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: March 31, 2009




 ̈
            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: 333-83375





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.)





20/F,
Center Plaza, No.188 Jie Fang Road


He
Ping District, Tianjin, China     300042


(Address
of principal executive offices, Zip Code)




(86
22) 5829 9778


(Registrant’s
telephone number, including area code)




No.
1703 and 1704, A Building, No. 1, Hongji Apartment, Jin Wei Road


He
Bei District, Tianjin, China


(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   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes    ̈  No     ̈





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   ̈Non-Accelerated Filer  ̈ (Do not check if a smaller reporting company)
              Smaller
      reporting company x





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





The
number of shares outstanding of each of the issuer’s classes of common equity,
as of May 19, 2009 is as follows:




Class
      of Securities
              
              Shares
      OutstandingCommon
      Stock, $0.001 par value
              
              100,000,041Series
      A Convertible Preferred Stock, $0.001 par value
              
              1,857,373Series
      B Convertible Preferred Stock, $0.001 par value
              
              1,116,388
















Quarterly
Report on FORM 10-Q




Three
Months Ended March 31, 2009





Table
of Contents





PART
      IFINANCIAL
      INFORMATIONITEM
      1.
                                  FINANCIAL
      STATEMENTS.
                                  
                                  
                                  1ITEM
      2.
                                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.
                                  
                                  
                                  18ITEM
      3.
                                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
                                  
                                  
                                  23ITEM
      4T.
                                  CONTROLS
      AND PROCEDURES.
                                  
                                  
                                  23PART
      IIOTHER
      INFORMATIONITEM
      1.
                                  LEGAL
      PROCEEDINGS.
                                  
                                  
                                  24ITEM
      2.
                                  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
                                  
                                  
                                  24ITEM
      3.
                                  DEFAULTS
      UPON SENIOR SECURITIES.
                                  
                                  
                                  24ITEM
      4.
                                  SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.
                                  
                                  
                                  24ITEM
      5.
                                  OTHER
      INFORMATION.
                                  
                                  
                                  24ITEM
      6.
                                  EXHIBITS.
                                  
                                  
                                  26





PART
I


FINANCIAL
INFORMATION




ITEM
      1.
            FINANCIAL
      STATEMENTS.





China
New Energy Group Company


Condensed
Consolidated Financial Statements


For the
three months ended


March 31,
2009


(Stated
in US dollars)


1


China
New Energy Group Company


Condensed
Consolidated Financial Statements


Three
months ended March 31, 2009





Index to
Condensed Consolidated Financial Statements





PageUnaudited
      Condensed Consolidated Balance Sheets
                
                
                3Unaudited
      Condensed Consolidated Statements of Operations and Comprehensive
      Loss
                
                
                4Unaudited
      Condensed Consolidated Statements of Cash Flows
                
                
                5Unaudited
      Condensed Consolidated Statement of Changes in Stockholders’
      Equity
                
                
                6Notes
      to Unaudited Consolidated Financial Statements
                
                
                7




2





CHINA
NEW ENERGY GROUP COMPANY





CONDENSED
CONSOLIDATED BALANCE SHEETS


(Stated
in US Dollars)


March 31
                            
                            
                            December 312009
                            
                            
                            2008(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                            
                            $
                            3,854,769
                            
                            
                            $
                            5,833,508Accounts
      receivable, net of allowances of $0
                            
                            
                            1,685,239
                            
                            
                            
                            2,183,087Other
      receivables
                            
                            
                            2,371,165
                            
                            
                            
                            2,254,997Inventories,
      net
                            
                            
                            284,438
                            
                            
                            
                            254,585Related
      parties receivables
                            
                            
                            -
                            
                            
                            
                            84,120Prepayment
                            
                            
                            1,874,575
                            
                            
                            
                            1,558,361Other
      current assets
                            
                            
                            2,338
                            
                            
                            
                            3,340Total
      current assets
                            
                            
                            10,072,524
                            
                            
                            
                            12,171,998Property,
      plant and equipment, net
                            
                            
                            6,797,934
                            
                            
                            
                            6,844,262Construction
      in progress
                            
                            
                            5,673,904
                            
                            
                            
                            5,589,551Intangible
      assets, net
                            
                            
                            1,837,165
                            
                            
                            
                            1,814,316Total
      assets
                            
                            $
                            24,381,527
                            
                            
                            $
                            26,420,127LIABILITIES
      AND EQUITYCurrent
      liabilities:Accounts
      payable
                            
                            $
                            226,031
                            
                            
                            $
                            111,660Accrued
      expenses
                            
                            
                            253,084
                            
                            
                            
                            256,071Other
      payables
                            
                            
                            1,247,850
                            
                            
                            
                            3,046,393Related
      party payables
                            
                            
                            97,912
                            
                            
                            
                            97,650Tax
      payable
                            
                            
                            221,209
                            
                            
                            
                            693,116Dividend
      payable
                            
                            
                            329,000
                            
                            
                            
                            194,000Total
      current liabilities
                            
                            
                            2,375,086
                            
                            
                            
                            4,398,890Commitments
      and contingencies (Note 12)EquityChina
      New Energy Group Company stockholders’ equityCommon
      stock: (500,000,000 shares authorized, $0.001 par value, 100,000,041
      shares issued and outstanding)
                            
                            
                            100,000
                            
                            
                            
                            100,000Preferred
      shares: (10,000,000 shares authorized,  1,857,373 shares issued
      and outstanding)
                            
                            
                            1,857
                            
                            
                            
                            1,857Additional
      paid in capital
                            
                            
                            19,725,482
                            
                            
                            
                            19,725,482Accumulated
      deficits
                            
                            
                            (1,072,302
                            )
                            
                            
                            (619,357
                            )Statutory
      surplus reserve fund
                            
                            
                            1,903,034
                            
                            
                            
                            1,903,034Accumulated
      other comprehensive income
                            
                            
                            719,379
                            
                            
                            
                            730,168Total
      China New Energy Group Company stockholders’ equity
                            
                            
                            21,377,450
                            
                            
                            
                            21,841,184Non-controlling
      interest
                            
                            
                            628,991
                            
                            
                            
                            180,053Total
      equity
                            
                            
                            22,006,441
                            
                            
                            
                            22,021,237Total
      liabilities and equity
                            
                            $
                            24,381,527
                            
                            
                            $
                            26,420,127





See
accompanying notes to unaudited condensed consolidated financial
statements


3


CHINA
NEW ENERGY GROUP COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE


LOSS
– (UNAUDITED)


(Stated
in US Dollars)


For The Three Months EndedMarch 312009
                                          
                                          
                                          2008Revenue
                                          
                                          $
                                          325,017
                                          
                                          
                                          $
                                          101,755Cost
      of sales
                                          
                                          
                                          262,500
                                          
                                          
                                          
                                          75,937Gross
      profit
                                          
                                          
                                          62,517
                                          
                                          
                                          
                                          25,818Operating
      ExpensesGeneral
      and administrative expenses
                                          
                                          
                                          408,199
                                          
                                          
                                          
                                          246,419Total
      operating expenses
                                          
                                          
                                          408,199
                                          
                                          
                                          
                                          246,419Net
      operating loss
                                          
                                          
                                          (345,682
                                          )
                                          
                                          
                                          (220,601
                                          )Other
      Income (expenses)Interest
      income
                                          
                                          
                                          8,357
                                          
                                          
                                          
                                          -Interest
      (expenses)
                                          
                                          
                                          (671
                                          )
                                          
                                          
                                          (124
                                          )Other
      income
                                          
                                          
                                          93
                                          
                                          
                                          
                                          -Total
      other income (expenses)
                                          
                                          
                                          7,779
                                          
                                          
                                          
                                          (124
                                          )Loss
      from continuing operations, before income taxes
                                          
                                          
                                          (337,903
                                          )
                                          
                                          
                                          (220,725
                                          )Income
      taxes
                                          
                                          
                                          (997
                                          )
                                          
                                          
                                          -Loss
      from continuing operations, net of tax
                                          
                                          (338,900)
                                          
                                          
                                          (220,725)Loss
      from  discontinued operations, net of tax
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (17,838
                                          )Net
      Loss
                                          
                                          
                                          (338,900
                                          )
                                          
                                          
                                          (238,563
                                          )Add:  Net
      loss attributable to non controlling interest
                                          
                                          
                                          20,955
                                          
                                          
                                          
                                          1,166Net
      loss attributable to China New Energy Group Company
                                          
                                          
                                          (317,945
                                          )
                                          
                                          
                                          (237,397
                                          )Other
      comprehensive income:Foreign
      currency translation
                                          
