**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





(Mark
      One)




þ
            Quarterly
                Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
                Act Of
                1934





For
      the
      quarterly period ended: **June 30, 2007**





Or





o
            Transition
                Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
                Act Of
                1934





For
      the
      transition period from ______________ to _______________





Commission
      File Number: **000-51753**




**CHINA
      WEST COAL ENERGY INC.**


(Exact
      name of registrant as specified in its charter)




**Nevada**
            
            **75-2882833**(State
                or other jurisdiction of incorporation of origination)
            
            (I.R.S.
                Employer Identification Number)





**Room
                2205, Suite A, Zhengxin Building, No. 5, Gaoxin**
              **1st
                Road,  Gao Xin District, Xi’an, Shaanxi Province,**
              **People’s
                Republic of China**
            
            **N/A**(Address
                of principal executive offices)
            
            (Zip
                code)




**(029)
                8209-1099**(Registrant’s
                telephone number, including area
                code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.     Yes þ No o




The
      registrant is a shell company (as defined by Rule 12b-2 of the Exchange
      Act).     Yes o No þ




APPLICABLE
      ONLY TO CORPORATE ISSUERS:





Indicate
      the number of shares outstanding of each issuer’s classes of common stock, as of
      the latest practicable date: 28,227,250 issued and outstanding as of August
      10, 2007.




Transitional
      Small Business Disclosure Form (Check one):  Yes o No þ










**TABLE
      OF CONTENTS**


**TO
      QUARTERLY REPORT ON FORM 10-QSB**


**FOR
      QUARTER ENDED JUNE 30, 2007**




PagePART
                I
            
            FINANCIAL
                INFORMATIONItem
                1.
            
            Financial
                StatementsConsolidated
                Balance Sheets
            
            F-2Consolidated
                Statements of Income (Operations) and Other Comprehensive
                Income
            
            F-3Consolidated
                Statements of Shareholders’ Equity
            
            F-4Consolidated
                Statements of Cash Flows
            
            F-5Condensed
                Notes to Consolidated Financial Statements
            
            F-6 -
              F-23Item
                2.
            
            Management’s
                Discussion and Analysis or Plan of Operation
            
            2Item
                3.
            
            Controls
                and Procedures
            
            21PART
                II
            
            OTHER
                INFORMATION22Item
                1.
            
            Legal
                ProceedingsItem
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            22Item
                3.
            
            Defaults
                Upon Senior Securities
            
            22Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            22Item
                5.
            
            Other
                Information
            
            22Item
                6.
            
            Exhibits
            
            22Signatures
            
            24




(REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK)




A-2




CAUTION
      REGARDING FORWARD-LOOKING INFORMATION





All
      statements contained in this Quarterly Report on Form 10-QSB (“Form 10-QSB”) for
      China West Coal Energy Inc., other than statements of historical facts, that
      address future activities, events or developments are forward-looking
      statements, including, but not limited to, statements containing the words
      “believe,” “anticipate,” “expect” and words of similar import. These statements
      are based on certain assumptions and analyses made by us in light of our
      experience and our assessment of historical trends, current conditions and
      expected future developments as well as other factors we believe are appropriate
      under the circumstances. However, whether actual results will conform to the
      expectations and predictions of management is subject to a number of risks
      and
      uncertainties that may cause actual results to differ materially.





Such
      risks include, among others, the following: international, national and local
      general economic and market conditions: our ability to sustain, manage or
      forecast our growth; raw material costs and availability; new product
      development and introduction; existing government regulations and changes in,
      or
      the failure to comply with, government regulations; adverse publicity;
      competition; the loss of significant customers or suppliers; fluctuations and
      difficulty in forecasting operating results; changes in business strategy or
      development plans; business disruptions; the ability to attract and retain
      qualified personnel; the ability to protect technology; and other factors
      referenced in this and previous filings.





Consequently,
      all of the forward-looking statements made in this Form 10-QSB are qualified
      by
      these cautionary statements and there can be no assurance that the actual
      results anticipated by management will be realized or, even if substantially
      realized, that they will have the expected consequences to or effects on our
      business operations. As used in this Form 10-QSB, unless the context requires
      otherwise, “we” or “us” or “Registrant” or the “Company” means China West Coal
      Energy Inc. and its subsidiaries.





A-3




**PART
      I - FINANCIAL INFORMATION**





**Item
      1.**  **Financial
      Statements**





CHINA
      WEST COAL ENERGY, INC. AND SUBSIDIARIES





CONSOLIDATED
      FINANCIAL STATEMENTS





FOR
      THE
      SIX MONTHS ENDED JUNE 30, 2007 AND 2006








CHINA
      WEST COAL ENERGY, INC. AND SUBSIDIARIES





INDEX
      TO
      FINANCIAL STATEMENTS




PagesConsolidated
                Balance Sheets
            
            
            F-2Consolidated
                Statements of Income (Operations) and Other Comprehensive
                Income
            
            
            F-3Consolidated
                Statements of Changes in Shareholders' Equity
            
            
            F-4Consolidated
                Statements of Cash Flows
            
            
            F-5Notes
                to Financial Statements
            
            
            F-6
                - F-23





F-1





**CHINA
      WEST COAL ENERGY, INC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF JUNE 30, 2007 AND DECEMBER 31, 2006**





June 30,
              2007
            
            December 31,
              2006(Unaudited)
            
            (Audited)**ASSETS****Current
                assets**Cash
                on hand and at bank
            
            $
            1,762,969
            
            $
            4,450,557Amounts
                due from directors (Note 16)
            
            
            116,683
            
            
            206,186Deposits
                and prepayments (Note 6)
            
            
            3,278,928
            
            
            1,830,769Other
                receivables
            
            
            3,292
            
            
            -Short
                term loan to related party (Notes 7,16)
            
            
            423,253
            
            
            411,970Discontinued
                operations (Note 12)
            
            
            2,488,580
            
            
            3,485,462**Total
                current assets**
            
            
            8,073,705
            
            
            10,384,944Property,
                plant and equipment, net (Note 8)
            
            
            2,391,561
            
            
            623,934Intangible
                assets , net (Note 9)
            
            
            2,122,743
            
            
            1,533,349**Total
                assets**
            
            $
            12,588,009
            
            $
            12,542,227**LIABILITIES
                AND SHAREHOLDERS' EQUITY****Current
                liabilities**Accrued
                expenses and other payables (Note 10)
            
            $
            347,202
            
            $
            372,125Amount
                due to a director (Note 16)
            
            
            102,568
            
            
            20,702Advance
                from customers
            
            
            597,831
            
            
            -Discontinued
                operations (Note 12)
            
            
            1,471,856
            
            
            2,366,631**Total
                current liabilities**
            
            
            2,519,457
            
            
            2,759,458**Minority
                Interest**
            
            
            87,123
            
            
            94,748Commitments
                and Contingencies (Note 17)**Shareholders'
                Equity**Preferred
                stock, $0.001 par value, 50,000,000 shares authorized, nil issued
                and
                outstanding
            
            
            -
            
            
            -Common
                stock, $0.001 par value, 200,000,000 shares authorized, 28,227,250
                issued
                and outstanding
            
            
            28,227
            
            
            28,227Additional
                paid-in capital
            
            
            9,209,629
            
            
            9,209,629Accumulated
                deficits
            
            
            (306,795
            )
            
            (330,456
            )Statutory
                reserves (Note 11)
            
            
            348,309
            
            
            348,309Accumulated
                other comprehensive income
            
            
            702,059
            
            
            432,312**Total shareholders' equity**
            
            
            9,981,429
            
            
            9,688,021**Total
                liabilities and shareholders' equity**
            
            $
            12,588,009
            
            $
            12,542,227





The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-2




**CHINA
      WEST COAL ENERGY, INC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME (OPERATIONS) AND OTHER COMPREHENSIVE
      INCOME**


**FOR
      THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2007 AND
      2006**




**Three
                months ended**
            
            **Six
                months ended****June
                30**
            
            **June
                30****2007**
            
            **2006**
            
            **2007**
            
            **2006****Unaudited**
            
            **Unaudited**
            
            **Unaudited**
            
            **Unaudited**Revenue
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            --
            
            
            -
            
            
            -
            
            
            -Costs
                of good sold
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Gross
                profit**
            
            
            -
            
            
            -
            
            
            -
            
            
            -Selling
                expenses
            
            
            494
            
            
            -
            
            
            1,780
            
            
            -General
                and administrative expenses
            
            
            81,249
            
            
            171,317
            
            
            132,911
            
            
            171,317Income
                from discontinued operations (Note 12)
            
            
            23,097
            
            
            478,068
            
            
            144,940
            
            
            974,185(58,646
            )
            
            306,751
            
            
            10,249
            
            
            802,868Other
                  income (expenses)


Interest
                income
            
            
            3,613
            
            
            9,952
            
            
            9,923
            
            
            12,316Sundry
                income (expenses)
            
            
            34,717
            
            
            47,236
            
            
            (6,602
            )
            
            30,011


Total
                other income (expenses)
            
            
            38,330
            
            
            57,188
            
            
            3,321
            
            
            42,327(Loss)
                income before provision for income taxes and minority
                interest
            
            
            (20,316
            )
            
            363,939
            
            
            13,570
            
            
            845,195Provision
                for income taxes
            
            
            -
            
            
            104,304
            
            
            -
            
            
            104,304Net
                (loss) income before minority interest
            
            
            (20,316
            )
            
            259,635
            
            
            13,570
            
            
            740,891Less
                Minority interest
            
            
            (5,735
            )
            
            -
            
            
            (10,091
            )
            
            -**Net
                (loss) income**
            
            
            (14,581
            )
            
            259,635
            
            
            23,661
            
            
            740,891**Other
                comprehensive income**Foreign
                currency translation adjustment
            
            
            192,260
            
            
            62,375
            
            
            269,747
            
            
            75,493**Comprehensive
                income**
            
            $
            177,679
            
            $
            322,010
            
            $
            293,408
            
            
            816,384**Weighted
                average number of shares**
            
            
            28,227,250
            
            
            28,227,250
            
            
            28,227,250
            
            
            28,227,250-Basic
                    and diluted**Earnings
                per share**-Basic
                    and diluted
            
            $
            (0.001
            )
            $
            0.009
            
            $
            0.001
            
            $
            0.026




The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-3


CHINA
      WEST COAL ENERGY, INC AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY


FOR
      THE
      SIX MONTHS ENDED JUNE 30, 2007 AND 2006





Number
              of
                shares
            
            Common
              stock
            
            Additional
                Paid-in
              capital
            
            Statutory
              capital
              reserves
            
            Statutory
              welfare
              reserves
            
            Retained
              earnings
            
            Accumulated
                other
              comprehensive
              income
            
            TotalsBALANCE,
                January 1, 2006 (audited)
            
            
            39,000,000
            
            $
            4,712,137
            
            $
            84,759
            
            $
            106,247
            
            $
            53,124
            
            $
            447,982
            
            $
            125,594
            
            $
            5,529,843Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            740,891
            
            
            -
            
            
            740,891Capital
                injection (at par $0.1208)
            
            
            31,000,000
            
            
            3,868,223
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,868,223Foreign
                currency translation gain
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            75,493
            
            
            75,493BALANCE,
                June 30, 2006 (unaudited)
            
            
            70,000,000
            
            $
            8,580,360
            
            $
            84,759
            
            $
            106,247
            
            $
            53,124
            
            $
            1,188,873
            
            $
            201,087
            
            $
            10,214,450Capital
                injection of subsidiaries
            
            
            -
            
            
            -
            
            
            572,737
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            572,737Exchange
                to share prior recapitalization
            
            
            (70,000,000
            )
            
            (8,580,360
            )
            
            8,580,360
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Capital
                acquired on capitalization (at par $0.001)
            
            
            2,712,000
            
            
            2,712
            
            
            (2,712
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancellation
                of share (at par $0.001)
            
            
            (1,154,350
            )
            
            (1,154
            )
            
            1,154
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Recapitalization
                (at par $0.001)
            
            
            26,669,600
            
            
            26,669
            
            
            (26,669
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,330,391
            )
            
            -
            
            
            (1,330,391
            )Transfer
                to reserve
            
            
            -
            
            
            -
            
            
            -
            
            
            125,959
            
            
            62,979
            
            
            (188,938
            )
            
            -
            
            
            -Foreign
                currency translation gain
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            231,225
            
            
            231,225BALANCE,
                December 31, 2006 (audited)
            
            
            28,227,250
            
            $
            28,227
            
            $
            9,209,629
            
            $
            232,206
            
            $
            116,103
            
            $
            (330,456
            )
            $
            432,312
            
            $
            9,688,021Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            23,661
            
            
            -
            
            
            23,661Foreign
                currency translation gain
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            269,747
            
            
            269,747BALANCE,
                June 30, 2007 (unaudited)
            
            
            28,227,250
            
            $
            28,227
            
            $
            9,209,629
            
            $
            232,206
            
            $
            116,103
            
            $
            (306,795
            )
            $
            702,059
            
            $
            9,981,429





The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-4




**CHINA
      WEST COAL ENERGY, INC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006**





For
                the six months ended
              June
                30,2007
            
            2006(Unaudited)
            
            (Unaudited)**Cash
                flows from operating activities:**Net
                income
            
            $
            23,661
            
            $
            740,891Adjustments
                to reconcile net income to cashprovided
                by (used in) operating activities:Minority
                Interest
            
            
            (10,091
            )
            
            -Net
                income from discontinued operations
            
            
            (144,940
            )
            
            (974,185
            )Depreciation
                and amortization
            
            
            53,017
            
            
            -(Increase)
                decrease in assets:Other
                receivables
            
            
            (2,300
            )
            
            -Deposit
                and prepayment
            
            
            (2,597,161
            )
            
            (352,706
            )Increase
                (decrease) in liabilities:Advance
                from customers
            
            
            590,318
            
            
            -Accrued
                expenses and other payable
            
            
            (34,540
            )
            
            (43,989
            )Net
                cash (used in) provided by discontinued operations
            
            
            231,014
            
            
            1,991,980Net
                cash (used in) provided by operating activities
            
            
            (1,891,022
            )
            
            1,361,991**Cash
                flows from investing activities:**Amount
                due from a director
            
            
            93,954
            
            
            5,982Purchase
                of property, plant and equipment
            
            
            (1,057,481
            )
            
            -Proceeds
                from sales of investments
            
            
            -
            
            
            344,300Net
                cash used in discontinued operations
            
            
            -
            
            
            (16,742
            )Net
                cash (used in) provided by investing activities
            
            
            (963,527
            )
            
            333,540**Cash
                flows from financing activities:**Amount
                due to a director
            
            
            80,277
            
            
            -Proceeds
                from injection additional paid in capital from subsidiary
            
            
            -
            
            
            3,863,220Net
                cash provided by financing activities
            
            
            80,277
            
            
            3,863,220Effect
                of foreign currency translation
            
            
            86,684
            
            
            28,474**Net
                (decrease) increase in cash and cash equivalents**
            
            
            (2,687,588
            )
            
            5,587,225Cash
                and cash equivalents, beginning of period
            
            
            4,450,557
            
            
            691,268Cash
                and cash equivalents, end of period
            
            $
            1,762,969
            
            $
            6,278,493





The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-5




**CHINA
      WEST COAL ENERGY INC. (FORMERLY ENDO NETWORKS, INC.)**


**AND
      SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006**





1.
            CORPORATION
                REORGANZATION AND BUSINESS
                ACTIVITIES





China
      West Coal Energy Inc. (formerly Endo Networks, Inc.) (the “Company”) was
      originally incorporated in Texas as “Discount Mortgage Services, Inc.” on July
      11, 2000 and in September 2001, the Company purchased Endo Networks, Inc.,
      a
      corporation incorporated in Ontario, Canada on January 11, 2001 (“Endo Canada”).
      In November 2001, the Company changed its name to Endo Networks, Inc. and was
      redomiciled to the State of Nevada in December 2002. Prior to the Share Exchange
      transaction described below, the Company conducted through, and all of the
      Company's assets were contained within, Endo Canada, in which conceptual and
      software development was ongoing for approximately two years by the Company
      founders, through ongoing contract relationships with software development
      companies.





