesperson salaries and expenses, depreciation charges and
        other fees increased $172,000, or 272%, to $235,000 for the three months
        ended
        June 30, 2008 from $63,000 during the same period in 2007. As a percentage
        of
        revenues, selling expenses increased to 10% for the three months ended June
        30,
        2008 from 4% for the same period in 2007. Such increase of selling, general
        and
        administrative expenses was mainly attributable to an increase in our operations
        since June 30, 2007.
 
 *Income
        Taxes* .
        Our
        subsidiaries SingOcean, Acheng SingOcean, Hunchun SingOcean and Dashiqiao
        SingOcean are subject to enterprise income tax, or EIT, at a rate of 25%
        and
        33.0% of assessable profits for the three months ended June 30, 2008 and
        2007,
        respectively, sales tax at a rate of 3% on connection revenue and sales tax
        at a
        rate of 4% on gas sales revenue.
 
 *Net
        Income.* Net
        income decreased $619,000, or 75.3% to $203,000 for the three months ended
        June
        30, 2008 from $822,000 for the same period of 2007, as a result of the factors
        described above as well as a derivative liability in the amount of $910,000
        incurred during the second quarter of 2008 in connection with our reverse
        acquisition of Willsky Development, Ltd.
 
 ***Liquidity
        and Capital Resources*** ****
 
 General
 
 As
        of
        June 30, 2008, we had cash and cash equivalents (excluding restricted cash)
        of
        approximately $1.29 million. The following table provides detailed information
        about our net cash flow for all financial statement periods presented in
        this
        report.
  **Cash
        Flow**
 (all
        amounts in thousands of U.S. dollars)
 
 **Six Months Ended June 30,****2008**
              
              **2007**Net
                  cash provided by (used in) operating activities
              
              $
              (459
              )
              $
              673Net
                  cash provided by (used in) investing activities
              
              $
              (807
              )
              $
              (346
              )Net
                  cash provided by (used in) financing activities
              
              $
              252
              
              $
              38Calculative
                translation adjustment
              
              $
              12
              
              $
              0.1Net
                  cash flow
              
              $
              (1,026
              )
              $
              365
 
 Operating
        Activities
 
 Net
        cash
        used in operating activities was approximately $459,000 for the six-month
        period
        ended June 30, 2008, which is a difference of approximately $1.132 million
        from
        approximately $673,000 net cash provided by operating activities for the
        same
        period of 2007. The increase of the cash used in operating activities was
        mainly
        attributable to an increase in accrued liabilities as well as a decrease
        in our
        accounts receivable, and an increase in derivative liability of $910,000
        as the
        fair value of warrants issued in connection with our reverse acquisition
        transaction with Willsky Development described above.
 
 19
  Investing
        Activities
 
 Our
        main
        uses of cash for investing activities are for constructing gas pipelines
        and
        distribution stations.
 
 Net
        cash
        used in investing activities for the six-month period ended June 30, 2008
        was
        approximately $807,000, which is an increase of approximately $461,000 from
        net
        cash used in investing activities of approximately $346,000 for the same
        period
        of 2007 due to cash used in pipelines investment in 2008.
 
 Financing
        Activities
 
 Net
        cash
        provided by financing activities for the six-month period ended June 30,
        2008
        was approximately $252,000, which is an increase of approximately $214,000
        from
        approximately $38,000 net cash provided by financing activities during the
        same
        period of 2007. The increase of the cash provided by financing activities
        was
        mainly attributable to an increase in cash advanced from directors and
        shareholders in 2008.
 
 As
        of
        June 30, 2008, there were no bank loans outstanding.
  ***Inflation*** ****
 
 Our
        results of operations have not been affected by inflation and management
        does
        not expect that inflation risk would cause material impact on its operations
        in
        the future.
 
 ***Seasonality***
 
 Our
        pipeline distribution networks are primarily located in northeastern China,
        which is extremely cold during the winter months. During such time, we are
        unable to construct primary gas pipelines. However, if a primary pipeline
        is
        already in place, we are able to connect new customers to our distribution
        network during the winter months.
 