                                          
                                          (10,789
                                          )
                                          
                                          
                                          127,843Comprehensive
      loss attributable to the non-controlling interest
                                          
                                          
                                          5,026
                                          
                                          
                                          
                                          1,291Comprehensive
      loss attributable to China New Energy Group Company
                                          
                                          $
                                          (323,708
                                          )
                                          
                                          $
                                          (108,263
                                          )Loss
      per share – Basic and Diluted:Loss
      from continuing operations attributable to the Company's common
      stockholders
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.00
                                          )Discontinuing
      operations attributable to the Company's common
    stockholders
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.00
                                          )Net
      loss attributable to the Company's common stockholders
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.00
                                          )Weighted
      average shares outstanding:Basic
      and Diluted Weighted average shares outstanding:
                                          
                                          
                                          100,000,041
                                          
                                          
                                          
                                          100,000,000





See
accompanying notes to unaudited condensed consolidated financial
statements


4


CHINA
NEW ENERGY GROUP COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS – (UNAUDITED)


(Stated
in US Dollars)





ForTheThreeMonthsEndedMarch312009
                                      
                                      
                                      2008Cash
      flows from operating activitiesNet
      (loss) attributable to the Company
                                      
                                      $
                                      (317,945
                                      )
                                      
                                      $
                                      (237,397
                                      )Adjustments
      to reconcile net (loss) to net cash (used in) operating
      activities:Loss
      attributable to non-controlling interest
                                      
                                      
                                      (20,955
                                      )
                                      
                                      
                                      (1,166
                                      )Depreciation
                                      
                                      
                                      90,836
                                      
                                      
                                      
                                      40,290Amortization
                                      
                                      
                                      3,193
                                      
                                      
                                      
                                      2,044Changes
      in operating assets and liabilities:Accounts
      receivable
                                      
                                      
                                      497,969
                                      
                                      
                                      
                                      358,960Other
      receivables
                                      
                                      
                                      (111,480
                                      )
                                      
                                      
                                      -Inventories
                                      
                                      
                                      (29,838
                                      )
                                      
                                      
                                      223,063Prepayment
                                      
                                      
                                      (316,117
                                      )
                                      
                                      
                                      12,201Other
      current assets
                                      
                                      
                                      1,002
                                      
                                      
                                      
                                      -Accounts
      payable
                                      
                                      
                                      114,362
                                      
                                      
                                      
                                      (276,517
                                      )Accrued
    expense
                                      
                                      
                                      (3,002
                                      )
                                      
                                      
                                      (332,724
                                      )Other
      payables
                                      
                                      
                                      (1,798,281
                                      )
                                      
                                      
                                      -Tax
      payable
                                      
                                      
                                      (471,940
                                      )
                                      
                                      
                                      1,620Net
      cash provided by (used in) operating activities
                                      
                                      
                                      (2,362,196
                                      )
                                      
                                      
                                      (209,626
                                      )Cash
      flows from investing activitiesAddition
      of fixed assets
                                      
                                      
                                      (44,108
                                      )
                                      
                                      
                                      (407
                                      )Addition
      of construction in progress
                                      
                                      
                                      (84,025
                                      )
                                      
                                      
                                      (228,005
                                      )Repayment
      from related parties
                                      
                                      
                                      77,515
                                      
                                      
                                      
                                      -Net
      cash used in investing activities
                                      
                                      
                                      (50,618
                                      )
                                      
                                      
                                      (228,412
                                      )Cash
      flows from financing activitiesContribution
      from non-controlling interest
                                      
                                      
                                      438,852
                                      
                                      
                                      
                                      59,656Net
      cash flows provided by financing activities:
                                      
                                      
                                      438,852
                                      
                                      
                                      
                                      59,656Effect
      of exchange rate changes in cash
                                      
                                      
                                      (4,777
                                      )
                                      
                                      
                                      60,043Net
      increase (decrease) in cash
                                      
                                      
                                      (1,978,739
                                      )
                                      
                                      
                                      (318,339
                                      )Cash-
      beginning of period
                                      
                                      
                                      5,833,508
                                      
                                      
                                      
                                      2,311,028Cash-
      end of period
                                      
                                      $
                                      3,854,769
                                      
                                      
                                      $
                                      1,992,689Supplemental
      disclosure of non cash investing and financing activities:Interest
      paid in cash
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Income
      taxed paid in cash
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -





See
accompanying notes to unaudited condensed consolidated financial
statements


5


CHINA
NEW ENERGY GROUP COMPANY


CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


(Stated in US Dollars)




AccumulatedAdditional
                              
                              
                              Statutory
                              
                              
                              Retained
                              
                              
                              Other
                              
                              
                              TotalCommonStock
                              
                              
                              PreferredStock
                              
                              
                              Paid-in
                              
                              
                              Surplus
                              
                              
                              Earnings
                              
                              
                              Comprehensive
                              
                              
                              Stockholders'Shares
                              
                              
                              Amount
                              
                              
                              Shares
                              
                              
                              Amount
                              
                              
                              Capital
                              
                              
                              ReserveFund
                              
                              
                              (Deficit)
                              
                              
                              Income
                              
                              
                              EquityBALANCE,
      December 31, 2007
                              
                              
                              94,908,650
                              
                              
                              $
                              94,909
                              
                              
                              
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              5,624,310
                              
                              
                              $
                              1,903,034
                              
                              
                              $
                              4,786,707
                              
                              
                              $
                              189,010
                              
                              
                              $
                              12,597,970Shares
      effectively issued to former shareholders as part of the
      recapitalization
                              
                              
                              5,091,391
                              
                              
                              $
                              5,091
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              (5,091
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              -Private
      placement
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,857,373
                              
                              
                              
                              1,857
                              
                              
                              
                              7,074,445
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              7,076,302Deemed
      dividend on issuance of preferred stock
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              7,031,818
                              
                              
                              
                              
                              
                              
                              
                              (7,031,818
                              )
                              
                              
                              
                              
                              
                              
                              -Preferred
      stock dividend
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (194,000
                              )
                              
                              
                              
                              
                              
                              
                              (194,000
                              )Net
      Income
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,819,754
                              
                              
                              
                              
                              
                              
                              
                              1,819,754Currency
      translation adjustment
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              541,158
                              
                              
                              
                              541,158BALANCE,
      December 31, 2008
                              
                              
                              100,000,041
                              
                              
                              $
                              100,000
                              
                              
                              
                              1,857,373
                              
                              
                              $
                              1,857
                              
                              
                              $
                              19,725,482
                              
                              
                              $
                              1,903,034
                              
                              
                              $
                              (619,357
                              )
                              
                              $
                              730,168
                              
                              
                              $
                              21,841,184Preferred
      stock dividend
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (135,000
                              )
                              
                              
                              
                              
                              
                              
                              (135,000
                              )Net
      Loss
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (317,945
                              )
                              
                              
                              
                              
                              
                              
                              (317,945
                              )Currency
      translation adjustment
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (10,789
                              )
                              
                              
                              (10,789
                              )BALANCE,
      March 31, 2009 - unaudited
                              
                              
                              100,000,041
                              
                              
                              $
                              100,000
                              
                              
                              
                              1,857,373
                              
                              
                              $
                              1,857
                              
                              
                              $
                              19,725,482
                              
                              
                              $
                              1,903,034
                              
                              
                              $
                              (1,072,302
                              )
                              
                              $
                              719,379
                              
                              
                              $
                              21,377,450




6


CHINA
NEW ENERGY GROUP COMPANY


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis
      of Presentation





The
financial statements are prepared in accordance with the accounting principles
generally accepted in the United States of America (“US GAAP”).  This
basis differs from that used in the statutory accounts of our subsidiaries in
China, which were prepared in accordance with the accounting principles and
relevant financial regulations applicable to enterprises in the
PRC.  All necessary adjustments have been made to present the
financial statements in accordance with US GAAP.





The
interim condensed consolidated financial statements included herein, presented
in accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These statements reflect all adjustments, consisting
of normal recurring adjustments, which, in the opinion of management, are
necessary for fair presentation of the information contained therein. It is
suggested that these interim condensed consolidated financial statements be read
in conjunction with the financial statements of the Company for the year ended
December 31, 2008 and notes thereto included in the Form 10K of China New Energy
Group Company filed on April 15, 2009. The Company follows the same accounting
policies in the preparation of interim reports.





Results
of operations for the interim periods are not indicative of annual
results.