The
      Company has incurred losses and has had substantial difficulty in maintaining
      necessary cash flows for proper operation for years. The Company also required
      additional investment in infrastructure to sustain and develop its business.
      The
      need could not be met by its current cash flows. In view of the foregoing lack
      of growth and the limited platform for its future growth, the Company's Board
      determined that it would be in the stockholders' best interests to sell its
      investment in Endo Canada to Mr. Peter B. Day, the Company's President, CEO
      and
      director.  The Company's Board believed that Mr. Day's knowledge of their
      operations would lead to an efficient and expeditious sale process.  An
      Asset and Share Purchase Agreement (the “Purchase Agreement”) by and between the
      Company and Mr. Day was approved by the Board and executed on June 26, 2006.
      The
      Company thus discontinued its operations as a result of this sale with effect
      from September 30, 2006.





On
      October 18, 2006, the Company entered into a definitive Share Exchange Agreement
      with Hangson Limited (“Hangson”), whereby the Company acquired all of the
      outstanding common stock of Hangson in exchange for newly issued shares of
      the
      Company's common stock to the Hangson shareholders (the “Share Exchange”). On
      October 20, 2006 (the “Closing Date”), Hangson became a wholly owned subsidiary
      and Hangson's shareholders became owners of the majority of the voting stock.
      The acquisition of Hangson by the Company was accounted for as a reverse merger
      and a recapitalization because on a post-merger basis, the former shareholders
      of Hangson held a majority of the Company's outstanding common stock on a voting
      and diluted basis. As a result, Hangson is deemed to be the acquirer for
      accounting purposes. From and after the Closing Date of the Share Exchange,
      the
      Registrant's primary operations will now consist of the operations of
      Hangson.




The
      principal subsidiaries/variable interest entities
      of the Company as of June 30, 2007 include the following:


Name
                  of subsidiaries /variable
                  interest entities
              Date
                  of incorporation
              Place
                  of incorporation
              Percentage
                  of effective ownershipHangson
                  Limited
              June
                  2, 2006
              The
                  British Virgin Islands
              100Shaanxi
                  Suo'ang Biological Science Technology Co., Ltd.
              August
                  26, 2002
              The
                  People's Republic of China
              100Shaanxi
                  Suo'ang New Energy Enterprise Company Limited
              June
                  12, 2006
              The
                  People's Republic of China
              80




F-6




1.
            CORPORATION
                REORGANZATION AND BUSINESS ACTIVITIES(CONT'D)


On
        August
        18, 2006, Hangson entered into various agreements with Shaanxi Suo'ang
        Biological Science Technology Co., Ltd. (“Shaanxi Suoang”). Through these
        contractual arrangements, Hangson has the ability to substantially influence
        Shaanxi Suoang's daily operations and financial affairs, appoint its senior
        executives and approve all matters requiring shareholder approval. As a result
        of these contractual arrangements, which obligates Hangson to absorb a majority
        of the risk of loss from Shaanxi Suoang activities, enables Hangson to control
        Shaanxi Suoang, and enables Hangson to receive a majority of Shaanxi Suoang's
        expected residual returns. Hangson is considered the primary beneficiary
        of
        Shaanxi Suoang and as a variable interest entity (“VIE”) under FASB
        Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest
        Entities, an Interpretation of ARB No. 51”. Accordingly, the Company
        consolidates Shaanxi Suoang's results, assets and liabilities in its financial
        statements. The Company's consolidated assets do not include any collateral
        for
        Shaanxi Suoang's obligations. The creditors of Shannxi Suoang do not have
        recourse to the general credit of the Company.


Hangson
      was incorporated under the laws of the British Virgin Islands on June 2, 2006.
      Hangson does not conduct any substantive operations of its own and conducts
      its
      primary business operations through its variable interest entity (“VIE”),
      Shaanxi Suoang. Shaanxi Suoang is engaged in the research, development,
      production, marketing and sales of coal-polymer (“COPO”) resin products
      including but not limited to, degradable mulch used for the conservation of
      moisture and warmth of soil and protection of the roots of plants, and materials
      used for plastic injection molding, electric wire covering, and garbage bags.
      Shaanxi Suoang is also engaged in the research, development, production and
      sale
      of coal-water mixture (“CMW”), which is a potential fuel substitute for coal,
      oil or gas. Since December 2006, Shaanxi Suoang ceased its operations in COPO
      products manufacturing and was planning to fully enter the business of
      manufacturing and selling CWM through its subsidiary Shaanxi Suo'ang New Energy
      Enterprise Company Ltd. (“New Energy”) in which Shaanxi Suoang owns an 80%
      equity interest. From January 2007, Shaanxi Suoang ceased its original operation
      in COPO products business and now acts as a holding company providing
      administrative and marketing support to New Energy.





On
      October 18, 2006, the Company executed a Share Exchange Agreement (the “Exchange
      Agreement”) by and between Hangson, and the stockholders of 100% of Hangson's
      common stock (the “Hangson Stockholders”), on the one hand, and the Company and
      a majority of the Company's stockholders, on the other hand.  The closing
      of this transaction (the “Closing”) occurred on October 20, 2006 (the “Closing
      Date”).





The
      Company affected a 1 for 5 reverse split of its common stock, which is effective
      as of October 17, 2006. The Company's Board of Directors approved the Reverse
      Split in June 2006 and a majority of its stockholders approved it at the annual
      shareholder meeting on September 5, 2006. The Company had a total of 2,712,000
      shares of common stock outstanding after the reverse split.





Under
      the
      Exchange Agreement, on the Closing Date, the Company issued a total of
      26,000,000 shares of the Company's Common Stock (the “Shares”) to Hangson
      Stockholders and to Viking Partners, Inc. (“Viking”), a consultant in this
      transaction, in exchange for 100% of the common stock of Hangson. Additionally,
      immediately prior to the Closing, Peter B. Day, the Company's former President,
      CEO and sole director voluntarily cancelled 715,500 (post 1-for-5 reverse split)
      shares of the 915,500 (post 1-for-5 reverse split) shares of the
      Company's common stock that he owns; and three of the Company's other
      shareholders also voluntarily cancelled a total of 438,850 (post 1-for-5 reverse
      split) shares of the Company's common stock that they own. Also pursuant to
      the
      Exchange Agreement, and as approved by a majority of the
      Company's shareholders, the Company split its common stock on a 1-for-5
      reverse basis (the “Reverse Split”) prior to the Closing Date. Further, prior to
      the Closing, the Company issued an additional 669,600 shares after the Reverse
      Split pursuant to certain anti-dilution provisions contained in
      agreements the Company had with two of the Company's consultants.
      After the share cancellations, the Reverse Split and the consultant
      anti-dilution share issuances, the Company had a total of approximately
      2,227,250 shares of common stock outstanding. After the Closing, the
      Company had 28,227,250 shares of common stock outstanding, with the Hangson's
      Stockholders owning approximately 85% of the Company's common stock,
      and with the balance of the Company's common stock held by those who
      held the Company's shares prior to the Share Exchange. In addition, at the
      Closing, Hangson paid the Company's creditors a total of US$500,000 for
      consulting services rendered, in order to satisfy certain obligations as set
      forth in the Exchange Agreement.


On
        January 4, 2007, the Company changed its name to “China West Coal Energy
        Inc.”.





F-7




1.
            CORPORATION
                REORGANZATION AND BUSINESS ACTIVITIES(CONT'D)





On
      June
      19, 2005, Shaanxi Suo'ang entered into an agreement to establish a subsidiary
      named Shaanxi SuoKe New Energy Enterprise Company Limited (“SuoKe”) together
      with a third party company named PengYuan Enterprise Company Ltd. (“PengYuan”)
      and Mr. Peng Zhou in which the Company invested $343,750 holding a 55% interest
      in SuoKe. The purpose for establishment of SuoKe was to carry out the operation
      of CWM. However, since the cooperation with PengYuan did not proceed as
      expected, the Company disposed of its investment in SuoKe and
      transferred its 55% interest in it to Mr. Peng Zhou. Based on an agreement
      signed between Peng Zhou and Shaanxi Suo'ang, the 55% investment in SuoKe
      was transferred to Mr. Peng Zhou at the cost in the amount of
      $343,750.





On
      May 8,
      2006, Shaanxi Suo'ang entered into an agreement to establish a subsidiary named
      Shaanxi Suo'ang New Energy Enterprise Company Limited (“Suo'ang New Energy”)
      together with Mr. Peng Zhou, in which Shaanxi Suo'ang has injected a capital
      of
      $496,000 representing an 80% equity interest in Suo'ang New Energy and Mr.
      Peng
      Zhou has injected $124,100 and representing an 20% equity interest in Suo'ang
      New energy. Suo'ang New Energy was formed for the purpose of engaging in the
      research, development, production and sale of “coal water mixture”, a fuel to
      substitute for coal, oil or gas. As of December 31, 2006, the plant was under
      construction and the Company commenced operations and production of CWM Fuel
      in
      August 2007.





2.
            GOING
                CONCERN AND MANAGEMENT'S PLANS





The
      accompanying financial statements have been prepared based on a going concern
      basis, which contemplates the realization of assets and the satisfaction of
      liabilities in the normal course of business. In December 2006, the Company
      ceased its COPO resin operation and is now principally engaged in research,
      development, production, marketing and sales of “coal-water mixture” business.
      The new business has just recently commenced operations and the Company may
      need
      additional financing to meet cash requirements for start up and to ensure
      continuity as a going concern.





The
      accompanying financial statements do not include any adjustments relating to
      the
      recoverability and classification of recorded amounts of assets or the amounts
      and classification of liabilities that might be necessary should the Company
      be
      unable to continue as a going concern. Management believes the Company's ability
      to continue as a going concern is dependent upon its ability to achieve and
      maintain profitable operations for the new business in 2007. The Company has
      already entered into sales contracts in respect of the “coal-water mixture”
business, which the management believes will generate sufficient cash
      flow to meet its obligations on a timely basis in the foreseeable
      future.




3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES





(a)
            Basis
                of presentation and
                consolidation





The
      accompanying consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in the United States of
      America.





The
      consolidated financial statements include the financial statements of the
      Company, Hangson and its variable interest entities, Shaanxi Suo'ang and its
      controlled subsidiary, Suo'ang New Energy. All significant inter-company
      transactions and balances among the Company, Hangson and its variable interest
      entities are eliminated upon consolidation.





By
      the
      end of the year, Shaanxi Suo'ang's main operation was discontinued and the
      assets were classified as assets held for sale and discontinued
      operation.




F-8




3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES(CONT'D)





(a)
            Basis
                of presentation and consolidation(Cont'd)


On
        September 15, 2005, the Company established a company named Shaanxi Suoke
        New
        Energy Industry Company Limited (“Shaanxi Suoke”) in which the Company injected
        a capital of $335,500 representing 55% equity interest in Shaanxi Suoke.
        Shaanxi
        Suoke was formed for the purpose of engaging in the research, development,
        production and sale of “coal water mixture”, a fuel to substitute for coal, oil
        or gas.
 
 However,
        since its establishment, Shaanxi Suoke has never commenced any operations.
        Nor
        has the Company gained any control of the board of Shaanxi Suoke. In addition,
        by a resolution on May 15, 2006, the Company sold the 55% equity interest
        of
        Shaanxi Suoke to one of the shareholders of Shaanxi Suoke, Mr. Peng
        Zhou.
 
 Statement
        of Financial Accounting Standards (“SFAS”) No. 94 “Consolidation of All
        Majority-Owned Subsidiary” requires that all majority-owned subsidiaries shall
        be consolidated except those where control is likely to be temporary or it
        does
        not rest with the majority owner. Accordingly, these financial statements
        do not
        consolidate Shaanxi Suoke for the six months ended June 30, 2006, because
        of the
        lack of ability to control Shaanxi Suoke. Results of Shannxi Suoke since
        its
        establishment to June 30, 2006 were immaterial.




(b)
            Use
                of estimates





The
      preparation of consolidated financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities,
      disclosure of contingent assets and liabilities at the date of the financial
      statements, and the reported amounts of revenues and expenses during the
      reporting period. Because of the use of estimates inherent in the financial
      reporting process, actual results could differ from those estimates. Significant
      estimates include estimates of accruals and determination of fair values for
      assets disposed.





(c)
            Accounts
                and other receivables





Accounts
      and other receivables are recognized and carried at original invoiced amount
      less an allowance for any uncollectible accounts.





The
      Company uses the aging method to estimate the valuation allowance for
      anticipated uncollectible receivable balances. Under the aging method, bad
      debts
      determined by management are based on historical experience as well as the
      current economic climate and are applied to customers' balances categorized
      by
      the number of months the underlying invoices have remained outstanding. The
      valuation allowance balance is adjusted to the amount computed as a result
      of
      the aging method. When facts subsequently become available to indicate that
      an
      adjustment to the allowance should be made, this is recorded as a change in
      estimate in the current year. As of June 30, 2007, accounts and other
      receivables were net of allowances of $Nil and $Nil, respectively. As of
      December 31, 2006, accounts and other receivables were net of allowances of
      $3,772 and $Nil, respectively.





F-9




3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES(CONT'D)




(d)
            Inventories





Inventories
      from the discontinued operations are stated at the lower of cost, as determined
      on a weighted average basis, or net realizable value. Costs of inventories
      include purchase and related costs incurred in bringing the products to their
      present location and condition.




(e)
            Property,
                plant and equipment




Property,
      plant and equipment are recorded at cost less accumulated depreciation and
      amortization. Gains or losses on disposals are reflected as gain or loss in
      the
      year of disposal. The cost of improvements that extend the life of plant,
      property and equipment are capitalized. These capitalized costs may include
      structural improvements, equipment and fixtures. All ordinary repair and
      maintenance costs are expensed as incurred.





Depreciation
      or amortization for financial reporting purposes is provided using the
      straight-line method over the estimated useful lives of the assets as
      follows:




Leasehold
                properties
            
            
            the
                shorter of the useful life or the lease termLeasehold
                improvements
            
            
            the
                shorter of the useful life or the lease termPlant
                and machinery
            
            
            10
                yearsOffice
                equipment
            
            
            5
                yearsMotor
                vehicles
            
            
            3
                years




(f)
            Construction
                in progress





Construction
      in progress includes direct costs of factory buildings. Construction in progress
      is not depreciated until such time as the assets are completed and put into
      operational use.





(g)
            Prepaid
                land use rights





Prepaid
      land use right is amortized over the term of 50 years.





(h)
            Impairment





The
      Company accounts for impairment of long-lived assets including property, plant
      and equipment, and amortizable intangible assets in accordance with SFAS
      No.144, *Accounting for the Impairment or Disposal of Long-Lived Assets* ,
      which
      requires an impairment loss to be recognized when the carrying amount of a
      long-lived asset or asset group exceeds its fair value and is not recoverable
      (when carrying amount exceeds the gross, undiscounted cash flows from use and
      disposition). The impairment loss is measured as the excess of the carrying
      amount over the asset's (or asset group's) fair value.





(i)
            Comprehensive
                income





SFAS
      No.
      130, *Reporting Comprehensive Income* ,
      requires disclosure of all components of comprehensive income and loss on an
      annual and interim basis. Comprehensive income and loss is defined as the change
      in equity of a business enterprise during a period from transactions and other
      events and circumstances from non-owner sources. The Company had accumulated
      other comprehensive income of $702,059 and $201,087 for the periods ended June
      30, 2007 and 2006, respectively. The other comprehensive income arose from
      the
      changes in foreign currency exchange rate.




F-10





3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES(CONT'D)




(j)
            Fair
                value of financial instruments





The
      Company believes that the carrying values of its cash and cash equivalents,
      other receivables and other payables as of June 30, 2007 approximate to their
      respective fair values due to the short-term nature of those
      instruments.





(k)
            Revenue
                recognition





Revenues
      of the Company include COPO resin product sales which have been classified
      as
      discontinued operations. Sales are recognized when the following four revenue
      criteria are met: persuasive evidence of an arrangement exists, delivery has
      occurred, the selling price is fixed or determinable, and collectibility is
      reasonably assured. Revenues are presented net of value added tax (VAT). No
      return allowance is made as products are normally not returnable upon acceptance
      by the customers.