 Additionally,
        gas consumption by residential customers is higher in the winter months for
        heating purposes, and we see a corresponding increase in usage fees during
        that
        time.
 
 ***Critical
        Accounting Policies***
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires our management to make
        assumptions, estimates and judgments that affect the amounts reported in
        the
        financial statements, including the notes thereto, and related disclosures
        of
        commitments and contingencies, if any. We consider our critical accounting
        policies to be those that require the more significant judgments and estimates
        in the preparation of financial statements, including the
        following:
 
 Plant
        and Equipment
 
 Plant
        and
        equipment is stated at cost. Depreciation is provided principally by use
        of the
        straight-line method over the useful lives of the related assets, except
        for
        leasehold properties, which are depreciated over the terms of their related
        leases or their estimated useful lives, whichever is less. Expenditures for
        maintenance and repairs, which do not improve or extend the expected useful
        life
        of the assets, are expensed to operations while major repairs are
        capitalized.
 
 The
        estimated useful lives are as follows:
 
 Leasehold
                  improvements
              3
                  yearsComputer
                  equipment
              3
                  yearsFurniture
                  & fixture
              5
                  yearsOffice
                  equipment
              5
                  yearsExploration
                  equipment
              
              5
                  yearsMotor
                  vehicle
              
              5
                  yearsGas
                  transportation vehicle
              
              5
                  yearsGas
                  station
              
              40
                  years and 50 yearsUnderground
                  gas pipeline
              
              40
                  years and 50 years
  20
  The
        gain
        or loss on disposal of property, plant and equipment is the difference between
        the net sales proceeds and the carrying amount of the relevant assets, and,
        if
        any, is recognized in the statement of operations.
 
 Intangible
        Assets
 
 Intangible
        assets consist of gas well exploration right in Hunchun and land use right
        in
        both Daishiquiao City and Acheng City. The gas well exploration right is
        amortized using the straight-line method over their estimated useful life
        of 50
        years.
 
 According
        to Chinese rules, land belongs to the nation. Land use right refers to the
        purchase of the legal right to use land from the government. The term of
        the
        land use right is 50 years. The land use right is amortized using the
        straight-line method over their estimated useful life 50 years.
 
 Inventories
 
 Inventories
        consist of IC card, gas meter, PE valves and natural gas and are valued at
        the
        lower of cost or market value using weighted average cost method of accounting.
 
 Impairment
        of Assets
 
 In
        accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
        "Accounting for Impairment or Disposal of Long-Lived Assets", the Company
        evaluates its long-lived assets to determine whether later events and
        circumstances warrant revised estimates of useful lives or a reduction in
        carrying value due to impairment. If indicators of impairment exist and if
        the
        value of the assets is impaired, an impairment loss would be recognized.
        As of
        June 30, 2008 and 2007, no impairment loss has been recognized.
 
 Revenue
        Recognition
 
 Natural
        gas revenues are recorded based on the amount of product delivered to customers
        through its pipeline and checked by its gas meter.
 
 Construction
        revenues are recognized upon the completion of the installation of gas pipeline
        jobs by the contractor, the installation is checked and accepted by the
        Company’s technical staff and accepted by the customer.
 
 ***Off-Balance
        Sheet Arrangements***
 
 We
        do not
        have any off-balance arrangements.
 
 **ITEM
        3.**  **QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**
 
 Not
        applicable.
 