2.
            Organization
      and Nature of Business





China New
Energy Group Company (the “Company”) was incorporated on March 28, 2008 in the
state of Delaware USA. The principal activity of the Company is investment
holding. Details of the Company’s subsidiaries and its subsidiary’s branch
companies and subsidiary (which together with the Company are collectively
referred to as the “Group”) and their principal activities as of March 31, 2009
were as follows:





Name
                                
                                Place of
                                  Registration
                                
                                % of
                                  shareholding
                                
                                Principal ActivitiesWillsky
      Development LTD.
                                
                                BVI
                                
                                
                                100
                                %
                                Company HoldingTianjin
      SingOcean Public UtilityDevelopment
      Co. Ltd.
                                
                                The
      PRC
                                
                                
                                99
                                %
                                Company  HoldingQinHuangDao
      ChenSheng
                                  Gas
      Co, Ltd.
                                
                                The
      PRC
                                
                                
                                100
                                %
                                Construction
      of District Gas-pipeline and supply of natural gasYingkou
      Zhongneng Gas Development Co., Ltd.
                                
                                The
      PRC
                                
                                
                                70
                                %
                                Construction
      of District Gas-pipeline and supply of natural gasChina
      New Energy (Tianjin) Investment & Consulting Co., Ltd.
                                
                                The
      PRC
                                
                                
                                100
                                %
                                Company  Holding





Willsky
Development LTD. was incorporated on May 31, 2005 in the British Virgin Islands.
On March 28, 2008, Travel Hunt Holdings, Inc. completed a reverse acquisition
transaction with Willsky Development whereby Travel Hunt Holdings, Inc. issued
to the shareholder of Willsky Development 94,908,650 shares of Travel Hunt
Holdings, Inc. common stock in exchange for all of the issued and outstanding
capital stock of Willsky Development. Simultaneous with the consummation of the
Share exchange agreement, the shareholder of Willsky, Eternal International
Holding Group Ltd, a Hong Kong corporation, or Eternal International,
distributed 85,417,785 shares of Travel Hunt Holdings, Inc. common stock as a
dividend. Accordingly, following this distribution, Eternal International
beneficially owns approximately 9.49% of Travel Hunt Holdings, Inc.’s
outstanding capital stock. Willsky Development thereby became Travel Hunt
Holdings, Inc.’s wholly-owned subsidiary and the former shareholders of Willsky
Development became Travel Hunt Holdings, Inc. controlling
stockholders.




7


CHINA
NEW ENERGY GROUP COMPANY


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





2.
            Organization
      and Nature of Business - continued





For
accounting purposes, the acquisition was  accounted for as a
recapitalization effected by a share exchange, and the transaction treated as a
reverse acquisition with Willsky Development as the acquirer and Travel Hunt
Holdings, Inc. as the acquired party. The assets and liabilities of the acquired
entity (Willsky) were brought forward at their book value and no goodwill was
recognized.





On May
27, 2008, we changed our name from Travel Hunt Holdings, Inc. to China New
Energy Group Company.





Tianjin
SingOcean Public Utility Development Co. Ltd. (SingOcean) is an equity joint
venture established in the PRC to be operated for a period of 50 years until
January 18, 2054. It is a subsidiary of the Company and it’s consolidated into
the Company’s financial statements.  It has a branch division in
Acheng, Tianjin SingOcean Public Utility Development Co., Ltd (Acheng
SingOcean”) and established in the PRC to be operated for a period of 50 years
until January 18, 2054.





QinHuangDao
ChenSheng Gas Co,Ltd. (“Chensheng Gas”) - On September 16, 2008, we,
through our 99%-owned subsidiary Tianjin SingOcean Public Utility
Development Co., Ltd., entered into an Equity Swap Agreement with Mr. Xiu Hai
Tian, whereby we acquired from Mr. Xiu a 49% ownership interest
in Chensheng Gas, in exchange for our 99% ownership in Hunchun SingOcean
Ocean Energy Co., Ltd. (“Hunchun SingOcean”).  The parties to the
Equity Swap Agreement determined that the value of the 49% interest in Chensheng
Gas and the 99% interest in Hunchun SingOcean were approximately equal and
therefore there was no cash or other consideration involved in the transaction
from either party.





On
December 10, 2008, the Company entered into an Agreement for Equity Transfer
with the holders of the remaining 51% outstanding equity in Chensheng
Gas.  Pursuant to the Agreement for Equity Transfer, the Company
agreed to purchase the remaining 51% of the outstanding equity of Chensheng Gas
from 17 individuals for an aggregate purchase price of RMB 12.56 million
(approximately $1.84 million).  The transaction was consummated on
December 30, 2008, following which the Company now owns 51% of the equity of
Chensheng Gas, and Tianjin SingOcean now owns 49% of the equity of Chensheng
Gas.





Yingkou
Zhongneng Gas Development Co., Ltd (Zhongneng Gas ) is a subsidiary of the
Company and established in the PRC to operate a natural gas distribution network
in the city of Dashiqiao.





China New
Energy (Tianjin) Investment & Consulting Co., Ltd (Tianjin CNE) is a
subsidiary of the Company and established in the PRC for investment holding
purposes





3.
            Summary
      of Significant Accounting Policies





(a) 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.





(b)
Principles of Consolidation





The
condensed 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 because of the
acquisition of Chensheng Gas.


8


CHINA
NEW ENERGY GROUP COMPANY


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





3
            Summary
      of Significant Accounting Policies -
continued





(c)
Intangible Assets





Intangible
assets consist of land use rights in Daishiquiao City, Acheng City, and Nan Dai
He.





According
to Chinese regulations, land belongs to the nation. Land use rights refer to the
purchase of the legal right to use land from the government. The term of the
land use rights is 50 years. The land use rights are amortized using the
straight-line method over their estimated useful life of 50 years.





(d)
Income Taxes





The
Company 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.  Also, the Company had no material
adjustments to its liabilities for unrecognized income tax benefits according to
the provisions of FIN 48.





(e)
Revenue Recognition





We
recognize revenue upon meeting the recognition requirements of Staff Accounting
Bulletin (“SAB”) No. 104, Revenue Recognition.  Natural gas revenues
are recorded based on the amount of product delivered to customers through
pipelines and checked by gas meters.





Connection
fees which relate to the hookup from the street pipeline to the customer are
charged to both residential and commercial customers. This revenue segment
accounts for a majority of the Company’s revenue. The connection fees are
recognized as revenue upon the completion of the jobs by the contractor, the
installation being checked and accepted by the Company’s technical staff, and
acceptance by the customer.





(f)
Foreign Currency Transactions





The Company’s
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 periods ended March 31,
2009 and 2008.





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.


9


CHINA
NEW ENERGY GROUP COMPANY


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





3
            Summary
      of Significant Accounting Policies -
continued





(g) 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.





(h)
Reclassifications





Certain
prior year amounts on the consolidated balance sheets have been reclassified to
conform to current classifications.





4.
            New
      Accounting Pronouncements





We have
considered all recently issued accounting pronouncements and do not believe the
adoption of such pronouncements will have a material impact on our consolidated
financial statements.





5.
            Net
      Loss Per Share





Net loss
per common share is computed pursuant to Statement of Financial Accounting
Standards No. 128 “Earnings Per Share” (“SFAS No. 128”).  Basic net
loss per common share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during each
period.  Diluted net loss per common share is computed by dividing net
loss by the weighted average number of shares of common stock and potentially
outstanding shares of common stock during each period to reflect the potential
dilution that could occur from common shares issuable through common stock
equivalents.