(l)
            Advertising
                expenses





Advertising
      expenses are expensed to operations in the period incurred.





(m)
            Research
                and development costs




Research
      and development costs are expensed to operations as incurred.


(n)
              Earnings
                  per share
  Basic
        earnings per share (“EPS”) is computed by dividing income available to common
        shareholders by the weighted average number of common shares outstanding
        for the
        period.
  (o)
              Income
                  taxes
  The
        Company accounts for income taxes in accordance with SFAS No. 109, *Accounting for Income Taxes* .
        SFAS
        No. 109 requires an asset and liability approach for financial accounting
        and
        reporting for income taxes and allows recognition and measurement of deferred
        tax assets based upon the likelihood of realization of tax benefits in future
        years. Under the asset and liability approach, deferred taxes are provided
        for
        the net tax effects of temporary differences between the carrying amounts
        of
        assets and liabilities for financial reporting purposes and the amounts used
        for
        income tax purposes. A valuation allowance is provided for deferred tax assets
        if it is more likely than not these items will either expire before the Company
        is able to realize their benefits, or that future deductibility is
        uncertain.


F-11




3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES(CONT'D)


(p)
              Foreign
                  currency translation
  The
        reporting currency of the Company is the United States Dollars. All assets
        and
        liabilities accounts have been translated into United States Dollars using
        the
        current exchange rate at the balance sheet date. Capital stock is recorded
        at
        historical rates. Revenue and expenses are translated using the average exchange
        rate in the period. The resulting gain and loss has been reported as other
        comprehensive income (loss) within the shareholder's equity.
 
 (q)
              Related
                  parties
 
 Parties
        are considered to be related to the Company if the parties, directly or
        indirectly, through one or more intermediaries, control, are controlled by,
        or
        are under common control with the Company. Related parties also include
        principal owners of the Company, its management, members of the immediate
        families of principal owners of the Company and its management and other
        parties
        with which the Company may deal if one party controls or can significantly
        influence the management or operating policies of the other to an extent
        that
        one of the transacting parties might be prevented from fully pursuing its
        own
        separate interests. A party which can significantly influence the management
        or
        operating policies of the transacting parties or if it has an ownership interest
        in one of the transacting parties and can significantly influence the other
        to
        an extent that one or more of the transacting parties might be prevented
        from
        fully pursuing its own separate interests is also a related party.
  (r)
              Recently
                  issued accounting
                  pronouncements
  In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
        Hybrid Financial Instruments” (“SFAS 155”). This Statement amends FASB
        Statements No. 133, “Accounting for Derivative Instruments and Hedging
        Activities”, and No. 140, “Accounting for Transfers and Servicing of
        Financial Assets and Extinguishments of Liabilities”. This Statement resolves
        issues addressed in Statement 133 Implementation Issue No. D1, “Application
        of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS
        No. 155 permits fair value remeasurement for any hybrid financial
        instrument that contains an embedded derivative that otherwise would require
        bifurcation, clarifies which interest-only strips and principal-only strips
        are
        not subject to the requirements of Statement 133, and establishes a requirement
        to evaluate interests in securitized financial assets to identify interests
        that
        are freestanding derivatives or that are hybrid financial instruments that
        contain an embedded derivative requiring bifurcation. It also clarifies that
        concentrations of credit risk in the form of subordination are not embedded
        derivatives and amends Statement 140 to eliminate the prohibition on a
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This Statement is effective for all financial instruments acquired
        or issued after the beginning of an entity's first fiscal year that begins
        after
        September 15, 2006. The Company has not yet determined the impact of the
        adoption of SFAS No. 155 on its financial statements, if any.


F-12





3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES(CONT'D)


(r)
              Recently
                  issued accounting pronouncements(Cont'd)




In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“SFAS 156”). This Statement amends FASB Statement No. 140, Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities, with respect to the accounting for separately recognized servicing
      assets and servicing liabilities. This Statement requires an entity to recognize
      a servicing asset or servicing liability each time it undertakes an obligation
      to service a financial asset by entering into a servicing contract in indicated
      situations; requires all separately recognized servicing assets and servicing
      liabilities to be initially measured at fair value, if practicable; permits
      an
      entity to choose relevant subsequent measurement methods for each class of
      separately recognized servicing assets and servicing liabilities; at its initial
      adoption, permits a one-time reclassification of available-for-sale securities
      to trading securities by entities with recognized servicing rights, without
      calling into question the treatment of other available-for-sale securities
      under
      Statement 115, provided that the available-for-sale securities are identified
      in
      some manner as offsetting the entity's exposure to changes in fair value of
      servicing assets or servicing liabilities that a servicer elects to subsequently
      measure at fair value; and requires separate presentation of servicing assets
      and servicing liabilities subsequently measured at fair value in the statement
      of financial position and additional disclosures for all separately recognized
      servicing assets and servicing liabilities. The Company has determined that
      the
      adoption of SFAS No. 156 did not have a material impact on its Consolidated
      Financial Statements.





The
      FASB
      issued FASB Interpretation No.(“FIN”) 48, “Accounting for Uncertainty in Income
      Taxes,” in June 2006 .This interpretation establishes new standards for the
      financial statement recognition, measurement and disclosure of uncertain tax
      positions taken or expected to be taken in income tax returns. The new rules
      will be effective for the Company in the first quarter of 2008. The Company
      does
      not anticipate that the adoption of this standard will have a
      material effect on its financial statements.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) 108,
“Considering the Effects of Prior Year Misstatements when quantifying
      misstatements in Current Year Financial Statements,” which eliminated the
      diversity in practice surrounding the quantification and evaluation of financial
      statement errors. The guidance outlined in SAB 108 is effective for the Company
      and is consistent with its historical practices for assessing such matters
      when circumstances have required such an evaluation.
      Accordingly, the Company does not believe that the adoption of
      SAB 108 will have any impact on its financial statements.




In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", (“SFAS
      157”), to define fair value, establish a framework for measuring fair value in
      accordance with generally accepted accounting principles and expand disclosures
      about fair value measurements. SFAS 157 requires quantitative disclosures using
      a tabular format in all periods (interim and annual) and qualitative disclosures
      about the valuation techniques used to measure fair value in all annual periods.
      The provisions of this Statement shall be effective for financial statements
      issued for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years. The Company will be required to adopt the provisions
      of this statement as of January 1, 2008. The Company is currently evaluating
      the
      impact of adopting SFAS 157.





In
      September 2006, the FASB issued Statement No. 158, “Employers' Accounting for
      Defined Benefit Pension and Other Postretirement Plans - An amendment of FASB
      Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This Statement enhances
      disclosure regarding the funded status of an employer's defined benefit
      postretirement plan by (a) requiring companies to include the funding status
      in
      comprehensive income, (b) recognize transactions and events that affect the
      funded status in the financial statements in the year in which they occur,
      and
      (c) at a measurement date of the employer's fiscal year-end. Statement No.
      158
      effective for fiscal years ending after December 15, 2008, and is not expected
      to apply to the Company.





In
      February 2007, FASB issued SFAS No. 159, "The Fair Value Option for Financial
      Assets and Financial Liabilities Including an Amendment of FASB Statement No.
      115" (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial
      instruments and certain other items at fair values. SFAS 159 is effective
      for fiscal years after November 15, 2007. The Company is currently evaluating
      the impact of adopting SFAS 159 on its financial statements.




F-13




4.
            CONCENTRATION
                OF CREDIT RISK





(a)
            Financial
                instruments that potentially expose the Company to concentrations of
                credit risk, consist of cash and cash equivalents and accounts receivable
                arising from discontinued business. The Company performs ongoing
                evaluations of their cash position and credit evaluations to ensure
                collections and minimize losses.




(b)
            As
                of June 30, 2007 and December 31, 2006, the Company's bank deposits
                were
                all placed with banks in the PRC where there is currently no rule
                or
                regulation in place for obligatory insurance of bank
                accounts.




(c)
            For
                the periods ended June 30, 2007 and 2006, all of the Company's sales
                arose
                in the PRC and were generated by the discontinued operation. All
                accounts
                receivable as of June 30, 2007 and December 31, 2006 also arose in
                the PRC
                generated from the discontinued
                operation




(d)
            Details
                of the customers accounting for 10% or more of total sales for the
                periods
                ended June 30, 2007 and 2006 are as
                follows:





Periods
                ended June 30,2007
            
            2006Company
                A
            
            $
            -
            
            $
            181,339Company
                B
            
            
            -
            
            
            144,105Company
                C
            
            
            -
            
            
            90,283Company
                D
            
            
            -
            
            
            85,450





The
      accounts receivable from the three customers with the largest receivable balance
      represents 70% of the balance of the account at June 30, 2006. Since these
      accounts receivable originated from the COPO resin business, which
      was discontinued in 2007, part of these amounts have been reclassified
      to discontinued operations.




5.
            CURRENT
                VULNERABILITY DUE TO CERTAIN
                CONCENTRATIONS





The
      Company's operations are all carried out in the PRC. Accordingly, the Company's
      business, financial condition and results of operations may be influenced by
      the
      political, economic and legal environments in the PRC, and by the general state
      of the PRC's economy.





The
      Company's operations in the PRC are subject to specific considerations and
      significant risks not typically associated with companies in the North America
      and Western Europe. These include risks associated with, among others, the
      political, economic and legal environments and foreign currency exchange. The
      Company's results may be adversely affected by changes in governmental policies
      with respect to laws and regulations, anti-inflationary measures, currency
      conversion and remittance abroad, and rates and methods of taxation, among
      other
      things.




F-14





6.
            DEPOSITS
                AND PREPAYMENT





Deposits
      and prepayment consist of the following,





June
                30,
              2007
            
            December
                31,
              2006Advance
                to suppliers
            
            $
            2,632,168
            
            $
            -Prepayment
                for construction in progress
            
            
            645,401
            
            
            1,827,932Rental
                deposit
            
            
            -
            
            
            1,902Others
            
            
            1,359
            
            
            935$
            3,278,928
            
            $
            1,830,769




7.
            INTEREST
                BEARING LOAN TO A RELATED PARTY





An
      interest-bearing loan has been lent to a related company, Shaanxi Hanzhong
      New
      Century Real Estate Company Limited which was controlled by a shareholder,
      Mr. Yang Feng. The loan was lent with a term of five years from November 5,
      2002
      to November 5, 2007 and bears interest at 7.2% per annum. A majority shareholder
      of the Shaanxi Suo'ang, Shaanxi Hanzhong Blue Tide Costumes Group Corporation
      Limited, guaranteed the repayment of this loan with all of its assets and issued
      a commitment letter to Shaanxi Suo'ang. According to a supplement agreement
      signed between both parties and witnessed by a PRC lawyer, the loan is repayable
      in one lump sum in 2007.




8.
            PROPERTY,
                PLANT AND EQUIPMENT





Property,
      plant and equipment consists of the following,





June
                30,
              2007
            
            December
                31,
              2006Construction
                in progress
            
            $
            99,006
            
            $
            579,610Office
                equipment
            
            
            62,081
            
            
            57,771Motor
                vehicles
            
            
            122,900
            
            
            119,624Buildings
            
            
            723,484
            
            
            -Plant
                and machinery
            
            
            1,527,930
            
            
            -2,535,401
            
            
            757,005Less:
                Accumulated depreciation
            
            
            (143,840
            )
            
            (133,071
            )$
            2,391,561
            
            $
            623,934




Construction
      in progress included above was the construction of buildings, production lines
      and machinery for the “coal-water mixture” business. The construction work
      commenced in June 2006 and the first phase was completed in June 2007. The
      plant
      became operational in August 2007.





The
      depreciation expenses on property, plant and equipment for the six months ended
      June 30, 2007 and 2006 were $10,769 and $30,554, respectively.





F-15





9.
            Prepaid
                  land use right





Intangible
      assets consist of the following as of,





June
                30,
              2007
            
            December
                31,
              2006Prepaid
                  land use right
            
            $
            2,137,982
            
            $
            1,547,192Accounting
                software
            
            
            961
            
            
            1,8322,138,943
            
            
            1,549,024Less:
                Accumulated amortization
            
            
            (16,200
            )
            
            (15,675
            )$
            2,122,743
            
            $
            1,533,349


The
        Company had obtained a land use right for 50 years on a piece of land located
        at
        Yao Zhou Ou, PRC. The Company is in the process of obtaining the land use
        right
        certificate. Management expects that the application will be completed in
        September 2007 and expects that there should be no legal barriers for the
        Company to obtain the land use right certificate.
  Accordingly,
        no provision has been made on possible losses in case the Company fails to
        obtain the land use right certificate. The
        amortization expense on intangible assets for the periods ended June 30,
        2007
        and the year ended December 31 2006 were $525 and $24,253, respectively.
        For
        each of the next five years, annual amortization expense on the land use
        rights
        and accounting software will be $32,400 and $366, respectively.


10.
            ACCRUED
                EXPENSES AND OTHER PAYABLES





Accrued
      expenses and other payables consist of the following as of,





June
                30,
              2007
            
            December
                31,
              2006Accrued
                operating expenses
            
            $
            220,154
            
            $
            235,769Accrued
                staff welfare
            
            
            57,368
            
            
            52,993Other
                payable
            
            
            69,680
            
            
            68,363$
            347,202
            
            $
            357,125




11.
            STATUTORY
                RESERVES





As
      stipulated by the PRC's Company Law, net income after taxation can only be
      distributed as dividends after appropriation has been made for the
      following:




(a)
            Making
                up cumulative prior years' losses, if
                any;  (b)
            Allocations
                to the “Statutory capital reserve” of at least 10% of income after tax, as
                determined under PRC accounting rules and regulations, until the
                fund
                amounts to 50% of the Company's registered capital. This is restricted
                to
                set off against losses, expansion of production and operation or
                increase
                in registered capital; and  (c)
            Allocations
              of 5-10% of income after tax, as determined under PRC accounting rules
              and
              regulations, to the Company's “Statutory common welfare fund”. This is
              restricted to capital expenditure for the collective benefits of the
              Company's employees; and  (d)
            Allocations
                to the discretionary surplus reserve, if approved in the shareholders'
                general meeting.





F-16




11.
            STATUTORY
                RESERVES(CONT'D)





Statutory
      reserves consist of the following as of,





June
                30,
              2007
            
            December
                31,
              2006Statutory
                capital reserve
            
            $
            232,206
            
            $
            232,206Statutory
                common welfare fund
            
            
            116,103
            
            
            116,103$
            348,309
            
            $
            348,309




12.
            DISCONTINUED
                OPERATIONS




(a)
            Assets
                of discontinued operation consist of the followings as
                of,




June
                30,
              2007
            
            December
                31,
              2006**ASSETS****Current
                Assets**Accounts
                receivable, amounted to $Nil and $754,407 net of allowances for doubtful
                accounts of $Nil and $3,772, as of June 30, 2007 and December 31,
                2006,
                respectively
            
            $
            -
            
            $
            750,635Patent
                and machineries transfer receivable
            
            
            137,794
            
            
            256,200Other
                receivable
            
            
            -
            
            
            39,071Assets
                held for sale (Note 13)
            
            
            2,350,786
            
            
            2,439,556$
            2,488,580
            
            $
            3,485,462




Patent
      and machineries transfer receivable represents the amount receivable for
      the disposal of patent and machineries.