 **ITEM
        4.**  **CONTROLS
        AND PROCEDURES.**
 
 ***Evaluation
        of Disclosure Controls and Procedures.*** ****
 
 We
        maintain disclosure controls and procedures (as defined in Rule 13a-15(e)
        under
        the Exchange Act) that are designed to ensure that information that would
        be
        required to be disclosed in Exchange Act reports is recorded, processed,
        summarized and reported within the time period specified in the SEC’s rules and
        forms, and that such information is accumulated and communicated to our
        management, including to our Chief Executive Officer and Chief Financial
        Officer, as appropriate, to allow timely decisions regarding required
        disclosure.
  21
  As
        required by Rule 13a-15 under the Exchange Act, our management, including
        Mr.
        Jiaji Shang, our Chief Executive Officer and Ms. Xiaoling Li, our Chief
        Financial Officer, evaluated the effectiveness of the design and operation
        of
        our disclosure controls and procedures as of June 30, 2008. Based on that
        evaluation, Mr. Shang and Ms. Li concluded that as of June, 2008, and as
        of the
        date that the evaluation of the effectiveness of our disclosure controls
        and
        procedures was completed, our disclosure controls and procedures were effective
        to satisfy the objectives for which they are intended.
 
 ***Changes
        in Internal Control Over Financial Reporting.*** ****
 
 During
        the fiscal quarter ended June 30, 2008, there were no changes in our internal
        control over financial reporting identified in connection with the evaluation
        performed during the fiscal year covered by this report that has materially
        affected, or is reasonably likely to materially affect, our internal control
        over financial reporting.
 
 **PART
        II** ****
 
 **OTHER
        INFORMATION**
  **ITEM
        1.**  **LEGAL
        PROCEEDINGS.**
 
 From
        time
        to time, we may become involved in various lawsuits and legal proceedings
        which
        arise in the ordinary course of business. We are currently not aware of any
        such
        legal proceedings or claims that we expect will have a material adverse affect
        on our business, financial condition or operating results. However, litigation
        is subject to inherent uncertainties, and an adverse result in these or other
        matters may arise from time to time that may harm our business.
 
 **ITEM
        2.**  **UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**
 
 There
        were no unregistered sales of equity securities during the fiscal quarter
        ended
        June 30, 2008.
 
 **ITEM
        3.**  **DEFAULTS
        UPON SENIOR SECURITIES** **.**
 
 None.
 
 **ITEM
        4.**  **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 On
        March
        28, 2008, our Board of Directors approved, subject to receiving the approval
        of
        the holders of a majority of our outstanding capital stock, an amendment
        to our
        Certificate of Incorporation to (i) change our name to “China New Energy Group
        Company” to more accurately reflect our business operations and (ii) increase
        our total authorized stock from 100,000,000 to 500,000,000 shares of Common
        Stock. A majority of our shareholders approved the Certificate of Amendment
        of
        our Certificate of Incorporation pursuant to a written consent dated as of
        April
        22, 2008. Following the filing of an Information Statement on Schedule 14C
        on
        May 2, 2008, the Certificate of Amendment became effective on May 27,
        2008.
 
 **ITEM
        5.**  **OTHER
        INFORMATION** **.**
 
 None .
 
 **ITEM
        6.**  **EXHIBITS** **.**
 
 **Exhibit No.**
              
              **Description**31.1
              
              Certification
                  of Principal Executive Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Principal Financial Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.32.1
              
              Certifications
                  of Principal Executive Officer furnished pursuant to 18 U.S.C.
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002.32.2
              
              Certifications
                  of Principal Financial Officer furnished pursuant to 18 U.S.C.
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002.
 
 22
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 Dated:
        August 14, 2008
 
 **CHINA
                  NEW ENERGY GROUP COMPANY**By:
              /s/
                  Jiaji ShangJiaji
                  ShangChief
                  Executive Officer(Principal
                  Executive Officer)By:
              /s/
                  Xiaoling LiXiaoling
                  LiChief
                  Financial Officer(Principal
                  Financial Officer)
  23
  **EXHIBIT
        INDEX**
 
 **Exhibit
                  No.**
              
              **Description**31.1
              
              Certification
                  of Principal Executive Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Principal Financial Officer filed pursuant to Section 302 of
                  the
                  Sarbanes-Oxley Act of 2002.32.1
              
              Certifications
                  of Principal Executive Officer furnished pursuant to 18 U.S.C.
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002.32.2
              
              Certifications
                  of Principal Financial Officer furnished pursuant to 18 U.S.C.
                  Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002.




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