10


CHINA
NEW ENERGY GROUP COMPANY


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Components
of basic and diluted earnings per share were as follows:





March 31
                  
                  
                  March 312009
                  
                  
                  2008Numerator
      for basic and diluted EPS:Net
      loss attributable to China New Energy Group
                  
                  $
                  (317,945
                  )
                  
                  $
                  (237,397
                  )Dividend
      accrued on Preferred Stock
                  
                  
                  (135,000
                  )
                  
                  
                  —Net
      loss – attributable to common stockholders
                  
                  $
                  (452,945
                  )
                  
                  $
                  (237,397
                  )Denominator
      for basic and diluted LPSWeighted
      average shares of common stock outstanding
                  
                  
                  100,000,041
                  
                  
                  
                  100,000,000Earnings
      per share:Basic
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )Diluted
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )





The
following table shows the weighted-average number of potentially dilutive shares
excluded from the diluted net loss per share calculation for the three months
ended March 31, 2009 and 2008:


Weighted
      average shares of preferred stock outstanding
                    
                    
                    1,857,373
                    
                    
                    
                    -Dilutive
      effect of options, warrants, and contingently issuable
    shares
                    
                    
                    7,800,965
                    
                    
                    
                    -Total
                    
                    
                    9.658,338
                    
                    
                    
                    -





6.           Inventories





Inventories
consist of the following:





March 31
                  
                  
                  December 312009
                  
                  
                  2008(unaudited)Raw
      materials
                  
                  $
                  284,438
                  
                  
                  $
                  254,585$
                  284,438
                  
                  
                  $
                  254,585





7.           Property,
Plant and Equipment, net





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008At
      costOffice
      equipment
                  
                  $
                  78,004
                  
                  
                  $
                  33,893Motor
      vehicles
                  
                  
                  187,148
                  
                  
                  
                  187,137Gas
      transportation vehicles
                  
                  
                  424,962
                  
                  
                  
                  424,937Gas
      station
                  
                  
                  2,102,735
                  
                  
                  
                  2,102,612Underground
      gas pipelines
                  
                  
                  4,723,797
                  
                  
                  
                  4,723,5207,516,646
                  
                  
                  
                  7,472,099Less:
      accumulated depreciation
                  
                  
                  (718,712
                  )
                  
                  
                  (627,837
                  )$
                  6,797,934
                  
                  
                  $
                  6,844,262




11


CHINA
NEW ENERGY GROUP COMPANY


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The gas
pipelines, gas station, and other constructed assets belong to the Company, not
to the municipalities or other units that contract with the Company to provide
the hookups and the gas distribution to the households. Depreciation is provided
for these assets as they are used in operations.





During
the three months ended March 31, 2009, depreciation expenses amounted to
$90,836, of which $81,281 and $9,555 were recorded as cost of sales and general
and administrative expenses, respectively.
 
 During
the three months ended March 31, 2008, depreciation expenses amounted to
$40,290, of which $37,991 and $2,299 were recorded as cost of sales and general
and administrative expenses, respectively.





8.
            Intangible
      Assets, net





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008At
      costLand
      use rights
                  
                  $
                  587,464
                  
                  
                  $
                  587,429Goodwill
                  
                  
                  1,289,505
                  
                  
                  
                  1,263,4911,876,969
                  
                  
                  
                  1,850,920Less:
      accumulated amortization
                  
                  
                  (39,804
                  )
                  
                  
                  (36,604
                  )$
                  1,837,165
                  
                  
                  $
                  1,814,316





Amortization
expense for the three months ended March 31, 2009 and 2008 was $3,193 and
$2,044, respectively.





Estimated
amortization for the next five years and thereafter is as follows:





Remainder
      of 2009
                          
                          $
                          9,5762010
                          
                          
                          12,7682011
                          
                          
                          12,7682012
                          
                          
                          12,7682013
                          
                          
                          12,768Thereafter
                          
                          
                          487,012Total
                          
                          $
                          547,660





9.
            Income
      Taxes





The
Company, its subsidiary and branch divisions are subject to income taxes on an
entity basis on income arising in, or derived, from the tax jurisdiction in
which they operated. As the Company had no income generated in the United
States, there was no tax expense or tax liability due to the Internal Revenue
Service of the United States as of March 31, 2009.  A subsidiary of
the Company was incorporated under the international Business Companies Act of
British Virgin Islands and, accordingly is exempted from payment of British
Virgin Islands income taxes. Pursuant to the PRC Income Tax Laws, the prevailing
statutory rate of enterprise income tax is 25% for SingOcean, Zhongheng Gas, and
Tianjin CNE, whereas Chensheng Gas is being taxed on 0.8% of its
annual sales.





The
Company had no material adjustments to its liabilities for unrecognized income
tax benefits according to the provisions of FIN 48.  The income tax
expense was $997 and $0 for the three months ended March 31, 2009 and 2008,
respectively.  The Company has recorded no deferred tax assets or
liabilities as of March 31, 2009 and 2008, since nearly all differences in tax
basis and financial statement carrying values are permanent
differences.


12


CHINA
NEW ENERGY GROUP COMPANY
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For The Three Months EndedMarch 31,2009
                    
                    
                    2008Current
      tax
                    
                    
                    997
                    
                    
                    
                    -Deferred
      tax
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    997
                    
                    
                    
                    -
 
 All of
the Company’s income (loss) before income taxes is from PRC sources. Actual
income tax expenses reported in the consolidated statements of income and
comprehensive income differ from the amounts computed by applying the PRC
statutory income tax rate of 25% for the fiscal year of 2009 and 2008
respectively to income (loss) before income taxes for the three months ended
March 31, 2009 and 2008 for the following reasons:
 
 For The Three Months EndedMarch 31,2009
                    
                    
                    2008Loss
      before income taxes
                    
                    $
                    (337,902
                    )
                    
                    $
                    (220,725
                    )Computed
      “expected” income tax expense at 25%
                    
                    
                    (84,475
                    )
                    
                    
                    (55,181
                    )Tax
      effect on net taxable temporary differences
                    
                    
                    5,893
                    
                    
                    
                    -Effect
      of cumulative tax losses
                    
                    
                    79,579
                    
                    
                    
                    55,181$
                    997
                    
                    
                    $
                    -
 
 10.
              Related Party
      Transactions
 
 As of
March 31, 2009 and December 31, 2008, the Group has the following payables
with related parties:
 (a)
              Tianjin
      Nan Yang Electromechanical Equipment Installation Project Co. ("Nan
      Yang"), a shareholder of the Company's subsidiary TSOPUDCD, up until
      January 14, 2009
 (b)
              Huan
      Long is a shareholder of the Company's subsidiary SingOcean since
      January 14, 2009
 (c)
              Eternal
      International Holding Group Ltd. ("Eternal"), a shareholder of the
      Company.
 (d)
              Qu
      Qiangxi is the director of the
subsidiary.
 
 March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Nan
      Yang
                    
                    $
                    -
                    
                    
                    $
                    -Eternal
                    
                    
                    -
                    
                    
                    
                    -Huan
      Long
                    
                    
                    97,912
                    
                    
                    
                    -Qu
      Qiangxi
                    
                    
                    -
                    
                    
                    
                    97,650$
                    97,912
                    
                    
                    $
                    97,650
  13
  CHINA
NEW ENERGY GROUP COMPANY
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 The
balances have no stated terms for repayment and are not interest
bearing.
 
 11.
              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 have concentrations of business with
any customer constituting greater than 10% of the Company’s gross
sales.
 
 For the
three month periods ended March 31 2009, revenue attributed to connection fees
was 45% of total revenue whereas gas revenue contributed the remaining
55%.
 
 At March
31, 2009, three major customers accounted for 16%, 15% and 11% of net accounts
receivable respectively. At December 31, 2008, two major customers
accounted for 19% and 11% of net accounts receivable respectively.
 
 The
Company does not require collateral to support financial instruments that are
subject to credit risk.
 
 12.
              Commitments
      and Contingencies
 
 Operating
Leases - In the normal course of business, the Company rents land, primarily for
office space, staff quarters and parking space for Company vehicles. The
operating lease agreements generally contain renewal options that may be
exercised at the Company’s discretion after the completion of the base rental
terms. The Company was obligated under operating leases requiring minimum
rentals as follows:
 
 As
      of March 31,Remainder
      of 2009
                    
                    $
                    100,2192010
                    
                    
                    114,7432011
                    
                    
                    -2012
                    
                    
                    -2013
                    
                    
                    -Thereafter
                    
                    
                    -Total
      minimum lease payments
                    
                    
                    214,962
 
 During
the three months ended March 31, 2009 and 2008, rental expenses included in
general and administrative expenses were $35,479 and $8,214,
respectively.
 
 As of
March 31, 2009, the company did not have any contingent
liabilities.
 
 The
Company is obligated to provide uninterrupted piped gas to connected users and
to ensure the safety in the process of piped gas operations. 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.
 
 Deposits
in banks in the PRC are not insured by any government entity or agency, and are
consequently exposed to risk of loss. Management believes the probability of a
bank failure, causing loss to the Company, is remote.
  14
  CHINA
NEW ENERGY GROUP COMPANY
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 13.
              Environmental
      Matters
 
 The
Company does not anticipate any material future cash requirements to
environmental issues. If circumstances change, the Company will record the
estimated charges to return the sites to their original condition.
 
 14.
              Business
      and geographical segments
 
 The
Company’s operations are classified into two principal reportable segments which
are provision of gas pipe connection services and provision of natural
gas. Separate management of each segment is required because each business
unit is subject to different production and technology strategies.
 