June
                30,
              2007
            
            December
                31,
              2006**LIABILITIES****Current
                Liabilities**Accounts
                payable
            
            $
            -
            
            $
            864,787Deposits
                on property held for resale
            
            
            1,447,692
            
            
            1,409,100Taxes
                payable
            
            
            24,164
            
            
            92,744Others
            
            
            
            
            
            -****
            
            $
            1,471,856
            
            
            2,366,631





F-17




12.
            DISCONTINUED
                OPERATIONS(CONT'D)





(b)
            Results
                of discontinued operations consist of the following for the six months
                ended,




June
                30,
              2007
            
            June
                30,
              2006**Revenue**
            
            $
            4,983
            
            $
            3,913,102Cost
                of goods sold
            
            
            4,730
            
            
            2,929,615**Gross
                profit**
            
            
            253
            
            
            983,487**Operating
                expenses**Selling
                expenses
            
            
            -
            
            
            154,314General
                and administrative expenses
            
            
            -
            
            
            -**Income
                from discontinued operations**
            
            
            253
            
            
            829,173**Other
                income**Rental
                income, net of outgoings
            
            
            144,687
            
            
            145,012**Income
                from discontinued operations before income taxes**
            
            
            144,940
            
            
            974,185Provision
                for income taxes
            
            
            -
            
            
            -**Net
                income from discontinued operations**
            
            $
            144,940
            
            $
            974,185




(c)
            Cash
                flows from of discontinued operations consist of the following for
                the six
                months ended:




June
                30,
              2007
            
            June
                30,
              2006**Cash
                flows from discontinued operations**Net
                income
            
            $
            144,940
            
            $
            974,185Adjustments
                to reconcile net income to net cash provided by (used in) discontinued
                operations:Depreciation
                and amortization
            
            
            -
            
            
            141,011Change in operating assets and liabilities:(Increase)
                decrease in:Accounts receivable, trade
            
            
            765,329
            
            
            (61,988
            )Other
                receivables, deposits and prepayments
            
            
            254,452
            
            
            77,166Inventories
            
            
            13,826
            
            
            20,659Increase
                (decrease) in:Accounts
                payable
            
            
            (877,307
            )
            
            322,053Accrued
                expenses and other payable
            
            
            -
            
            
            (20,952
            )Deposit
                held for sale
            
            
            -
            
            
            500,800Taxes payable
            
            
            (70,226
            )
            
            39,046Net
                cash provided by discontinued operations
            
            $
            231,014
            
            $
            1,991,980




13.
            ASSETS
                HELD FOR SALE





Assets
      held for sale consist of the following as of,





June
                30,
              2007
            
            December
                31,
              2006Leasehold
                properties and leasehold improvements (Note a)
            
            $
            2,350,786
            
            $
            2,334,934Machinery
                (Note b)
            
            
            -
            
            
            89,670Inventory
                (Note c)
            
            
            -
            
            
            14,952$
            2,350,786
            
            $
            2,439,556




F-18





13.
            ASSETS
                HELD FOR SALE(CONT'D)





(a)
            *Leasehold
                  property and leasehold
                  improvements*





Leasehold
      property and leasehold improvements consist of the following as of,





June
                30,
              2007
            
            December
                31,
              2006Cost
            
            $
            2,613,763
            
            $
            2,544,085Accumulated
                depreciation
            
            
            (262,977
            )
            
            (209,151
            )$
            2,350,786
            
            $
            2,334,934




During
      the year 2004, the Company exchanged leasehold properties consisting of three
      floors in a commercial building and having a net book value of $1,691,555 for
      other leasehold properties also consisting of three floors in the same building
      and having a fair value of $1,773,697. The terms of the exchange also required
      the Company to pay cash of $501,205. The Company accounts for the cash component
      as an acquisition of real estate, and the nonmonetary component based on the
      recorded amount of $1,691,555 of the leasehold properties given up.





On
      June
      13, 2006, the Company signed a property transfer agreement with a related
      company, Han Zhong Si Xiong Ke Chuang Commercial Company Ltd., which is
      controlled by the shareholder of the Company, Mr. Yanjun Zhao, to dispose the
      leasehold properties together with the leasehold improvement at a cash
      consideration of approximately $2,450,000 which is $120,000 lower then the
      evaluated value according to an appraisal report issued by Xi'An Zheng Heng
      Assets Valuation Company Ltd. As such, there was gain on disposal of the
      property and leasehold improvements of $115,066. According to the agreement,
      the
      cash consideration would be settled by installment with the last installment
      on
      or before June 30, 2007 and the title of the property will be passed to the
      buyer upon receipt of the 95% of the total consideration paid to the Company.
      As
      of December 31, 2006, an amount of $1,409,100 has been received by the Company
      and recorded as deposits on property held for resale.


On
        March
        25, 2007, the Company and the buyer entered into a supplementary agreement
        whereby the Company agreed to transfer the title of the properties to the
        buyer
        when the buyer pays the remaining balance of approximately $1,040,900 on
        or
        before May 31, 2007. On June 21, 2007, the Company and the buyer entered
        into an
        extension agreement whereby the Company extended the date for payment of
        the
        remaining balance and transfer of the title of properties to the buyer to
        on or
        before October 31, 2007.




The
      depreciation expense on property and leasehold improvement for the periods
      ended
      June 30, 2007 and 2006 were $53,826 and $89,670, respectively.





(b)
            *Machinery*





Machinery
      consist of the following as of,





June
                30,
              2007
            
            December
                31,
              2006Cost
            
            $
            -
            
            $
            324,086Impairment
            
            
            -
            
            
            (170,166
            )Accumulated
                depreciation
            
            
            -
            
            
            (64,250
            )$
            -
            
            $
            89,670





In
      2007,
      the Company and the buyer entered into an agreement whereby the Company agreed
      to sell the machinery to a related company, HanZhongWeiDa Commercial Company
      Limited which controlled by LePing Yao, a shareholder of Shaanxi Suoang at
      a
      consideration of $89,670.




F-19




13.
            ASSETS
                HELD FOR SALE(CONT'D)




(b)
            *Machinery**(Cont'd)*





The
      depreciation expense on machinery for the periods ended June 30, 2007 and 2006
      were $Nil and $30,554 respectively.





(c)
            *Inventories*





Inventories
      consist of the following as of,





June
                30,
            
            December
                31,2007
            
            2006Raw
                materials
            
            $
            -
            
            $
            7,608Finished
                goods
            
            
            -
            
            
            5,244Packing
                materials
            
            
            -
            
            
            229Consumables
            
            
            -
            
            
            1,871$
            -
            
            $
            14,952




In
        2007,
        the Company sold all inventories to unrelated third parties.





14.
            INCOME
                TAXES





Companies
      in the PRC are generally subject to PRC Enterprise Income Taxes at a statutory
      rate of 33% (30% of national income tax plus 3% local income tax) on the net
      income. However, Shaanxi Suoang has been approved as a “high and new technology
      enterprise” and under PRC Income Tax Laws, it is entitled to a preferential tax
      rate of 15% upon expiry of a two year's tax holiday for 2004 and 2005, within
      which no income taxes were being charged. Shaanxi Suoang is subject to the
      income tax from 2006. For the year ended December 31, 2006, income tax expenses
      were $214,482, and such expenses were all related to the discontinued
      operations. Another PRC subsidiary, Suo'ang New Energy has only been newly
      established and carried no operations in year 2006. During the year, Suo'ang
      New Energy had no income and no income tax liability.




The
      Company and Hangson are not subject to any income taxes as the companies had
      no
      income for the periods ended June 30, 2007 and 2006.




The
      following table reconciles the U.S. statutory rates to the Company's effective
      tax rate:





June
                30,
              2007
            
            June
                30,
              2006U.S.
                statutory rate
            
            
            34.00
            %
            
            34.00
            %Foreign
                income not recognized in the U.S.
            
            
            (34.00
            %)
            
            (34.00
            %)China
                preferential income tax rate
            
            
            15.00
            %
            
            15.00
            %Effective
                tax rate
            
            
            15.00
            %
            
            15.00
            %




No
      significant deferred tax liabilities or assets existed as of either June 30,
      2007 or December 31, 2006.




F-20




15.
            EARNINGS
                PER SHARE





Basic
      earnings per share (EPS) for the periods ended June 30, 2007 and 2006 were
      determined by dividing net income for the years by the weighted average number
      of common shares outstanding. The weighted average number of common shares
      outstanding was adjusted to account for the effects of the share exchange
      transaction as a reverse acquisition as more fully described in Note
      1.





The
      Company has retroactively adjusted the weighted average number of common shares
      outstanding by deeming that the one-for-five (1:5) reverse stock split during
      the year had occurred as of the beginning of the earliest period
      presented.





The
      reconciliations of the denominators of the basic and diluted EPS computations
      are as follows:





June
                30,
              2007
            
            June
                30,
              2006Denominator
                for Basic EPS
            
            
            28,227,250
            
            
            28,227,250Weighted
                average effect on denominator for Basic EPS
            
            
            28,227,250
            
            
            28,227,250




16.
            RELATED
                PARTY TRANSACTIONS




(a)
            *Related
                party receivables and
                payables*





Amounts
      receivable from a related party and directors are summary as follows as
      of:





June
                30,
            
            December
                31,2007
            
            2006Loan
                to a related partyShaanxi
                Hanzhong New Century Real Estate Company Limited (see Note
                7)Principal
            
            $
            394,825
            
            $
            384,300Interest
                receivable
            
            
            28,428
            
            
            27,670$
            423,253
            
            $
            411,970Amounts
                due from directorsMr.
                Baowen Ren, also a shareholder of the Company
            
            $
            53,511
            
            $
            144,698Mr.
                Peng Zhou, also a shareholder of the Company
            
            
            63,172
            
            
            61,488$
            116,683
            
            $
            206,186Amount
                due to a directorMr.
                Peng Zhou, also a shareholder of the Company and Suoang New
                Energy
            
            $
            102,568
            
            $
            20,702





Balance
      with Shaanxi Hanzhong New Century Real Estate Company Limited represented an
      interest bearing loan which is fully described in Note 7.


Balances
        with Mr. Baowen Ren represents cash advances by the Company. This
        balance is interest free and unsecured and has no fixed repayment dates. It
        is expected that the balances will be received or repaid within one
        year.
 
 Amount
        due from Mr. Peng Zhou represents cash advance by Shaanxi Suo’ang. This
        balance is interest free and unsecured and has no fixed repayment dates. It
        is expected that the balances will be received or repaid within one
        year.
  Amount
        due to Mr. Peng Zhou represents cash advance
        by Mr. Peng Zhou to Su'ang New Energy. This balance is interest free and
        unsecured and has no fixed repayment dates.




F-21




16.
            RELATED
                PARTY TRANSACTIONS(CONT'D)





(b)
            *Guarantee
                given by a shareholder*





A
      majority shareholder of Shaanxi Suoang, Shaanxi Hanzhong Blue Tide Costumes
      Group Corporation Limited, has guaranteed the repayment of the long-term
      interest bearing loan advanced to a related company, Shaanxi Hanzhong New
      Century Real Estate Company Limited, controlled by Mr. Yang Feng as more fully
      described in Note 7 and above.





(c)
            *Transfer
                of property*





On
      June
      13, 2006, the Company signed a property transfer agreement with a related
      company, HanZhong SiXiong KeChuang Commercial Company Ltd., which is controlled
      by the shareholder of the Company, Mr. Yanjun Zhao, to dispose the leasehold
      properties together with the leasehold improvement at the cash consideration
      of
      approximately $2,450,000. The title of the property will only be transferred
      until payment of 95% consideration as more fully described in Note
      13.




17.
            COMMITMENTS
                AND CONTINGENCIES





(a)
            *Capital
                expenditure commitments*





During
      the fiscal year 2006, the Company entered into various contracts for the
      construction of a new plant for its coal water mixture business. Furthermore,
      the Company also entered into several contracts to purchase
      machinery.





The
      Company's commitments for capital expenditure as of June 30, 2007 are as
      follows:





Contracted
                but not accrued for:Purchase
                of machineries
            
            $
            282,897








(b)
            *Operating
                lease commitments*





As
      of
      June 30, 2007, the Company's total future minimum lease payments under
      non-cancelable operating leases to be paid in each of the five succeeding years
      are as follows:





Years
                ending December 31,2007
            
            $
            4,9842008
            
            
            4,9842009
            
            
            1,6612010
                and thereafter
            
            
            -Total
                Operating Lease Commitments
            
            $
            11,629





F-22





17.
            COMMITMENTS
                AND CONTINGENCIES(CONT'D)




(c)
            *Real
                  estate title certificate of the leased
                  property*


According
        to relevant PRC laws and regulations, a land use right certificate, along
        with
        government approvals on land planning, project planning, and construction
        need
        to be obtained before construction of building commented. The real estate
        title
        certificate of the leased property can only be applied after the land use
        right
        certificate is available and the other approvals are obtained.
 
 For
        the
        properties and leasehold improvements held for resale on the discontinued
        operations stated at cost of $2,350,786 (see note 13), the Company has not
        yet
        obtained the real estate title certificate. The land use certificate has
        been
        obtained together with other required approval by the developer who is in
        the
        course of applying for the transfer of title of the leased property.
 
 In the
        event that the Company fails to obtain the real estate title certificate,
        the building may need to be vacated and cannot be resold. Management believes
        that there is no legal barrier to obtain the real estate ownership certificate
        and the possibly of having to vacate the building and the restriction of
        resale
        of the leased property is very remote. Accordingly, no provision has been
        made
        in the financial statement for this potential occurrence.


(d)
            *Social
                insurance of Employees*





According
      to the prevailing laws and regulations of the PRC, the Company is required
      to
      cover its employees with medical, retirement and unemployment insurance
      programs. Management believes that due to the transient nature of its employees,
      the Company does not need to provide all employees with such social
      insurance.





In
      the
      event that any current or former employee files a complaint with the PRC
      government, the Company may be subject to making up the social insurance as
      well
      as administrative fines. As the Company believes that these fines would not
      be
      material, no provision has been made in this regard.


18.
              SUBSEQUENT
                  EVENT
  (a)
              *Stock
                  split*
 
 On
        August
        3, 2007, the directors approved a 3 for 1 stock split of the issued and
        outstanding common stock held by the shareholders as of August
        15, 2007.
 
 (b)
              *Merger*
  The
        Company set up a new wholly owned subsidiary, Sino Clean Energy Inc. on July
        31,
        2007 and resolved to merge with this subsidiary as on August 15, 2007 with
        the
        Company as the surviving entity.
 
 (c)
              *Change
                  of name*
  Effective
        August 15, 2007, the Company will change its name to Sino Clean Energy
        Inc.





F-23


**Item
      2.**  **Management’s
      Discussion and Analysis or Plan of Operation.**





*The
      following management’s discussion and analysis should be read in conjunction
      with our consolidated financial statements and the notes thereto and the other
      financial information appearing elsewhere in this item. In addition to
      historical information, the following discussion contains certain
      forward-looking statements within the “safe harbor” provisions of the Private
      Securities Litigation Reform Act of 1995. These statements relate to our future
      plans, objectives, expectations and intentions. These statements may be
      identified by the use of words such as “may”, “will”, “could”, “expect”,
“anticipate”, “intend”, “believe”, “estimate”, “plan”, “predict”, and similar
      terms or terminology, or the negative of such terms or other comparable
      terminology. Although we believe the expectations expressed in these
      forward-looking statements are based on reasonable assumptions within the bound
      of our knowledge of our business, our actual results could differ materially
      from those discussed in these statements. Factors that could contribute to
      such
      differences include, but are not limited to, those discussed in the “Risk
      Factors” section of this Quarterly Report on Form 10-QSB. We undertake no
      obligation to update publicly any forward-looking statements for any reason
      even
      if new information becomes available or other events occur in the future.*





*Our
      financial statements are prepared in US Dollars and in accordance with
      accounting principles generally accepted in the United States. See “Exchange
      Rates” below for information concerning the exchanges rates at which Renminbi
      were translated into US Dollars at various pertinent dates and for pertinent
      periods.*





*In
      this Form 10-QSB, references to “we”, “our”, “us”, “Company”, “CWCE” or the
“Registrant” refer to China West Coal Energy Inc., a Nevada corporation and its
      subsidiaries.*





**Overview**





China
      West Coal Energy Inc. (“CWCE” or the “Company”) is engaged in the research,
      development, production and sale of its “coal water mixture” product, a fuel
      substitute for oil, gas or coal. The Company was originally incorporated in
      Texas as “Discount Mortgage Services, Inc.” on July 11, 2000 and in September
      2001, the Company purchased Endo Networks, Inc., a corporation incorporated
      in
      Ontario, Canada on January 11, 2001 (“Endo Canada”). In November 2001, the
      Company changed its name to Endo Networks, Inc. and was redomiciled to the
      State
      of Nevada in December 2002. Prior to the Share Exchange transaction described
      below, the Company conducted through, and all of the Company’s assets were
      contained within, Endo Canada, in which conceptual and software development
      was
      ongoing for approximately two years by the Company founders, through ongoing
      contract relationships with software development companies.





On
      October 18, 2006, we entered into a definitive Share Exchange Agreement with
      Hangson Limited (“Hangson”), whereby we would acquire all of the outstanding
      common stock of Hangson in exchange for newly-issued shares of our common stock
      to the Hangson shareholders (the “Share Exchange”). On October 20, 2006 (the
“Closing Date”), Hangson became our wholly-owned subsidiary and Hangson’s
      shareholders became owners of the majority of our voting stock. The acquisition
      of Hangson by us was accounted for as a reverse merger because on a post-merger
      basis, the former shareholders of Hangson held a majority of our outstanding
      common stock on a voting and fully-diluted basis. As a result, Hangson was
      deemed to be the acquirer for accounting purposes. From and after the Closing
      Date of the Share Exchange, the Registrant’s primary operations consisted of the
      operations of Hangson.





Additionally,
      on August 18, 2006, Hangson entered various agreements Shaanxi Suo’ang
      Biological Science & Technology Co., Ltd. (“Shaanxi Suoang”). Through these
      contractual arrangements, we have the ability to substantially influence Shaanxi
      Suoang’s daily operations and financial affairs, appoint its senior executives
      and approve all matters requiring shareholder approval. As a result of these
      contractual arrangements, which obligates Hangson to absorb a majority of the
      risk of loss from Shaanxi Suoang activities, it enables Hangson to control
      Shaanxi Suoang, and enables Hangson to receive a majority of Shaanxi Suoang’s
      expected residual returns, Hangson is considered to be the primary
      beneficiary of Shaanxi Suoang. Accordingly, we consolidate Shaanxi Suoang’s
      results, assets and liabilities in our financial statements. For a description
      of these contractual arrangements, see the section titled “Contractual
      Arrangements with Shaanxi Suoang and its Shareholders” in the Company’s Annual
      Report on Form 10-KSB filed with the SEC on May 3, 2007. The Company’s
      consolidated assets do not include any collateral for Shaanxi Suoang’s
      obligations. The creditors of Shaanxi Suoang do not have recourse to the general
      credit of the Company.





Effective
      January 4, 2007, we changed our name from “Endo Networks, Inc.” to “China West
      Coal Energy Inc.” (the “Name Change”) and we increased the number of our
      authorized shares of capital stock to 250,000,000 shares, which include
      200,000,000 shares of common stock and 50,000,000 shares of preferred stock
      (“Authorized Shares Amendment”), by filing a Certificate of Amendment to amend
      our Articles of Incorporation. On November 27, 2006, holders of a majority
      of our outstanding common stock approved the Name Change and the Authorized
      Shares Amendment to our Articles of Incorporation. On December 8, 2006, we
      filed a definitive information statement on Schedule 14C with the SEC, which
      was
      delivered to our stockholders of record to notify them that the stockholders
      had
      approved the Name Change and the Authorized Shares Amendment to our Articles
      of
      Incorporation. Further, and as discussed more fully in the Form 8-K Current
      Report filed by the Company with the SEC on January 16, 2007, the Company’s
      Board of Directors, by unanimous written consent, approved a change of the
      Company’s fiscal year. The Company’s new fiscal year begins on January 1st and
      ends on December 31st of each year.




2




Our
      primary business operations are conducted through our wholly-owned subsidiary
      Hangson Limited (“Hangson”). Hangson was incorporated under the laws of the
      British Virgin Islands on June 2, 2006. Hangson does not have any substantive
      operations of its own and conducts its primary business operations through
      Shaanxi Suoang, which through the contractual arrangements described above
      is
      deemed Hangson’s variable interest entity (“VIE”). For the majority of fiscal
      2006, Shaanxi Suoang was engaged in two lines of businesses: the research,
      development, production, marketing and sales of coal-polymer (“COPO”) resin
      products, and also in the research, development, production and sale of
“coal-water mixture,” fuel substitute product (“CWM Fuel”). However, the Company
      subsequently decided to focus on its CWM Fuel product business. Thus, in
      December 2006, Shaanxi Suoang ceased operations of the COPO resin products
      business and is now focused on its CWM Fuel product business. Shaanxi Suoang
      conducts its CWM Fuel operations through its subsidiary, Shaanxi Suoang New
      Energy Enterprise Company Ltd. (“Suoang New Energy”). Shaanxi Suoang owns a
      controlling 80% equity interest in Suoang New Energy. The Company entered into
      sales contracts for the sale of its CWM fuel in early 2007. Construction of
      the
      first phase of the Company’s CWM Fuel production plant was completed in June
      2007. The Company’s CWM Fuel production plant became operational and production
      of its CWM Fuel commenced in August 2007.





**Critical
      Accounting Policies and Estimates**





*Prepaid
      land use right*





Prepaid
      land use right is amortized over the term of 50 years.




*Property,
      plant and equipment*





Property,
      plant and equipment are recorded at cost less accumulated depreciation and
      amortization. Gains or losses on disposals are reflected as gain or loss in
      the
      year of disposal. The cost of improvements that extend the life of plant,
      property and equipment are capitalized. These capitalized costs may include
      structural improvements, equipment and fixtures. All ordinary repair and
      maintenance costs are expensed as incurred.





Depreciation
      or amortization for financial reporting purposes is provided using the
      straight-line method over the estimated useful lives.




*Impairment*





The
      Company accounts for impairment of long-lived assets including property, plant
      and equipment, and amortizable intangible assets in accordance with SFAS No.144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      which
      requires an impairment loss to be recognized when the carrying amount of a
      long-lived asset or asset group exceeds its fair value and is not recoverable
      (when carrying amount exceeds the gross, undiscounted cash flows from use and
      disposition). The impairment loss is measured as the excess of the carrying
      amount over the asset’s (or asset group’s) fair value.




*Income
      taxes*





The
      Company accounts for income taxes in accordance with SFAS No. 109, *Accounting
      for Income Taxes* .
      SFAS
      No. 109 requires an asset and liability approach for financial accounting and
      reporting for income taxes and allows recognition and measurement of deferred
      tax assets based upon the likelihood of realization of tax benefits in future
      years. Under the asset and liability approach, deferred taxes are provided
      for
      the net tax effects of temporary differences between the carrying amounts of
      assets and liabilities for financial reporting purposes and the amounts used
      for
      income tax purposes. A valuation allowance is provided for deferred tax assets
      if it is more likely than not these items will either expire before the Company
      is able to realize their benefits, or that future deductibility is
      uncertain.




*Revenue
      recognition*





Revenues
      of the Company include COPO resin product sales which have been classified
      as
      discontinued operations. Sales are recognized when the following four revenue
      criteria are met: persuasive evidence of an arrangement exists, delivery has
      occurred, the selling price is fixed or determinable, and collectibility is
      reasonably assured. Revenues are presented net of value added tax (VAT). No
      return allowance is made as products are normally not returnable upon acceptance
      by the customers.




3






*Foreign
      currency translation*





The
      reporting currency of the Company is the United States Dollars. All assets
      and
      liabilities accounts have been translated into United States Dollars using
      the
      current exchange rate at the balance sheet date. Capital stock is recorded
      at
      historical rates. Revenue and expenses are translated using the average exchange
      rate in the year. The resulting gain and loss has been reported as other
      comprehensive income (loss) within the shareholder’s equity.





*Use
      of estimates*





The
      preparation of consolidated financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities,
      disclosure of contingent assets and liabilities at the date of the financial
      statements, and the reported amounts of revenues and expenses during the
      reporting period. Because of the use of estimates inherent in the financial
      reporting process, actual results could differ from those estimates. Significant
      estimates include estimates of accruals and determination of fair values for
      assets disposal.





**Going
      Concern**





In
      December 2006, the Company ceased its COPO resin products operations and is
      principally engaged in research, development, production, marketing and sales
      of
“coal-water mixture” business. The new CWM Fuel business has just recently
      commenced operation and production of the CWM Fuel. Furthermore, the Company
      signed an agreement to dispose of leasehold property it owned in the previous
      years which generated rental income in order to accumulate funds to support
      the
      new CWM Fuel operation. These circumstances indicate that the Company may need
      additional financing to meet cash requirements for its operations in order
      to
      continue as a going concern.





The
      accompanying financial statements do not include any adjustments relating to
      the
      recoverability and classification of recorded amounts of assets or the amounts
      and classification of liabilities that might be necessary should the Company
      be
      unable to continue as a going concern. Management believes the Company's ability
      to continue as a going concern is dependent upon its ability to maintain
      profitable operations for the new business. In early 2007, the Company entered
      into sales contracts for the sale of its CWM Fuel product. Production of
      the Company’s CWM Fuel product has recently commenced and our management
      believes that the Company will be able to generate sufficient cash flow from
      these sales contracts to meet its obligations on a timely basis in the
      foreseeable future.





**RESULTS
      OF OPERATIONS**





**Three
      month period ended June 30, 2007 as compared to three month period ended June
      30, 2006**





REVENUE.
      During the three month period ended June 30, 2007, we had revenues from
      discontinued operations of $Nil as compared to revenues of $1,820,674
      during the three month period ended June 30, 2006. Net income from
      discontinued operations was $23,097 for the three months ended June 30,2007
      as
      compared to $478,068 for the three months ended June 30, 2006, a decrease
      of approximately 95%. In general, this decrease is mainly attributable to the
      cessation of the Company’s COPO resin products operation.




4




GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $81,249
      for the three month period ended June 30, 2007 as compared to $171,317 for
      the
      three month period ended June 30, 2006. This decrease is primarily attributable
      to the implementation of cost control by the Company.





NET
      (LOSS) INCOME. We had a net loss of $14,581 for the three month period
      ended June 30, 2007 as compared to a net income $259,635 for the three
      month period ended June 30, 2006. The decrease in net income is primarily
      attributable to cessation of the Company's COPO resin product
      operation.





**Six
      month period ended June 30, 2007 as compared to six month period ended June
      30,
      2006**





REVENUE.
      During the six month period ended June 30, 2007, we had revenues from
      discontinued operations of $4,983 as compared to revenues of $3,913,102
      during the six month period ended June 30, 2006, a decrease of approximately
      99%. Net income from discontinued operations was $144,940 for the six
      months ended June 30,2007 as compared to $974,185 for the six months
      ended June 30, 2006, a decrease of approximately 85%. In general, this
      decrease is mainly attributable to the cessation of the Company’s COPO resin
      products operation.





GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
      $132,911 for the six month period ended June 30, 2007 as compared to $171,317
      for the six month period ended June 30, 2006. This decrease is primarily
      attributable to the effective cost control by the Company.





NET
      INCOME. We had a net income of $23,661 for the six month period ended June
      30, 2007 as compared to a net income $740,891 for the six month period
      ended June 30, 2006. The decrease in net income is primarily attributable to
      cessation of the Company's COPO resin product operation.




**PLAN
      OF OPERATIONS**





As
      discussed more fully above, we ceased operations of our COPO resin product
      business, and the Company is now currently engaged in research, development,
      marketing and sales of its coal water mixture fuel (hereinafter “CWM Fuel”). CWM
      Fuel is a fuel substitute that can be used instead of oil, coal and gas, in
      industrial boilers, power plant boilers and industrial kilns that are used
      for
      central heating of government buildings, schools, armed forces’ barracks, and
      residential communities, and also in industrial production facilities. We have
      already entered into sales contracts for the sale of our CWM Fuel in early
      2007.
      Further, the Company is currently constructing its coal water mixture production
      plant in the city of Tongchuan, and is currently planning for an annual
      production capacity of 300,000 tons of its CWM Fuel, which would be one of
      the
      largest in Western China. Construction of the first phase of this plant was
      completed in June 2007. Plant operations and the production and delivery of
      our
      CWM Fuel product commenced in August 2007.




**LIQUIDITY
      AND CAPITAL RESOURCES**





Net
      cash
      flow used in operating activities was $1,891,022 for the six months ended June
      30, 2007 and net cash flow provided by operating activities was $1,361,991
      for
      the six months ended June 30, 2006. The decrease in our net cash flow provided
      by operating activities for the six months ended June 30, 2007 was mainly due
      to
      the payment of purchase deposit for the raw material for production of CWM
      fuel.





Net
      cash
      flow used in investing activities was $963,527 and net cash flow provided by
      investing activities was $333,540 for the six months ended June 30, 2007 and
      2006, respectively. Uses of cash flow for investing activities were mainly
      related to the purchase of plant and equipment.





Net
      cash
      flow used in financing activities was $80,277 in relation to advances from
      a
      director for the six months ended June 30, 2007. The net cash flow provided
      by
      financing activities of $3,863,200 for the six months ended June 30, 2006 was
      mainly due to the proceeds from an injection of paid-in capital from a
      subsidiary in 2006.





We
      believe that we have adequate capital resources to continue our operations
      and
      will not need to raise capital in the near future. We believe that our current
      cash balance and the revenues that will be generated will cover anticipated
      operating expenses for a period of at least one year without supplementing
      our
      cash reserves. We may, however, raise additional capital to further develop
      our products.





**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off-balance sheet arrangements that have or are reasonably likely
      to
      have a current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources that is material to our
      investors.




5




**Exchange
      Rates**





Shaanxi
      Suoang maintains its books and records in Renminbi (“RMB”), the lawful currency
      of the PRC. In general, for consolidation purposes, the Company translates
      Shaanxi Suoang’s assets and liabilities into US Dollars using the applicable
      exchange rates prevailing at the balance sheet date, and the statement of income
      is translated at average exchange rates during the reporting period. Adjustments
      resulting from the translation of Shaanxi Suoang’s financial statements are
      recorded as accumulated other comprehensive income.





Until
      July 21, 2005, RMB had been pegged to US$ at the rate of RMB8.30: US$1.00.
      On
      July 21, 2005, the PRC government reformed the exchange rate system into a
      managed floating exchange rate system based on market supply and demand with
      reference to a basket of currencies. In addition, the exchange rate of RMB
      to
      US$ was adjusted to RMB8.11: US$1.00 as of July 21, 2005. The People’s Bank of
      China announces the closing price of a foreign currency such as US$ traded
      against RMB in the inter-bank foreign exchange market after the closing of
      the
      market on each working day, which will become the unified exchange rate for
      the
      trading against RMB on the following working day. The daily trading price of
      US$
      against RMB in the inter-bank foreign exchange market is allowed to float within
      a band of ± 0.3%
      around the unified exchange rate published by the People’s Bank of China. This
      quotation of exchange rates does not imply free convertibility of RMB to other
      foreign currencies. All foreign exchange transactions continue to take place
      either through the Bank of China or other banks authorized to buy and sell
      foreign currencies at the exchange rates quoted by the People’s Bank of China.
      Approval of foreign currency payments by the Bank of China or other institutions
      required submitting a payment application form together with invoices, shipping
      documents and signed contracts.




The
      exchange rates used to translate amounts in RMB into US Dollars for the purposes
      of preparing the consolidated financial statements or otherwise stated in this
      MD&A were as follows:





**June
                30, 2007**
            
            **December
                31, 2006**
            
            **June
                30, 2006**Balance
                sheet items, except for the registered and paid-up capital, as of
                end of
                period/year
            
            
            USD0.1316:RMB1
            
            
            USD0.1281:RMB1
            
            
            USD0.1252:RMB1Amounts
                included in the statement of operations, statement of changes in
                stockholders' equity and statement of cash flows for the period/
                year
                ended
            
            
            USD0.1300:RMB1
            
            
            USD0.1260:RMB1
            
            
            USD0.1246:RMB1





No
      representation is made that RMB amounts have been, or would be, converted into
      US$ at the above rates.





**Inflation**





We
      believe that inflation has not had a material effect on our operations to
      date.