 Reportable
Segments
 
 Provision of
                    gas pipe
                    connection
                    services
                  
                  
                  Provision of
                    natural gas
                  
                  
                  Corporate
                  
                  
                  Provision of
                    connection
                    services
                  
                  
                  Provision of
                    natural gas
                  
                  
                  Corporate
                  
                  
                  TotalFor the three months ended March 31, 2009
                  
                  
                  For the three months ended March 31, 2008
                  
                  
                  For the three months ended
                    March 312009
                  
                  
                  2008External
      revenue
                  
                  $
                  146,752
                  
                  
                  $
                  178,265
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  101,755
                  
                  
                  $
                  -
                  
                  
                  $
                  325,017
                  
                  
                  $
                  101,755Interest
      income
                  
                  
                  8,357
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,357
                  
                  
                  
                  -Interest
      expense
                  
                  
                  (211
                  )
                  
                  
                  -
                  
                  
                  
                  (460
                  )
                  
                  
                  -
                  
                  
                  
                  (124
                  )
                  
                  
                  -
                  
                  
                  
                  (671
                  )
                  
                  
                  (124
                  )Depreciation
      and amortization
                  
                  
                  -
                  
                  
                  
                  94,029
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  42,334
                  
                  
                  
                  -
                  
                  
                  
                  94,029
                  
                  
                  
                  42,334Net
      profit/(loss) after tax
                  
                  
                  118,204
                  
                  
                  
                  (436,149
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (219,559
                  )
                  
                  
                  -
                  
                  
                  
                  (317,945
                  )
                  
                  
                  (219,559
                  )Expenditures
      for long-lived assets
                  
                  
                  -
                  
                  
                  
                  128,133
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  228,412
                  
                  
                  
                  -
                  
                  
                  
                  128,133
                  
                  
                  
                  228,412
  As at March 31, 2009
                  
                  
                  At December 31, 2008
                  
                  
                  As at March
                    31, 2009
                  
                  
                  At December
                    31, 2008Assets
                  
                  
                  14,312,852
                  
                  
                  
                  7,523,909
                  
                  
                  
                  2,544,766
                  
                  
                  
                  13,930,906
                  
                  
                  
                  7,395,087
                  
                  
                  
                  5,094,134
                  
                  
                  
                  24,381,527
                  
                  
                  
                  26,420,127
 
 The
Company’s operations are located in the PRC. All revenue is from customers in
the PRC.  All of the company’s assets are located in the PRC.
Accordingly, no analysis of the Company’s sales and assets by geographical
market is presented.
  15
 
 15.
Discontinued Operations
 
 Effective
September 26, 2008, the Company entered into an asset swap in which it disposed
of the subsidiary Hunchun SingOcean, including substantially (99%) of the net
assets, for a 49% ownership in Qinhuangdao Chensheng Gas Co. Ltd. The results of
operations are recorded under the discontinued operations amounting to $0 and a
loss of $17,838 for the three months ended March 31, 2009 and March 31, 2008,
respectively.
  17.   
Registration rights
  In
connection with the closing of the August 14, 2008 private placement, the
Company entered into a Registration Rights Agreement (the “Registration Rights
Agreement”) with China Hand Fund I. L. P. pursuant to which, among other things,
the Company agreed to register all of the shares of common stock underlying the
securities issued to China Hand (collectively, the “Shares”) within a
pre-defined period.  Under the terms of the Registration Rights Agreement,
the Company is obligated to file a registration statement (the “Registration
Statement”) under the Securities Act of 1933 covering the resale of the
Shares.  If the Company is unable to file the Registration Statement, cause
it to become effective or maintain its effectiveness as required by the
Registration Rights Agreement, the Company is subject to registration delay
payments in amounts of cash, as partial liquidated damages and not as a penalty,
equal to 1.0% of the aggregate Investment Amount paid by such Holder for Shares
pursuant to the Purchase Agreement.  The parties agree that in no event
will the Company be liable for liquidated damages under this Agreement in excess
of 1.0% of the aggregate Purchase Price in any 30-day period and the maximum
aggregate liquidated damages payable to a holder under this agreement shall be
fifteen percent (15%) of the aggregate purchase price paid by purchaser pursuant
to the purchase agreement.
  Certain
registration rights from the August 20, 2008 private placement were amended and
restated in connection with the April 30, 2009 Private Placement as discussed in
Note 18 below.
 18.
Subsequent Events
 
 Issuance
of Series B Convertible Preferred Stock Securities Purchase
Agreement
 
 On April
30, 2009, China New Energy Group Company (the “Company”) entered into a Series B
Convertible Preferred Stock Securities Purchase Agreement (the “SPA”) with China
Hand Fund I L.P. (“China Hand”).
  Pursuant
to the SPA, on May 1, 2009, the Company issued and sold to China Hand, and China
Hand purchased from the Company, 1,116,388 shares of the Company’s Series B
Convertible Preferred Stock (“Series B Preferred Stock”) and warrants (the
“Warrants”) to purchase 7,814,719 shares of its Common Stock at an initial
exercise price of $0.187 per share (subject to adjustments) for a period of five
(5) years following the date of issuance for an aggregate purchase price of
$5,400,000 (the “Private Placement”).
 
 Kuhns
Brothers Securities Corporation (“Kuhns Brothers”) acted as placement agent in
connection with the Private Placement. As compensation for its services, Kuhns
Brothers received a cash fee equal to $540,000, representing 10% of the gross
proceeds received from the Private Placement, as well as warrants to purchase
3,907,358 shares of the Company’s Common Stock (the “Agent Warrants”),
representing 10% of the aggregate number of shares of common stock issuable to
China Hand in the Private Placement upon conversion of the Preferred
Stock.
 
 In
connection with the signing of the SPA, on April 30, 2009, the Company also
entered into a Closing Escrow Agreement by and among the Company, China Hand and
Escrow LLC (the “Escrow Agent”), pursuant to which China Hand agreed to deposit
all funds due to the Company under the SPA in escrow until such time as all
closing conditions of the SPA have been satisfied and the Escrow Agent shall
have received notice, executed by both the Company and China Hand, instructing
the Escrow Agent to release such funds to the Company. The Closing Escrow
Agreement terminates upon the release of all funds from escrow as described
above, or upon the 90th day
following the date of the Closing Escrow Agreement if no such instructions to
disburse funds are received by the Escrow Agent, on which date all such
funds will be returned to China Hand.
 
 Make
Good Provision
 
 Additionally,
the Company agreed to make good provisions that will require the Company to
issue to China Hand up to 334,916 additional shares (the “Make Good Shares”) of
its Series B Preferred Stock if it does not achieve an audited after-tax net
income of $5.0 million for the year ending December 31, 2009 (the “2009 Income
Target”); if the Company is successful in achieving the 2009 Income Target,
China Hand will transfer 22,327 shares of its Series B Preferred Stock to
certain members of the Company’s management, which shares have been deposited
into an escrow account.  The Company also agreed to issue to China
Hand 27,910 shares of Series B Preferred Stock if the Company’s Common Stock is
not listed for trading on a national securities exchange on or before January
31, 2010 (the “Listing Shares”).
 
 Amendment
and Restatement of Certain Registration Rights
  In
connection with the closing of the Private Placement, the Company and China Hand
amended and restated that certain  registration rights agreement
between the Company and China Hand dated August 20, 2008.  Pursuant to
the Amended and Restated Registration Rights Agreement (the “Amended and
Restated Registration Rights Agreement”),  among other things, the
Company agreed to register all of the shares of common stock underlying the
securities issued to China Hand in the Private Placement, as well as the private
placement that was consummated on August 20, 2008 (collectively, the “Shares”)
within a pre-defined period. Under the terms of the Amended and Restated
Registration Rights Agreement, the Company is obligated to file a registration
statement (the “Registration Statement”) under the Securities Act of 1933
covering the resale of the Shares by May 30, 2009. The Company is subject to
registration delay payments in amounts prescribed by the Amended and Restated
Registration Rights Agreement if it is unable to file the Registration
Statement, cause it to become effective or maintain its effectiveness as
required by the Amended and Restated Registration Rights
Agreement.  Registration delay payments will accrue at a rate of
$54,000 per month or one percent (1%) of the gross proceeds of the Private
Placement; provided that the maximum aggregate amount of the registration delay
payments pursuant to the Amended and Restated Registration Rights Agreement is
$810,000, or fifteen percent (15%) of the gross proceeds of the Private
Placement.
  16
 
 Waiver
of Certain Post-Closing Obligation in the August Securities Purchase
Agreement
 
 As
partial consideration for the Company’s issuance of the Series B Preferred
Stock, and in connection with the closing of the Private Placement, the Company
and China Hand executed a Waiver (the “Waiver”) of certain post-closing
obligations relating to the private placement consummated between the parties on
August 20, 2008.   Specifically, China Hand waived its rights (i)
to 557,212 shares of the Company’s Series A Preferred Stock held in escrow and
due to China Hand as of the date of the closing pursuant to a Securities
Purchase Agreement dated August 8, 2008 (the “August SPA”); provided that the
Company agreed to deliver to China Hand 241,545 shares of Series A Preferred
Stock and to place an additional 241,545 shares of Series A Preferred Stock into
escrow, to be delivered to China Hand if the Company’s after-tax net income for
the year ending December 31, 2009 is not at or above $5,000,000 (the “Amended
Series A Make Good”); (ii) under Section 6.18 of the August SPA in favor of the
Amended Series A Make Good; (iii) to liquidated damages under Section 6.31 of
the August  SPA arising from the Company’ s failure to effect a
reverse split of its Common Stock prior to March  31, 2009; and (iv)
its rights to liquidated damages under a Registration Rights Agreement dated
August 20, 2008, provided that the parties enter into the Amended and Restated
Registration Rights Agreement.
 