**RISK
      FACTORS**





**Factors
      Affecting Business, Operating Results and Financial
      Condition**





*An
      investment in our securities is very speculative and involves a high degree
      of
      risk. You should carefully consider the following risk factors, along with
      the
      other matters referred to in this Quarterly Report, before you decide to buy
      our
      securities. If you decide to buy our securities, you should be able to afford
      a
      complete loss of your investment.*





**Risks
      Associated With Our Business**




6




***FACTORS
      THAT MAY AFFECT FUTURE PERFORMANCE***




Before
      investing in our common stock you should carefully consider the following risk
      factors, the other information included herein and the information included
      in
      our other reports and filings. Our business, financial condition, and the
      trading price of our common stock could be adversely affected by these and
      other
      risks.




***Our
      limited operating history makes it difficult to evaluate our future prospects
      and results of operations.***




We
      have a
      limited operating history. Shaanxi Suoang commenced operations in 2002 and
      first
      achieved profitability in the year ended 2004. Accordingly, you should consider
      our future prospects in light of the risks and uncertainties experienced by
      early stage companies in evolving industries such as the coal products and
      alternative energy industry in China. An investor in our securities must
      consider the risks, uncertainties and difficulties frequently encountered by
      companies in new and rapidly evolving markets. The risks and difficulties we
      face include challenges in accurate financial planning as a result of limited
      historical data and the uncertainties resulting from having had a relatively
      limited time period in which to implement and evaluate our business strategies
      as compared to older companies with longer operating histories.





***We
      recently ceased operations of our COPO resin product business and the production
      of our CWM Fuel product has yet to commence.*** ****





In
      December 2006, we decided to solely focus on the research, development,
      production, marketing and sale of our CWM Fuel product and thus, in December
      2006, we ceased operations and have phased out our COPO resin product business.
      In early 2007, we entered into contracts for the sale of our CWM Fuel product.
      The first phase of the construction of our CWM Fuel manufacturing plant was
      completed in June 2007. Production and delivery of our CWM Fuel product
      commenced in August 2007. However, there can be no assurance that we will be
      able to successfully complete the construction of our CWM manufacturing plant
      in
      a timely manner. Assuming we fully complete the construction of our CWM Fuel
      plant and commence full production of our CWM Fuel product, we cannot assure
      you
      that our operations will be able to generate sufficient revenue to continue
      our
      operations or that our new CWM Fuel business operations will be
      profitable.




***Our
      independent auditor has expressed doubt about our ability to continue as a
      going
      concern because we ceased our COPO resin operation, which was our main resource
      of working capital, we disposed of leasehold property which generated rental
      income and production of our new Coal Water Mixture (“CWM”) fuel product has
      just recently commenced.***





Our
      independent auditor has noted in its report concerning our financial statements
      as of December 31, 2006 that the Company ceased its COPO resin operation, which
      was the main resource of the Company’s working capital, disposed of leasehold
      property, which generated rental income, and started a new Coal Water Mixture
      (“CWM”) fuel business subsequent to the balance sheet date.  The
      independent auditor further noted that production facilities of the Company’s
      CWM Fuel are under construction and operations have just recently commenced.
      The
      independent auditor stated that these conditions raise substantial doubt about
      our ability to continue as a going concern. We cannot assure you that we will
      achieve operating profits in the future.




***We
      Must Obtain Additional Financing to Execute Our Business Plan***





The
      projected revenues from the sale of our CWM Fuel product may not be adequate
      to
      support our expansion and product development programs. We will
      need additional funds to build and maintain our new production facilities,
      pursue further research and development, obtain regulatory approvals; file,
      prosecute, defend and enforce our intellectual property rights and market our
      products. We will seek additional funds through public or private equity or
      debt
      financing, strategic transactions and/or from other sources. We could enter
      into
      collaborative arrangements for the development of particular products that
      would
      lead to our relinquishing some or all rights to the related technology or
      products.




There
      are
      no assurances that future funding will be available on favorable terms or at
      all. If additional funding is not obtained, we will need to reduce, defer or
      cancel development programs, planned initiatives or overhead expenditures,
      to
      the extent necessary. The failure to fund our capital requirements would have
      a
      material adverse effect on our business, financial condition and results of
      operations.




***Our
      business and results of operations are dependent on coal markets, which may
      be
      cyclical.***





As
      the
      majority of our revenue will be derived from sales of coal-based
      products, our business and operating results are substantially dependent on
      the
      domestic supply for coal. The domestic and international coal markets are
      cyclical and exhibit fluctuation in supply and demand from year to year and
      are
      subject to numerous factors beyond our control, including, but not limited
      to,
      the economic conditions in the PRC, the global economic conditions and
      fluctuations in industries with high demand for coal, such as the power and
      steel industries. Fluctuations in supply and demand for coal have effects on
      coal prices, which in turn affect our operating and financial performance.
      We
      have experienced substantial price fluctuations in the past and believe that
      such fluctuations will continue. The demand for coal is primarily affected
      by
      the overall economic development and the demand for coal from the electricity
      generation, steel and construction industries. The supply of coal on the other
      hand, is primarily affected by the geographical location of the coal supplies,
      the volume of coal produced by the domestic and international coal suppliers,
      and the quality and price of competing sources of coal. Alternative fuels such
      as natural gas, oil and nuclear power, alternative energy sources such as
      hydroelectric power, and international shipping costs also have effects on
      the
      market demand for coal. Excess demand for coal may have an adverse effect on
      coal prices which would in turn cause a decline in our profitability. A
      significant increase in domestic coal prices could also materially and adversely
      affect our business and result of operations.




7




***Our
      business relies on our major customers.***





Our
      revenues from the sale of the CWM Fuel will be initially derived from sales
      to 3
      major customers, Shaanxi Hau Yuen Paper Industry Company Limited, Shaanxi
      Tongchuan Yi Tong Gao Ya Dian Chi Factory, and Shaanxi Yao Zhou Jian Qin Cement
      Company Limited. Given the large percentage of our revenues to be derived from
      our sales to these 3 major customers, any adverse developments to Shaanxi Yao
      Zhou Jian Qin Cement Company Limited, Shaanxi Tongchuan Yi Tong Gao Ya Dian
      Chi
      Factory and Shaanxi Hau Yuen Paper Industry Company Limited business
      operations could have an adverse impact on our results of
      operations.




***Competition
      in the PRC and the international coal industry is increasing and our business
      and prospects will be adversely affected if we are not able to compete
      effectively.***





We
      face
      competition in all areas of our business. Competition in the coal energy
      industry is based on many factors, including price, production capacity, quality
      and characteristics, transportation capability and costs, blending capability
      and brand name. Our coal-based products business competes in the domestic market
      in China and in international markets with other large domestic coal-based
      products companies and we will also have to compete with other competitors
      in
      the coal water mixture product industry. Some of our competitors may have
      greater financial, marketing, distribution and other resources than we do,
      and
      more well-known brand names in the markets. We currently compete favorably
      on
      the quality of our coal-based products. However, there can be no assurance
      that
      we will continue to compete favorably due to quality improvements by our
      competitors and this may have a material adverse impact on our results of
      operations.





***We
      may suffer losses resulting from industry-related accidents and lack of
      insurance.***





We
      operate manufacturing facilities that may be affected by water, gas, fire or
      structural problems. As a result, we, like other coal-based products companies,
      may experience accidents that will cause property damage and personal injuries.
      Although we have implemented safety measures for our production facilities
      and
      provided on-the-job training for our employees, there can be no assurance that
      industry-related accidents will not occur in the future.





We
      do not
      currently maintain fire, casualty or other property insurance covering our
      properties, equipment or inventories, other than with respect to vehicles.
      In
      addition, we do not maintain any business interruption insurance or any third
      party liability insurance to cover claims in respect of personal injury,
      property or environmental damage arising from accidents on our properties,
      other
      than third party liability insurance with respect to vehicles. Any uninsured
      losses and liabilities incurred by us could have a material adverse effect
      on
      our financial condition and results of operations.




***Our
      business operations may be adversely affected by present or future environmental
      regulations.***





As
      a
      producer of coal products, we are subject to significant, extensive, and
      increasingly stringent environmental protection laws and regulations in China.
      These laws and regulations:





●
            impose
                fees for the discharge of waste
                substances;





●
            require
                the establishment of reserves for reclamation and
                rehabilitation;




8




●
            require
                the payment of fines for serious environmental offenses;
                and





●
            allow
                the PRC Government, at its discretion, to close any facility that
                fails to
                comply with orders requiring it to correct or stop operations causing
                environmental damage.





Our
      operations may produce significant amounts of waste water, gas and solid waste
      materials. Currently, the PRC Government is moving toward more rigorous
      enforcement of applicable laws and regulations as well as the adoption and
      enforcement of more stringent environmental standards. Our capital expenditure
      for environmental regulatory compliance may not be sufficient and we may need
      to
      allocate additional funds for such purpose. If we fail to comply with current
      or
      future environmental laws and regulations, we may be required to pay penalties
      or fines or take corrective actions, any of which may have a material adverse
      effect on our business operations and financial condition.





In
      addition, China is a signatory to the 1992 United Nations Framework Convention
      on Climate Change and the 1997 Kyoto Protocol, which are intended to limit
      emissions of greenhouse gases. Efforts to control greenhouse gas emission in
      China could result in reduced use of coal if power generators switch to sources
      of fuel with lower carbon dioxide emissions, which in turn could reduce the
      revenues of our business and have a material adverse effect on our results
      of
      operations.




***Our
      operations, which are conducted in the PRC, are subject to a number of risks
      relating to the PRC.***





Our
      business operations are located in the PRC and thus we are subject to a number
      of risks relating to the PRC The central and local PRC governments continue
      to
      support the development and operation of coal industry in the PRC. If the PRC
      Government changes its current policies that are currently beneficial to us,
      we
      may face significant constraints on our flexibility and ability to expand our
      business operations or to maximize our profitability.





●
            Under
                current PRC regulatory requirements, our projects for the development
                of
                our coal water mixture fuel substitute require PRC Government approval.
                If
                any of our important projects required for our growth or cost reduction
                are not approved, or are not approved on a timely basis, our financial
                condition and operating performances could be adversely
                affected.





●
            The
                PRC Government has been reforming, and is expected to continue to
                reform
                its economic system. Many of the reforms are unprecedented or
                experimental, and are expected to be refined and improved. Other
                political, economic and social factors can also lead to further
                readjustment of the reform measures. This refining and readjustment
                process may not always have a positive effect on our operations.
                Our
                operating results may be adversely affected by changes in the PRC’s
                economic and social conditions and by changes in policies of the
                PRC
                Government such as changes in laws and regulations (or the interpretation
                thereof), imposition of additional restrictions on currency conversion
                and
                reduction in tariff protection and other import
                restrictions.





●
            Since
                1994, the conversion of Renminbi into foreign currencies, including
                Hong
                Kong and U.S. dollars, has been based on rates set by the People’s Bank of
                China, or PBOC, which are set daily based on the previous day’s PRC
                interbank foreign exchange market rate and current exchange rates
                on the
                world financial markets. Since 1994, the official exchange rate for
                the
                conversion of Renminbi to U.S. dollars has generally been stable.
                On July
                21, 2005, however, PBOC announced a reform of its exchange rate system.
                Under the reform, Renminbi is no longer effectively linked to US
                dollars
                but instead is allowed to trade in a tight 0.3% band against a basket
                of
                foreign currencies. Any further appreciation of Renminbi in the future
                will increase the cost of our export sales, reduce our account receivables
                denominated in foreign currencies and adversely affect our financial
                condition and results of operations. On the other hand, any devaluation
                of
                the Renminbi may adversely affect the value of, and dividends payable
                on
                our shares we receive our revenues and denominate our profits in
                Renminbi.
                Our financial condition and operating performance may also be affected
                by
                changes in the value of certain currencies other than Renminbi in
                which
                our earnings and obligations are denominated. In particular, a devaluation
                of the Renminbi is likely to increase the portion of our cash flow
                required to satisfy our foreign currency-denominated
                obligations.





●
            Since
                1997, many new laws and regulations covering general economic matters
                have
                been promulgated in the PRC. Despite this activity to develop the
                legal
                system, PRC’s system of laws is not yet complete. Even where adequate law
                exists, enforcement of existing laws or contracts based on existing
                law
                may be uncertain and sporadic, and it may be difficult to obtain
                swift and
                equitable enforcement or to obtain enforcement of a judgment by a
                court of
                another jurisdiction. The relative inexperience of PRC’s judiciary in many
                cases creates additional uncertainty as to the outcome of any litigation.
                In addition, interpretation of statutes and regulations may be subject
                to
                government policies reflecting domestic political
                changes.




9




***Our
      coal water mixture production facilities will be subject to extensive regulation
      by the PRC Government and government regulations may limit our activities and
      adversely affect our business operations.***





Our
      coal
      water mixture operation, like those of other PRC energy companies, is subject
      to
      extensive regulation established by the PRC Government. Central governmental
      authorities, such as the National Development and Reform Commission, the State
      Environmental Protection Administration, the Ministry of Land and Resources,
      the
      State Administration of Coal Mine Safety, the and the State Bureau of Taxation,
      and provincial and local authorities and agencies exercise extensive control
      over various aspects of China’s coal industry and transportation (including rail
      and sea transport). These controls affect the following material aspects of
      our
      operations:





●
            pricing
                of our transport services;





●
            industry-specific
                taxes and fees;





●
            target
                of our capital investments;





●
            pension
                funds appropriation; and





●
            environmental
                and safety standards.





We
      may
      face significant constraints on our ability to implement our business strategies
      or to carry out or expand our business operations. Our business may also be
      materially and adversely affected by future changes in certain regulations
      and
      policies of the PRC Government in respect of the coal industry. New legislation
      or regulations may be adopted that may materially and adversely affect our
      coal
      water mixture operations, our cost structure or the demand for our products.
      In
      addition, new legislation or regulations or different or more stringent
      interpretation of existing laws and regulations may also require us to
      substantially change our existing operations or incur significant
      costs.





***The
      Profitability of Our Products Depend on Our Ability to Operate Without
      Infringing the Proprietary Rights of Others and to Protect Proprietary
      Rights***




We
      must
      operate without infringing the proprietary rights of third parties and without
      third parties circumventing our rights. The patent positions of coal and
      biotechnology enterprises, including ours, are uncertain and involve complex
      legal and factual questions for which important legal principles are largely
      unresolved. For example, no consistent policy has emerged regarding the breadth
      of bio-technology patent claims that are granted by the U.S. Patent and
      Trademark Office or enforced by the U.S. federal courts. In addition, the scope
      of the originally claimed subject matter in a patent application can be
      significantly reduced before a patent is issued. The patent situation outside
      the U.S. is even more uncertain and is currently undergoing review and revision
      in many countries. For our products, which have or in the future may have,
      obtained patent protection, their profitability may depend in part on our
      ability to obtain and maintain patents and licenses and preserve trade secrets,
      and the period our intellectual property remains exclusive. Because patent
      applications are maintained in secrecy in some cases, we cannot be certain
      that
      we or our licensors are the first creators of inventions described in pending
      patent applications or patents or the first to file patent applications for
      such
      inventions.




***Other
      companies may independently develop similar products and design around any
      patented products we develop.***





We
      cannot
      assure you that:





●
            any
                of our future patent applications will result in the issuance of
                patents;





●
            we
                will develop additional patentable
                products;




10




●
            any
                patents that we are issued will provide us with any competitive
                advantages;





●
            the
                patents of others will not impede our ability to do business;
                or





●
            third
                parties will not be able to circumvent our patents.





A
      number
      of coal-based products companies, bio-technology companies, research and
      academic companies and institutions have developed technologies, filed patent
      applications or received patents on technologies that may relate to our
      business. If these technologies, applications or patents conflict with ours,
      our
      ability to sell our products may be curtailed. If patents that cover our
      activities are issued to other companies, we may not be able to obtain licenses
      at a reasonable cost, or at all. We may also be unable to develop our
      technology, or introduce, manufacture or sell current or future products we
      have
      planned.