 Board
of Directors Nomination
 
 In
connection with the Private Placement, China Hand, together with the holders of
the Company’s Series A Convertible Preferred Stock (the “Series A Preferred
Stock”), will have the right to nominate an aggregate of four (4) members to the
Company’s Board of Directors following the closing of the Private
Placement.  In connection with the closing of the private placement
consummated between the parties on August 20, 2008 as noted above, China Hand
nominated John D. Kuhns and James Tie Li to the Company’s Board of Directors,
and accordingly, may nominate up to two additional members to the Board of
Directors.  John D. Kuhns is the president, chief executive officer,
director and principal shareholder of Kuhns Brothers, and is a principal of
China Hand.  James Tie Li is a consultant for Kuhns
Brothers.
 
 Material Modification to the Rights
of Security Holders
 
 In
connection with the Private Placement, the Company filed a Certificate of
Designations of Preferences, Rights and Limitations of Series B Convertible
Preferred Stock with the Secretary of State of the State of Delaware (the
“Certificate”). Pursuant to the Certificate, there are 2,000,000 shares of
Series B Preferred Stock authorized. The holders of the Series B Preferred Stock
will be entitled to cumulative dividends at a rate of 6% of the price paid per
share, as may be adjusted in accordance with the Certificate, per annum
compounded daily and payable semi-annually.
 
 Additionally,
in addition to the right to vote as a separate class of securities, the holders
of the Preferred Stock are entitled to vote together with the holders of the
Company’s common stock, with each such holder of Preferred Stock entitled to the
number of votes equal to the number of shares of the Company’s common stock in
to which such Preferred Stock would be converted if converted on the record date
for the taking of a vote.  For so long as the number of outstanding
shares of Series B Preferred Stock is at least thirty percent (30%) of the total
number of shares of Series B Preferred Stock issued under the SPA, the holders
of Series B Preferred Stock shall vote together as a single class with the
holders of the Company’s Common Stock, and the holders of any other class or
series of shares entitled to vote with the Common Stock, with the holders of
Series B Preferred Stock issued under the SPA being entitled to seventy percent
(70%) of the total votes on all such matters regardless of the actual number of
shares of Series B Preferred Stock then outstanding, and the holders of Series A
Preferred Stock and Common Stock being entitled to their proportional share of
the remaining 30% of the total votes based on their respective voting power as
calculated under the Certificate of Designations of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock and the Company’s
Certificate of  Incorporation.
    17
 
  
 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 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on April 15, 2009, 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,” are references to the
      combined business of China New Energy Group Company and its wholly-owned
      subsidiaries, Willsky Development, SingOcean, Chensheng Gas, Acheng
      SingOcean, Yingkou Zhongneng (Dashiqiao SingOcean) and Tianjin CNE, but do
      not include the stockholders of China New Energy;
 ·
              “Willsky
      Development” are references to Willsky Development, Ltd.;
 ·
              “SingOcean”
      are references to Tianjin SingOcean Public Utility Development Co.,
      Ltd.;
 ·
              “Chensheng
      Gas” are references to Qinhuangdao Chensheng Gas Co. Ltd.;
 ·
              “Acheng
      SingOcean” are references to Tianjin SingOcean Public Utility Development
      Co., Ltd. - Acheng Division;
 ·
              “Dashiqiao
      SingOcean” are references to Tianjin SingOcean Public Utility Development
      Co., Ltd. - Dashiqiao Division;
 ·
              “Yingkou
      Zhongneng” are references to Yingkou Zhongneng Gas Development Co.,
      Ltd
 ·
              “Tianjin
      CNE” are references to China New Energy (Tianjin) Investment and
      Consulting Co., Ltd
 ·
              “China,”
      “Chinese” and “PRC,” are references to the People’s Republic of
      China;
 ·
              “BVI”
      are references to the British Virgin Islands;
 ·
              “RMB”
      refer to Renminbi, the legal currency of China;
 ·
              “U.S.
      dollar,” “$” and “US$” are to the legal currency of the United
      States;
 ·
              “SEC”
      means the Securities and Exchange Commission; and
 ·
              “Securities
      Act” mean the Securities Act of 1933, as amended, and “Exchange Act” mean
      the Securities Exchange Act of 1934, as
amended.
  18
 Overview
of Our Business
 
 We are a
vertically integrated natural gas company engaged in the development of natural
gas distribution networks, and the distribution of natural gas to residential,
industrial and commercial customers in small and medium sized cities in
China.
 
 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 Nandaihe. Currently, these distribution networks provide
natural gas to an aggregate of approximately 61,000 consumers in these cities,
and we anticipate that we will be able to extend these distribution networks to
connect in excess of 115,000 consumers in these cities by 2010.
 
 We
procure our natural gas by purchasing natural gas from third-party suppliers.
Once natural gas is extracted by the supplier, all water content and impurities
are removed.  Natural gas is then delivered by truck to either (1) our
natural gas supply stations, where the gas is either depressurized and then
delivered to households through pipelines or delivered directly to customers in
pressurized tanks, or (2) to gas stations where the gas is sold for use in motor
vehicles.
 
 Our major
business activities include development and construction of local gas
distribution networks, transportation of natural gas from suppliers to our
storage facilities in a given operational location, and operating and
maintaining the gas distribution networks.
 
 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.
 
 Private
Placements
 
 On August
20, 2008, we completed a private placement in which we sold to China Hand Fund
I, LLC, or China Hand, and its designees 1,857,373 shares of our Series A
Preferred Stock and warrants to purchase 13,001,608 shares of our common stock
at an initial exercise price of $0.187 per share (subject to adjustments) for a
period of 5 years following the date of issuance, for a purchase price of
$9,000,000.
 
 Subsequently,
on May 1, 2009, the Company issued and sold to China Hand, and China Hand
purchased from the Company, 1,116,388 shares of the Company’s Series B
Convertible Preferred Stock and warrants to purchase 7,814,719 shares of its
Common Stock at an initial exercise price of $0.187 per share (subject to
adjustments) for a period of five (5) years following the date of issuance for
an aggregate purchase price of $5,400,000.
 
 Additionally,
the Company agreed to make good provisions that will require the Company to
issue to China Hand up to 334,916 additional shares of its Series B Preferred
Stock if it does not achieve an audited after-tax net income of $5.0 million for
the year ending December 31, 2009; if the Company is successful in achieving the
2009 Income Target, China Hand will transfer 22,327 shares of its Series B
Preferred Stock to certain members of the Company’s management.  The
Company also agreed to issue to China Hand 27,910 shares of Series B Preferred
Stock if the Company’s Common Stock is not listed for trading on a national
securities exchange on or before January 31, 2010.
 
 Kuhns
Brothers Securities Corporation, or Kuhns Brothers, acted as placement agent in
connection with the August 20, 2008 and May, 1, 2009 private placements. In each
case, as compensation for its services, Kuhns Brothers received a cash fee equal
to 10% of the gross proceeds received from each private placement, as well as
warrants to purchase 10% of the aggregate number of shares of common stock
issuable to China Hand in each private placement upon conversion of the Series A
and Series B Preferred Stock.  Accordingly, Kuhns Brothers received
cash fees of $900,000 and $540,000, and warrants to purchase
6,500,804  and 3,907,358 shares of the Company’s common stock, in
connection with the August 20, 2008 and May 1, 2009 private placements,
respectively.
  19
 
 Equity
Swap
 
 On
September 16, 2008, we, through our 99%-owned subsidiary Tianjin
SingOcean Public Utility Development Co., Ltd., entered into an Equity Swap
Agreement with Mr. Xiuhai Tian, whereby we acquired from Mr. Tian
a 49% ownership interest in Chensheng Gas, in exchange for our 99%
ownership in Hunchun SingOcean.  The parties to the Equity Swap
Agreement determined that the value of the 49% interest in Chensheng Gas and the
99% interest in Hunchun SingOcean were approximately equal and therefore there
was no cash or other consideration involved in the transaction from either
party.
 
 On
December 10, 2008, we entered into an Agreement for Equity Transfer with the
holders of the remaining 51% outstanding equity in Chensheng
Gas.  Pursuant to the Agreement for Equity Transfer, the Company
agreed to purchase the remaining 51% of the outstanding equity of Chensheng Gas
from 17 individuals for an aggregate purchase price of RMB 12.56 million
(approximately $1.84 million).  The transaction was consummated on
December 30, 2008, following which the Company now owns 51% of the equity of
Chensheng Gas, and Tianjin SingOcean now owns 49% of the equity of Chensheng
Gas.
 
 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 Huanlong Commercial and Trading
Company.
 
 On
January 23, 2009, Dashiqiao SingOcean was converted from a division of SingOcean
to a majority-owned subsidiary, and was renamed as Yingkou Zhongneng Gas
Development Co., Ltd.  SingOcean currently owns 70% of the equity of
Yingkou Zhongneng, with the remaining 30% owned by Mr. Zhao Jian.
 
 SingOcean
continues to hold  49% of the equity of Chensheng Gas, with the
remaining 51% owned by China New Energy, and  Acheng SingOcean continues to
be a wholly-controlled division of SingOcean.
 
 Acheng
SingOcean and Yingkou Zhongneng are principally responsible for the construction
and operation of the natural gas distribution networks in the cities of Acheng
and Dashiqiao in Northeast China. Chensheng Gas is a natural gas distribution
company operating in the Nandaihe area in Northern China, which could
potentially provide natural gas to an aggregate of 23,000 individuals in the
Nandaihe area by 2012, and we anticipate that it will connect to an excess of
5,000 customers every year over the next three to five years.
 
 We have
established the wholly-owned subsidiary – China New Energy (Tianjin) Investment
and Consulting Co., Ltd on January 12, 2009, in Tianjin, China, for investment
holding purposes.
 
 The
following chart reflects our organizational structure as of the date of this
report.
 
 
  20
 
 We have
moved our principal executive office in China to the new address in January,
2009. The new address is 20/F, Center Plaza, No.188 Jiefang Road, He Ping
District,Tianjin, China, and our telephone number is +(86 22) 5829
9778.
 
 Insurance
 
 The
Company has purchased Property Insurance, employee Accident Insurance and Public
Liability Insurance for Chensheng Gas and Yingkou Zhongneng.
 
 First Quarter
Financial Performance Highlights
 
 We
continued to experience strong demand for our products and services during the
first fiscal quarter of 2009 and growth in our revenues and net
income.
 
 The
following are some financial highlights for the first quarter of
2009:
 
 ·
                Revenues:
      Our revenues were $325,017 for the first quarter of 2009, an increase of
      142% from the same period of 2008.
 
 ·
                Gross
      Margin: Gross margin was 62,517 for the first quarter of 2009, an
      increase of 74% from the same period of
2008.
 
 ·
                Operating
      Loss: Operating Expense was $345,682 for the first quarter of 2009, an
      increase of 57% from the same period of
2008.
 
 ·
                Net
      Loss: Net Loss was $317,945 for the first quarter of 2009, an increase of
      34% from the same period of 2008.
 
 ·
                Fully
      diluted loss per share was $0.00 for the first quarter of
      2009.
 
 Results
of Operations
 
 Three
months ended March 31, 2009 Compared to Three months ended March 31,
2008
 
 The
following table summarizes the results of our operations during the three-month
periods ended March 31, 2009 and 2008, and provides information regarding the
dollar and percentage increase or (decrease) from the three-month period ended
March 31, 2008 to the three-month period ended March 31, 2009.
 
 All
amounts in thousands of U.S. dollars, except percentages
  Three Months
                      Ended
                      March 31, 2009
                    
                    
                    Three Months
                      Ended
                      March 31, 2008
                    
                    
                    Percentage
                      Change
                      (Decrease)Revenues
                    
                    $
                    325,017
                    
                    
                    $
                    101,755
                    
                    
                    
                    219
                    %Cost
      of sales
                    
                    $
                    262,500
                    
                    
                    $
                    75,937
                    
                    
                    
                    246
                    %Gross
      Profit
                    
                    $
                    62,517
                    
                    
                    $
                    25,818
                    
                    
                    
                    142
                    %General
      and administrative expenses
                    
                    $
                    408,199
                    
                    
                    $
                    246,
      419
                    
                    
                    
                    66
                    %Operating
      Income (Expenses)
                    
                    $
                    (345,682
                    )
                    
                    $
                    (220,601
                    )
                    
                    
                    57
                    %Other
      Income and (Expenses)Interest
      (expense)
                    
                    $
                    (671
                    )
                    
                    $
                    (124
                    )
                    
                    
                    441
                    %Other
      income (expense)
                    
                    $
                    8,450
                    
                    
                    $
                    -
                    
                    
                    
                    -Income
      (loss) before income taxes
                    
                    $
                    (337,903
                    )
                    
                    $
                    (220,725
                    )
                    
                    
                    53
                    %Income
      taxes
                    
                    $
                    997
                    
                    
                    $
                    -
                    
                    
                    
                    -Net
      income (loss)
                    
                    $
                    (317,
      945
                    )
                    
                    $
                    (237,397
                    )
                    
                    
                    34
                    %
  21
 
 Revenues.  Revenues
are derived primarily from connection fees and sales of natural gas. Revenues
increased $223,262, or 219% to $325,017 for the three months ended March 31,
2009 from $101,755 for the same period in 2008. This increase was mainly
attributable to an increase in number of connection households and increase in
natural gas consumption.
 
 Cost of Sales. Cost of sales
consists primarily of the purchase of natural gas from our suppliers. Our cost
of sales increased $186,563, or 246%, to $262,500 for the three months ended
March 31, 2009 from $75,937 during the same period in 2008. Such increase was
mainly attributable to a corresponding increase in the number of households
connected to our distribution network and increase in natural gas consumption by
our customers.
 
 As a
percentage of revenues, the cost of sales decreased to 81% during the three
months ended March 31, 2009, from 75% in the same period in 2008, which was
mainly attributable to an additional revenue stream from a project not affected
by seasonality, which allows the company to collect connection
fees.
 
 Gross Profit.Our gross
profit increased $36,699, or 142%, to $62,517 for the three months ended March
31, 2009 from $25,818 during the same period in 2008. Gross profit as a
percentage of revenues was 19% for the three months ended March 31, 2009, a
decrease of 24% from 25% during the same period in 2008. Such percentage
increase was mainly due to an additional revenue stream from a project not
affected by seasonality, which allows the company to collect connection
fees.
 
 General and Administrative
Expenses. General and administrative expenses, including sales
representative commissions, promotion fees, salesperson salaries and expenses,
depreciation charges and other fees, increased $161,780, or 66%, to $408,199 for
the three months ended March 31, 2009 from $246,419 during the same period in
2008. As a percentage of revenues, general and administrative expenses
deceased to 126% for the three months ended March 31, 2009 from 242% for the
same period in 2008. Such increase in general and administrative expenses
resulted from an increase in sales and administrative personnel, while the
decrease in selling, general and administrative expenses as a percentage of
revenues resulted from the greater increase in revenues for the reasons
identified above.
 
 Net Income. Net loss
increased $80,548, or 34% to a net loss of $317,945 for the three months ended
March 31, 2009 from net loss of $237,397 for the same period of 2008, as a
result of the factors described above.
 