Patent
      litigation is becoming widespread in the bio-technology industry. Such
      litigation may affect our efforts to form collaborations, to conduct research
      or
      development, to conduct clinical testing or to manufacture or market any
      products under development. There are no assurances that our patents would
      be
      held valid or enforceable by a court or that a competitor’s technology or
      product would be found to infringe our patents in the event of patent
      litigation. Our business could be materially affected by an adverse outcome
      to
      such litigation. We could incur substantial costs and devote significant
      management resources to defend our patent position or to seek a declaration
      that
      another company’s patents are invalid.





Much
      of
      our know-how and technology may not be patentable, though it may constitute
      trade secrets. There are no assurances that we will be able to meaningfully
      protect our trade secrets. We cannot assure you that any of our existing
      confidentiality agreements with employees, consultants, advisors or
      collaborators will provide meaningful protection for our trade secrets, know-how
      or other proprietary information in the event of any unauthorized use or
      disclosure. Collaborators, advisors or consultants may dispute the ownership
      of
      proprietary rights to our technology, for example by asserting that they
      developed the technology independently.





***We
      May Encounter Difficulties in Manufacturing our
      Products***




Before
      our products can be profitable, they must be produced in commercial quantities
      in a cost-effective manufacturing process that complies with regulatory
      requirements, including production and quality control regulations. If we cannot
      arrange for or maintain commercial-scale manufacturing on acceptable terms,
      or
      if there are delays or difficulties in the manufacturing process, we may not
      be
      able to conduct product testing, obtain regulatory approval or meet demand
      for
      our products. Production of our products could require raw materials which
      are
      scarce or which can be obtained only from a limited number of sources. If we
      are
      unable to obtain adequate supplies of such raw materials, the development,
      regulatory approval and marketing of our products could be delayed.




***We
      May Not Be Able to Obtain the Regulatory Approvals or Clearances That Are
      Necessary to Commercialize Our Products***





The
      PRC
      imposes statutory and regulatory obligations upon the manufacture and sale
      of
      our products. Each regulatory authority typically has a lengthy approval process
      in which it examines product testing data and the facilities in which the
      product is manufactured. Regulatory submissions must meet complex criteria
      to
      demonstrate the safety and efficacy of the ultimate products. Addressing these
      criteria requires considerable data collection, verification and analysis.
      We
      may spend time and money preparing regulatory submissions or applications
      without assurances as to whether they will be approved on a timely basis or
      at
      all.




Our
      product candidates may require additional development prior to their
      commercialization. These steps and the process of obtaining required approvals
      and clearances can be costly and time-consuming. If our potential products
      are
      not successfully developed, cannot be proven to be safe and effective through
      product testing, or do not receive applicable regulatory approvals and
      clearances, or if there are delays in the process:





●
            the
                commercialization of our products could be adversely
                affected;





●
            any
                competitive advantages of the products could be diminished;
                and




11




●
            revenues
                or collaborative milestones from the products could be reduced or
                delayed.





Governmental
      and regulatory authorities may approve a product candidate for fewer indications
      or narrower circumstances than requested or may condition approval on the
      performance of post-marketing studies for a product candidate. Even if a product
      receives regulatory approval and clearance, it may later exhibit adverse side
      effects that limit or prevent its widespread use or that force us to withdraw
      the product from the market.




Any
      marketed product and its manufacturer will continue to be subject to strict
      regulation after approval. Results of post-marketing programs may limit or
      expand the further marketing of products. Unforeseen problems with an approved
      product or any violation of regulations could result in restrictions on the
      product, including its withdrawal from the market and possible civil
      actions.




In
      manufacturing our products, we will be required to comply with applicable good
      manufacturing practices regulations, which include requirements relating to
      quality control and quality assurance, as well as the maintenance of records
      and
      documentation. if we cannot comply with regulatory requirements, including
      applicable good manufacturing practice requirements, we may not be allowed
      to
      develop or market the product candidates. If we fail to comply with applicable
      regulatory requirements at any stage during the regulatory process, we may
      be
      subject to sanctions, including fines, product recalls or seizures, injunctions,
      refusal of regulatory agencies to review pending market approval applications
      or
      supplements to approve applications, total or partial suspension of production,
      civil penalties, withdrawals of previously approved marketing applications
      and
      criminal prosecution.





***Competitors
      May Develop and Market Products That Are Less Expensive, More Effective or
      Safer, Making Our Products Obsolete or Uncompetitive***




Some
      of
      our competitors and potential competitors have greater product development
      capabilities and financial, scientific, marketing and human resources than
      we
      do. Technological competition from other alternative energy or other coal-based
      product companies is intense and is expected to increase. Other companies have
      developed technologies that could be the basis for competitive products. Some
      of
      these products may be produced with an entirely different approach or may be
      manufactured differently than the products we are developing. Alternative
      products may be developed that are more effective and are less costly than
      our
      products. Competitors may succeed in developing products earlier than us,
      obtaining approvals and clearances for such products more rapidly than us,
      or
      developing products that are more effective than ours. Over time, our technology
      or products may become obsolete or uncompetitive.




***Our
      Products May Not Gain Market Acceptance***




Our
      products may not gain market acceptance in the coal-based products community.
      The degree of market acceptance of any product depends on a number of factors,
      including establishment and demonstration of our products’ efficacy and safety,
      cost-effectiveness, advantages over alternative products, and marketing and
      distribution support for the products. Limited information regarding these
      factors is available in connection with our products or products that may
      compete with ours.




To
      directly market and distribute our products, we or our collaborators require
      a
      marketing and sales force with appropriate technical expertise and supporting
      distribution capabilities. We may not be able to further establish sales,
      marketing and distribution capabilities or enter into arrangements with third
      parties on acceptable terms. If we or our partners cannot successfully market
      and sell our products, our ability to generate revenue will be
      limited.




***Our
      Operations and the Use of Our Products Could Subject Us to Damages Relating
      to
      Injuries or Accidental Contamination.***




Our
      research and development processes involve the controlled use of hazardous
      materials. We are subject to federal, provincial and local PRC laws and
      regulations governing the use, manufacture, storage, handling and disposal
      of
      such materials and waste products. The risk of accidental contamination or
      injury from handling and disposing of such materials cannot be completely
      eliminated. In the event of an accident involving hazardous materials, we could
      be held liable for resulting damages. We are not insured with respect to this
      liability. Such liability could exceed our resources. In the future we could
      incur significant costs to comply with PRC environmental laws and
      regulations.




12




***If
      We Were Successfully Sued for Product Liability, We Could Face Substantial
      liabilities That May Exceed Our Resources.***




We
      may be
      held liable if any product we develop, or any product which is made using our
      technologies, causes injury or is found unsuitable during product testing,
      manufacturing, marketing, sale or use. We currently do not have product
      liability insurance. We are not insured with respect to this liability. If
      we
      choose to obtain product liability insurance but cannot obtain sufficient
      insurance coverage at an acceptable cost or otherwise protect against potential
      product liability claims, the commercialization of products that we develop
      may
      be prevented or inhibited. If we are sued for any injury caused by our products,
      our liability could exceed our total assets.




***We
      Have Limited Business Insurance Coverage.***




The
      insurance industry in China is still at an early stage of development. Insurance
      companies in China offer limited business insurance products. We do not have
      any
      business liability or disruption insurance coverage for our operations in China.
      Any business disruption, litigation or natural disaster may result in our
      incurring substantial costs and the diversion of our resources.





***Our
      Success Depends on Attracting and Retaining Qualified
      Personnel***




We
      depend
      on a core management and scientific team. The loss of any of these individuals
      could prevent us from achieving our business objective of commercializing our
      product candidates. Our future success will depend in large part on our
      continued ability to attract and retain other highly qualified scientific,
      technical and management personnel, as well as personnel with expertise in
      clinical testing and government regulation. We face competition for personnel
      from other companies, universities, public and private research institutions,
      government entities and other organizations. If our recruitment and retention
      efforts are unsuccessful, our business operations could suffer.




**Risk
      Related to the Alternative Energy Industry**





***A
      drop in the retail price of conventional energy or other alternative energy
      may
      have a negative effect on our business.***




A
      customer's decision to purchase our CWM Fuel product will be primarily driven
      by
      the return on investment resulting from the energy savings from our CWM Fuel
      product. Any fluctuations in economic and market conditions that impact the
      viability of conventional and other alternative energy sources, such as
      decreases in the prices of oil and other fossil fuels could cause the demand
      for
      our CWM Fuel product to decline. Although we believe that current levels of
      retail energy prices support a reasonable return on investment for our CWM
      Fuel
      product, there can be no assurance that future retail pricing of conventional
      energy and other alternative energy will remain at such levels.





***Existing
      regulations and changes to such regulations may present technical, regulatory
      and economic barriers to the purchase and use of coal water mixture product,
      which may significantly affect the demand for our
      products.***




Our
      CWM
      Fuel product will be subject to oversight and regulation in accordance with
      national and local ordinances or regulations relating to safety, environmental
      protection, and related matters. We are responsible for knowing such ordinances
      and requirements must design our CWM Fuel product to comply with varying
      standards. Any new government regulations or utility policies pertaining to
      our
      products may result in significant additional expenses to us and, as a result,
      could cause a significant reduction in demand for our product.





If
      our
      CWM Fuel product is not suitable for widespread adoption or sufficient demand
      for our CWM Fuel product does not develop or takes longer to develop than we
      anticipate, our sales would not significantly increase and we would be unable
      to
      achieve or sustain profitability.




The
      market for CWM Fuel products is emerging and rapidly evolving, and its future
      success is uncertain. If CWM Fuel and clean coal technology prove unsuitable
      for
      widespread commercial deployment or if demand for our CWM Fuel product fails
      to
      develop sufficiently, we may be unable to generate enough revenues to achieve
      and sustain profitability. In addition, demand for CWM Fuel product in the
      markets and geographic regions we target may not develop or may develop more
      slowly than we anticipate. Many factors will influence the widespread adoption
      of coal water mixture technology and demand for our products,
      including:





·
            cost-effectiveness
                of coal water mixture technologies as compared with conventional
                and other
                alternative energy technologies;




13




·
            performance
                and reliability of our coal water mixture product as compared with
                conventional and other alternative energy
                products;





·
            capital
                expenditures by customers that tend to decrease if the PRC or global
                economy slows down; and





·
            availability
                of government subsidies and
                incentives.





**Risks
      Related to Our Corporate Structure**




***PRC
      laws and regulations governing our businesses and the validity of certain of
      our
      contractual arrangements are uncertain. If we are found to be in violation,
      we
      could be subject to sanctions. In addition, changes in such PRC laws and
      regulations may materially and adversely affect our business.***




There
      are
      substantial uncertainties regarding the interpretation and application of PRC
      laws and regulations, including, but not limited to, the laws and regulations
      governing our business, or the enforcement and performance of our contractual
      arrangements with our affiliated Chinese entity, Shaanxi Suoang, and its
      shareholders. We are considered a foreign person or foreign invested enterprise
      under PRC law. As a result, we are subject to PRC law limitations on foreign
      ownership of Chinese companies. These laws and regulations are relatively new
      and may be subject to change, and their official interpretation and enforcement
      may involve substantial uncertainty. The effectiveness of newly enacted laws,
      regulations or amendments may be delayed, resulting in detrimental reliance
      by
      foreign investors. New laws and regulations that affect existing and proposed
      future businesses may also be applied retroactively.





The
      PRC
      government has broad discretion in dealing with violations of laws and
      regulations, including levying fines, revoking business and other licenses
      and
      requiring actions necessary for compliance. In particular, licenses and permits
      issued or granted to us by relevant governmental bodies may be revoked at a
      later time by higher regulatory bodies. We cannot predict the effect of the
      interpretation of existing or new PRC laws or regulations on our businesses.
      We
      cannot assure you that our current ownership and operating structure would
      not
      be found in violation of any current or future PRC laws or regulations. As
      a
      result, we may be subject to sanctions, including fines, and could be required
      to restructure our operations or cease to provide certain services. Any of
      these
      or similar actions could significantly disrupt our business operations or
      restrict us from conducting a substantial portion of our business operations,
      which could materially and adversely affect our business, financial condition
      and results of operations.




***We
      may be adversely affected by complexity, uncertainties and changes in PRC
      regulation of our business and companies, including limitations on our ability
      to own key assets.***




The
      PRC
      government regulates the coal and bio-technology industries including foreign
      ownership of, and the licensing and permit requirements pertaining to, companies
      in these industry. These laws and regulations are relatively new and evolving,
      and their interpretation and enforcement involve significant uncertainty. As
      a
      result, in certain circumstances it may be difficult to determine what actions
      or omissions may be deemed to be a violation of applicable laws and regulations.
      Issues, risks and uncertainties relating to PRC government regulation of our
      industry include the following:





·
            we
                only have contractual control over Shaanxi Suoang. We do not own
                it due to
                the restriction of foreign investment in Chinese businesses;
                and





·
            uncertainties
                relating to the regulation of the coal product and alternative energy
                business in China, including evolving licensing practices, means
                that
                permits, licenses or operations at our company may be subject to
                challenge. This may disrupt our business, or subject us to sanctions,
                requirements to increase capital or other conditions or enforcement,
                or
                compromise enforceability of related contractual arrangements, or
                have
                other harmful effects on us.




14




The
      interpretation and application of existing PRC laws, regulations and policies
      and possible new laws, regulations or policies have created substantial
      uncertainties regarding the legality of existing and future foreign investments
      in, and the businesses and activities of, alternative energy and bio-technology
      businesses in China, including our business.




***In
      order to comply with PRC laws limiting foreign ownership of Chinese companies,
      we conduct our business through Shaanxi Suoang by means of contractual
      arrangements. If the PRC government determines that these contractual
      arrangements do not comply with applicable regulations, our business could
      be
      adversely affected.***




The
      PRC
      government restricts foreign investment in businesses in China. Accordingly,
      we
      operate our business in China through Shaanxi Suoang. Shaanxi Suoang holds
      the
      licenses and approvals necessary to operate our coal-based products business
      in
      China. We have contractual arrangements with Shaanxi Suoang and its shareholders
      that allow us to substantially control Shaanxi Suoang. We cannot assure you,
      however, that we will be able to enforce these contracts.




Although
      we believe we comply with current PRC regulations, we cannot assure you that
      the
      PRC government would agree that these operating arrangements comply with PRC
      licensing, registration or other regulatory requirements, with existing policies
      or with requirements or policies that may be adopted in the future. If the
      PRC
      government determines that we do not comply with applicable law, it could revoke
      our business and operating licenses, require us to discontinue or restrict
      our
      operations, restrict our right to collect revenues, require us to restructure
      our operations, impose additional conditions or requirements with which we
      may
      not be able to comply, impose restrictions on our business operations or on
      our
      customers, or take other regulatory or enforcement actions against us that
      could
      be harmful to our business.




***Our
      contractual arrangements with Shaanxi Suoang and its shareholders may not be
      as
      effective in providing control over these entities as direct ownership.***




Since
      PRC
      law limits foreign equity ownership in companies in China, we operate our
      business through an affiliated Chinese company, referred to herein as Shaanxi
      Suoang. We have no equity ownership interest in Shaanxi Suoang and rely on
      contractual arrangements to control and operate such business. These contractual
      arrangements may not be as effective in providing control over Shaanxi Suoang
      as
      direct ownership. For example, Shaanxi Suoang could fail to take actions
      required for our business despite its contractual obligation to do so. If
      Shaanxi Suoang fails to perform under their agreements with us, we may have
      to
      rely on legal remedies under PRC law, which may not be effective. In addition,
      we cannot assure you that Shaanxi Suoang’s shareholders would always act in our
      best interests.




***The
      Chairman of the Board of Directors of Shaanxi Suoang has potential conflicts
      of
      interest with us, which may adversely affect our business.***




Mr.
      Baowen Ren, our Chief Executive Officer, is also the Chairman of the Board
      of
      Directors of Shaanxi Suoang. Conflicts of interests between his duties to our
      company and Shaanxi Suoang may arise. As Mr. Ren is a director and executive
      officer of our Company, he has a duty of loyalty and care to us under Nevada
      law
      when there are any potential conflicts of interests between our company and
      Shaanxi Suoang. We cannot assure you, however, that when conflicts of interest
      arise, Mr. Ren will act completely in our interests or that conflicts of
      interests will be resolved in our favor. In addition, Mr. Ren could violate
      his
      legal duties by diverting business opportunities from us to others. If we cannot
      resolve any conflicts of interest between us and Mr. Ren, we would have to
      rely
      on legal proceedings, which could result in the disruption of our business.