 Liquidity and
Capital Resources
 
 General
 
 As of
March 31, 2009, we had cash and cash equivalents (excluding restricted cash) of
approximately $3,854,769. 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)
 
 Three months ended March 31,2009
                      
                      
                      2008Net
      cash provided by (used in) operating activities
                      
                      $
                      (2,362,196
                      )
                      
                      $
                      (209,626
                      )Net
      cash provided by (used in) investing activities
                      
                      $
                      (50,618
                      )
                      
                      $
                      (228,412
                      )Net
      cash provided by (used in) financing activities
                      
                      $
                      438,852
                      
                      
                      $
                      59,656Effect
      of exchange rate changes in cash
                      
                      $
                      4,777
                      
                      
                      $
                      60,043Net
      cash flow
                      
                      $
                      (50,618
                      )
                      
                      $
                      (318,339
                      )
  22
 
 Operating
Activities
  Net cash
used in operating activities was $2,362,196 for the three months ended March 31,
2009, compared to $209,626 net cash used in operating activities
during the same period of 2008. This decrease in funds provided by our operating
activities was primarily due to decrease in accruals and third party payables,
and the decrease in our business tax and government surcharge
payments
 
 Investing
Activities
 
 Net cash used in investing
activities for the three months ended March 31, 2009 was approximately
$50,618, which is a
decrease of  $177,794 from net cash used in investing
activities of  $228,412for the same period of 2008.  Such decrease is
primarilydue to a
decreasein our
pipeline network investment.
  Financing
Activities
  Ourdebt to equity ratio (total debt /total
assets) was9% as of March
31, 2009.  Net cash provided by financing activities for the three
months ended March 31, 2009 was $438,852, which is anincreaseof $379,196from net cash provided by financing
activities of $59,656during the same period of 2008.  Suchincrease is mainly due to contributions
from a non–controlling interest ofYingkou Zhongneng.
 
 We
believe that our currently available working capital should be adequate to
sustain our operations at our current levels through at least the next twelve
months.
 
 Inflation
 
 Our
business, revenues and operating results have not been affected in any material
way by inflation.
 
 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 this time.
 
 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.
 
 ITEM
      3.
                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
 
 Not
Applicable.
 
 ITEM
      4T.
                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.
 
 As
required by Rule 13a-15 under the Exchange Act, our management, including Mr.
Yangkan Chong, our Chief Executive Officer and Mr. Peng Mun Foo, our Chief
Financial Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of March 31, 2009. Based on that
evaluation, Mr. Chong and Mr. Foo concluded that as of March 31, 2009, 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.
  23
 
 Changes in
Internal Control Over Financial Reporting.
 
 During
the fiscal quarter ended March 31, 2009, 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.
 
 None.
 
 ITEM
      3.
                DEFAULTS
      UPON SENIOR SECURITIES.
 
 None.
 
 ITEM
      4.
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
 
 None.
 
 ITEM
      5.
                OTHER
      INFORMATION.
 
 Departure
of Chief Executive Officer
 
 On May
18, 2009, Jiaji Shang resigned as the President and Chief Executive Officer of
China New Energy Group Company (the “Company”) and from all officer positions
that he held with any of our subsidiaries, effective immediately.  Mr.
Shang’s resignation was not in connection with any disagreement with the
Company.  Mr. Shang will remain as the Chairman of the Board of
Directors of the Company.
 
 Appointment
of Chief Executive Officer
 
 On May
15, 2009, Mr. Yangkan Chong, age 54, was appointed as the Company’s President
and Chief Executive Officer effective May 18, 2009. Mr. Chong has served as a
director of the Company since April 27, 2008, and has served as the Vice
Chairman of our subsidiary, Tianjin SingOcean Public Utility Development Co.,
Ltd., since October 2006. From March 2008 to May 2009, Mr. Chong served as the
Deputy Chief Executive Officer of China EnerSave Limited, a renewable energy
provider that is listed on the Singapore Stock Exchange, and Mr. Chong started
his career with the company as a Senior General Manager in March 2007. Mr. Chong
has more than 20 years of experience in the energy industry, and has held senior
level positions with energy-related companies including China Light & Power
(CLP) Hong Kong, Enron International, Edison Mission Energy, Singapore Power and
Exxon Oil and other Singapore Government-linked companies. Mr. Chong holds a
Master of Science (Mechanical Engineering) from the National University of
Singapore and a Bachelor of Engineering (Mechanical & Production) from the
University of Singapore.
  24
 
 In
connection with his appointment as Chief Executive Officer, Mr. Chong entered
into an employment agreement, wherein Mr. Chong has agreed to serve
as Chief Executive Officer for an initial one year period commencing on May
18, 2009 at an annual salary of $144,000.  The initial one year term will
be automatically extended for successive one year periods unless either party
gives prior written notice to the other party at least 30 days prior to the end
of the employment period.  The salary is subject to annual review. Mr.
Chong will be eligible for bonus or other incentive plans and programs as may be
adopted by the Company’s Board of Directors from time to time.  The Company
may terminate Mr. Chong's employment at any time for cause and without cause
upon 30 days prior written notice or in the event of Mr. Chong's death or
disability.  Mr. Chong may terminate his employment with 30 days notice, or
immediate notice in the event of constructive termination.  Mr. Chong’s
agreement also contains customary non-competition provisions regarding actions
within the People’s Republic of China for a period of two years following the
date of termination of his employment.
 
 Appointment
of Directors
 
 On April
30, 2009, the Company entered into a Series B Convertible Preferred Stock
Securities Purchase Agreement (the “SPA”) with China Hand
Fund I  L.P. (“China
Hand”).  Under the SPA, which closed on May 1, 2009, the
Company issued and sold to Vicis Capital Master Fund  (“Vicis”), a designee
of China Hand, for an aggregate purchase price of $5,400,000, 1,116,388 shares
of the Company’s Series B Convertible Preferred Stock, par value $0.001 per
share (the “Series B
Preferred Stock”) and warrants to purchase 7,814,719 shares
of  Common Stock at an initial exercise price of $0.187 per share
(subject to adjustments) for a period of five (5) years following the date of
issuance.
 
 Pursuant
to the SPA, the Company is required to increase the size of the Board from five
(5) to seven (7), and the holders of the Series B Preferred Stock have the right
to nominate two (2) members to the Board of Directors.  Accordingly,
on May 15, 2009  the Board of Directors of the Company increased the
size of the board to seven (7) and elected Ms. Mary E. Fellows and Mr. Shadron
L. Stastney, the nominees of the holders of the Series B Preferred Stock, to
fill the two vacancies created thereby, effective of the tenth day following the
mailing of an Information Statement on Schedule 14f-1 to be filed with the
Securities and Exchange Commission as soon as practicable.  At
present, no written agreements have been executed regarding the compensation to
the new directors for their service on the Company’s Board of
Directors.  Pursuant to verbal agreements, Mr. Stastney and Ms.
Fellows will each receive US$20,000 annually for service on the Company’s Board
of Directors.
 
 Mary E.
Fellows
 
 Ms.
Fellows, age 47, has been the executive vice president and corporate secretary
of China Hydroelectic Corporation since 2006.  Ms. Fellows has been a
partner and executive vice president of Kuhns Brothers, Inc., an investment
boutique, since 1997.  She is a co-chairman of the Distributed Power
Company, a company with investments in solar information publications. From 2003
to 2006, she was a director of GenSelf Corporation.  From 1997 to 2002, she
was a corporate secretary of the Solar Electric Light Company. From 1996 to
1999, she was a director of Corporate Administration and corporate secretary of
the New World Power Corporation. Ms. Fellows is also a member of the board of
directors of China Natural Energy Corporation, China Silicon Corporation, China
Electrode Corporation, China Board Mill Corporation, Paragon Semitech USA and
Lime Rock, LLC.  Ms. Fellows received  her Bachelor's degree in
Science (Alpha Chi) from Teikyo Post University.
  Ms.
Fellows is a partner and executive vice president of Kuhns Brothers, Inc., which
acted as placement agent in connection with our private placements completed in
August 2008 and April 2009.
 
 Shadron L.
Stastney
 
 Mr. Stastney,age 39, has been a partner at
Vicis Capital, LLC, Since June 2004, which is an investment management firm and
the managing partner of our controlling shareholder, Vicis Capital Master
Fund.  From July 2001 to May 2004, Mr. Stastney was a managing director of
Victus Capital, LP, an investment management firm.  Mr. Stastney received
his Bachelor's degree in Arts from the University of North Dakota and a Juris
Doctor degree from the Yale Law School.
  25
 
 ITEM
      6.
                EXHIBITS.
 
 The
following exhibits are filed as part of this report or incorporated by
reference:
 
 Exhibit No.
                    
                    Description10.1
                    
                    Employment
      Agreement between the Company and Mr. Yangkan Chong, dated May 11,
      2009.31.1
                    
                    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.
  26
 
 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:
May 20, 2009
 
 CHINA NEW ENERGY GROUP
      COMPANYBy:
                              /s/ Yangkan ChongYangkan
      ChongChief
      Executive Officer(Principal
      Executive Officer)By:
                              /s/ Peng
  Mun  FooPeng
      Mun FooChief
      Financial Officer(Principal
      Financial and Accounting
Officer)
  
  EXHIBIT
INDEX
 
 Exhibit No.
                    
                    Description10.1
                    
                    Employment
      Agreement between the Company and Mr. Yangkan Chong, dated May 11,
      2009.31.1
                    
                    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.