**Risks
      Related to Doing Business in China**




***Adverse
      changes in economic and political policies of the PRC government could have
      a
      material adverse effect on the overall economic growth of China, which could
      adversely affect our business.***




Substantially
      all of our business operations are conducted in China. Accordingly, our results
      of operations, financial condition and prospects are subject to a significant
      degree to economic, political and legal developments in China. China’s economy
      differs from the economies of most developed countries in many respects,
      including with respect to the amount of government involvement, level of
      development, growth rate, control of foreign exchange and allocation of
      resources. While the PRC economy has experienced significant growth in the
      past
      20 years, growth has been uneven across different regions and among various
      economic sectors of China. The PRC government has implemented various measures
      to encourage economic development and guide the allocation of resources. Some
      of
      these measures benefit the overall PRC economy, but may also have a negative
      effect on us. For example, our financial condition and results of operations
      may
      be adversely affected by government control over capital investments or changes
      in tax regulations that are applicable to us. Since early 2004, the PRC
      government has implemented certain measures to control the pace of economic
      growth. Such measures may cause a decrease in the level of economic activity
      in
      China, which in turn could adversely affect our results of operations and
      financial condition.




15




***If
      PRC law were to phase out the preferential tax benefits currently being extended
      to foreign invested enterprises and “new or high-technology enterprises” located
      in a high-tech zone, we would have to pay more taxes, which could have a
      material and adverse effect on our financial condition and results of
      operations.***




Under
      PRC
      laws and regulations, an enterprise may enjoy preferential tax benefits if
      it is
      registered in a high-tech zone and also qualifies as “new or high-technology
      enterprise”. As an enterprise as well as a certified “new or high-technology
      enterprise” located in a high-tech zone in Xian, Shaanxi Suoang is entitled to a
      two-year exemption from enterprise income tax beginning from its first year
      of
      operation, followed by a 15% tax rate so long as it continues to qualify as
      a
“new or high-technology enterprise.” Shaanxi Suoang is currently subject to a
      15% enterprise income tax rate for so long as its status as a “new or
      high-technology enterprise” remains unchanged. If the PRC law were to phase out
      preferential tax benefits currently granted to “new or high-technology
      enterprises” and technology consulting services, we would be subject to the
      standard statutory tax rate, which currently is 33%, and we would be unable
      to
      obtain business tax refunds for our provision of technology consulting services.
      Loss of these preferential tax treatments could have a material and adverse
      effect on our financial condition and results of operations.




***Shaanxi
      Suoang is subject to restrictions on making payments to us.***




Hangson,
      our wholly owned subsidiary, is a holding company incorporated in the British
      Virgin Islands and it does not have any assets or conduct any business
      operations other than our investments in our variable interest entity
      (“VIE”) in China, Shaanxi Suoang. As a result of our holding company
      structure, we rely entirely on payments from Shaanxi Suoang under our
      contractual arrangements. The PRC government also imposes controls on the
      conversion of RMB into foreign currencies and the remittance of currencies
      out
      of China. We may experience difficulties in completing the administrative
      procedures necessary to obtain and remit foreign currency. (See the section
      below titled “Government control of currency conversion may affect the value of
      your investment.”) Furthermore, if our VIE in China incurs debt on its own
      in the future, the instruments governing the debt may restrict its ability
      to
      make payments. If we are unable to receive all of the revenues from our
      operations through these contractual or dividend arrangements, we may be unable
      to pay dividends on our ordinary shares.




***Uncertainties
      with respect to the PRC legal system could adversely affect us.***




We
      conduct our business primarily through Hangson and our VIE, Shaanxi Suoang.
      Our
      operations in China are governed by PRC laws and regulations. We are generally
      subject to laws and regulations in China. The PRC legal system is based on
      written statutes. Prior court decisions may be cited for reference but have
      limited precedential value.




However,
      China has not developed a fully integrated legal system and recently enacted
      laws and regulations may not sufficiently cover all aspects of economic
      activities in China. In particular, because these laws and regulations are
      relatively new, and because of the limited volume of published decisions and
      their nonbinding nature, the interpretation and enforcement of these laws and
      regulations involve uncertainties. In addition, the PRC legal system is based
      in
      part on government policies and internal rules (some of which are not published
      on a timely basis or at all) that may have a retroactive effect. As a result,
      we
      may not be aware of our violation of these policies and rules until some time
      after the violation. In addition, any litigation in China may be protracted
      and
      result in substantial costs and diversion of resources and management attention.





***You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in China based on United States
      or other foreign laws against us, our management or the experts named in the
      prospectus.***




We
      conduct substantially all of our operations in China and the majority of our
      assets are located in China. In addition, all of our executive officers reside
      within China. As a result, it may not be possible to effect service of process
      within the United States or in China again us or upon our executive officers,
      including with respect to matters arising under U.S. federal securities laws
      or
      applicable state securities laws. Moreover, there is uncertainty that the courts
      of China would enforce judgments of U.S. courts against us or our directors
      and
      officers based on the civil liability provisions of the securities laws of
      the
      United States or any state, or entertain an original action brought in China
      based upon the securities laws of the United States or any state.





16




***Governmental
      control of currency conversion may affect the value of your investment.***




The
      PRC
      government imposes controls on the convertibility of RMB into foreign currencies
      and, in certain cases, the remittance of currency out of China. We receive
      substantially all of our revenues in RMB. Under our current structure, our
      income is primarily derived from payments from Shaanxi Suoang. Shortages in
      the
      availability of foreign currency may restrict the ability of our PRC
      subsidiaries and our affiliated entity to remit sufficient foreign currency
      to
      pay dividends or other payments to us, or otherwise satisfy their foreign
      currency denominated obligations. Under existing PRC foreign exchange
      regulations, payments of current account items, including profit distributions,
      interest payments and expenditures from trade-related transactions, can be
      made
      in foreign currencies without prior approval from the PRC State Administration
      of Foreign Exchange by complying with certain procedural requirements. However,
      approval from appropriate government authorities is required where RMB is to
      be
      converted into foreign currency and remitted out of China to pay capital
      expenses such as the repayment of bank loans denominated in foreign currencies.
      The PRC government may also at its discretion restrict access in the future
      to
      foreign currencies for current account transactions. If the foreign exchange
      control system prevents us from obtaining sufficient foreign currency to satisfy
      our currency demands, we may not be able to pay dividends in foreign currencies
      to our shareholders.




***Fluctuation
      in the value of RMB may have a material adverse effect on your investment.***




The
      value
      of RMB against the U.S. dollar and other currencies may fluctuate and is
      affected by, among other things, changes in political and economic conditions.
      Our revenues and costs are mostly denominated in RMB, while a significant
      portion of our financial assets are denominated in U.S. dollars. We rely
      entirely on fees paid to us by our VIE in China. Any significant fluctuation
      in
      value of RMB may materially and adversely affect our cash flows, revenues,
      earnings and financial position, and the value of, and any dividends payable
      on,
      our stock in U.S. dollars. For example, an appreciation of RMB against the
      U.S.
      dollar would make any new RMB denominated investments or expenditures more
      costly to us, to the extent that we need to convert U.S. dollars into RMB for
      such purposes. An appreciation of RMB against the U.S. dollar would also result
      in foreign currency translation losses for financial reporting purposes when
      we
      translate our U.S. dollar denominated financial assets into RMB, as RMB is
      our
      reporting currency.





***We
      face risks related to health epidemics and other outbreaks.***




Our
      business could be adversely affected by the effects of avian flu, SARS or
      another epidemic or outbreak. China reported a number of cases of SARS in April
      2004. In 2005, there have been reports on the occurrences of avian flu in
      various parts of China, including a few confirmed human cases. Any prolonged
      recurrence of avian flu, SARS or other adverse public health developments in
      China may have a material adverse effect on our business operations. These
      could
      include our ability to travel or ship our products, as well as temporary closure
      of our manufacturing facilities. Such closures or travel or shipment
      restrictions would severely disrupt our business operations and adversely affect
      our results of operations. We have not adopted any written preventive measures
      or contingency plans to combat any future outbreak of avian flu, SARS or any
      other epidemic.




**Risks
      Related to an Investment in Our Securities**




***To
      Date, We Have Not Paid Any Cash Dividends and No Cash Dividends Will be Paid
      in
      the Foreseeable Future.***





We
      do not
      anticipate paying cash dividends on our common stock in the foreseeable future
      and we may not have sufficient funds legally available to pay dividends. Even
      if
      the funds are legally available for distribution, we may nevertheless decide
      not
      to pay any dividends. We intend to retain all earnings for the company's
      operations.





***The
      Application of the "Penny Stock" Rules Could Adversely Affect the Market Price
      of Our Common Stock and Increase Your Transaction Costs to Sell Those Shares.***





As
      long
      as the trading price of our common shares is below $5 per share, the open-market
      trading of our common shares will be subject to the "penny stock" rules. The
      "penny stock" rules impose additional sales practice requirements on
      broker-dealers who sell securities to persons other than established customers
      and accredited investors (generally those with assets in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 together with their spouse). For
      transactions covered by these rules, the broker-dealer must make a special
      suitability determination for the purchase of securities and have received
      the
      purchaser's written consent to the transaction before the purchase.
      Additionally, for any transaction involving a penny stock, unless exempt, the
      broker-dealer must deliver, before the transaction, a disclosure schedule
      prescribed by the Securities and Exchange Commission relating to the penny
      stock
      market. The broker-dealer also must disclose the commissions payable to both
      the
      broker-dealer and the registered representative and current quotations for
      the
      securities. Finally, monthly statements must be sent disclosing recent price
      information on the limited market in penny stocks. These additional burdens
      imposed on broker-dealers may restrict the ability or decrease the willingness
      of broker-dealers to sell our common shares, and may result in decreased
      liquidity for our common shares and increased transaction costs for sales and
      purchases of our common shares as compared to other securities.





17




***Our
      Common Shares are Thinly Traded and, You May be Unable to Sell at or Near Ask
      Prices or at All if You Need to Sell Your Shares to Raise Money or Otherwise
      Desire to Liquidate Your Shares.***





The
      Company cannot predict the extent to which an active public market for its
      common stock will develop or be sustained. However, the Company does not rule
      out the possibility of applying for listing on the Nasdaq National Market or
      other exchanges.




Our
      common shares have historically been sporadically or "thinly-traded" on the
      “Over-the-Counter Bulletin Board”, meaning that the number of persons interested
      in purchasing our common shares at or near bid prices at any given time may
      be
      relatively small or non-existent. This situation is attributable to a number
      of
      factors, including the fact that we are a small company which is relatively
      unknown to stock analysts, stock brokers, institutional investors and others
      in
      the investment community that generate or influence sales volume, and that
      even
      if we came to the attention of such persons, they tend to be risk-averse and
      would be reluctant to follow an unproven company such as ours or purchase or
      recommend the purchase of our shares until such time as we became more seasoned
      and viable. As a consequence, there may be periods of several days or more
      when
      trading activity in our shares is minimal or non-existent, as compared to a
      seasoned issuer which has a large and steady volume of trading activity that
      will generally support continuous sales without an adverse effect on share
      price. We cannot give you any assurance that a broader or more active public
      trading market for our common stock will develop or be sustained, or that
      current trading levels will be sustained.




The
      market price for our common stock is particularly volatile given our status
      as a
      relatively small company with a small and thinly traded “float” and lack of
      current revenues that could lead to wide fluctuations in our share price. The
      price at which you purchase our common stock may not be indicative of the price
      that will prevail in the trading market. You may be unable to sell your common
      stock at or above your purchase price if at all, which may result in substantial
      losses to you.





The
      market for our common shares is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      The volatility in our share price is attributable to a number of factors. First,
      as noted above, our common shares are sporadically and/or thinly traded. As
      a
      consequence of this lack of liquidity, the trading of relatively small
      quantities of shares by our shareholders may disproportionately influence the
      price of those shares in either direction. The price for our shares could,
      for
      example, decline precipitously in the event that a large number of our common
      shares are sold on the market without commensurate demand, as compared to a
      seasoned issuer which could better absorb those sales without adverse impact
      on
      its share price. Secondly, we are a speculative or "risky" investment due to our
      lack of revenues or profits to date and uncertainty of future market acceptance
      for our current and potential products. As a consequence of this enhanced risk,
      more risk-adverse investors may, under the fear of losing all or most of their
      investment in the event of negative news or lack of progress, be more inclined
      to sell their shares on the market more quickly and at greater discounts than
      would be the case with the stock of a seasoned issuer. The following factors
      may
      add to the volatility in the price of our common shares: actual or anticipated
      variations in our quarterly or annual operating results; adverse outcomes;
      the
      termination of our contractual agreements with Shaanxi Suoang; and additions
      or
      departures of our key personnel, as well as other items discussed under this
      "Risk Factors" section, as well as elsewhere in this Quarterly Report. Many
      of
      these factors are beyond our control and may decrease the market price of our
      common shares, regardless of our operating performance. We cannot make any
      predictions or projections as to what the prevailing market price for our common
      shares will be at any time, including as to whether our common shares will
      sustain their current market prices, or as to what effect that the sale of
      shares or the availability of common shares for sale at any time will have
      on
      the prevailing market price.





Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the volatility of our share price.





18




***Volatility
      in Our Common Share Price May Subject Us to Securities Litigation.***





The
      market for our common stock is characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price will
      continue to be more volatile than a seasoned issuer for the indefinite future.
      In the past, plaintiffs have often initiated securities class action litigation
      against a company following periods of volatility in the market price of its
      securities. We may, in the future, be the target of similar litigation.
      Securities litigation could result in substantial costs and liabilities and
      could divert management's attention and resources.





***Our
      corporate actions are substantially controlled by our principal shareholders
      and
      affiliated entities.***




Our
      principal shareholders and their affiliated entities will own approximately
      85%
      of our outstanding ordinary shares, representing approximately 85% of our voting
      power. These shareholders, acting individually or as a group, could exert
      substantial influence over matters such as electing directors and approving
      mergers or other business combination transactions. In addition, because of
      the
      percentage of ownership and voting concentration in these principal shareholders
      and their affiliated entities, elections of our board of directors will
      generally be within the control of these shareholders and their affiliated
      entities. While all of our shareholders are entitled to vote on matters
      submitted to our shareholders for approval, the concentration of shares and
      voting control presently lies with these principal shareholders and their
      affiliated entities. As such, it would be difficult for shareholders to propose
      and have approved proposals not supported by management. There can be no
      assurances that matters voted upon by our officers and directors in their
      capacity as shareholders will be viewed favorably by all shareholders of the
      company.





***The
      Elimination of Monetary Liability Against our Directors, Officers and Employees
      under Nevada law and the Existence of Indemnification Rights to our Directors,
      Officers and Employees may Result in Substantial Expenditures by our Company
      and
      may Discourage Lawsuits Against our Directors, Officers and Employees.***





Our
      articles of incorporation contains a provision that eliminates the liability
      of
      our directors for monetary damages to our company and shareholders to the extent
      allowed under Nevada law and we are prepared to give such indemnification to
      our
      directors and officers to the extent provided by Nevada law. We may also have
      contractual indemnification obligations under our employment agreements that
      we
      enter into with our officers. The foregoing indemnification obligations could
      result in our company incurring substantial expenditures to cover the cost
      of
      settlement or damage awards against directors and officers, which we may be
      unable to recoup. These provisions and resultant costs may also discourage
      our
      company from bringing a lawsuit against directors and officers for breaches
      of
      their fiduciary duties, and may similarly discourage the filing of derivative
      litigation by our shareholders against our directors and officers even though
      such actions, if successful, might otherwise benefit our company and
      shareholders.




***Legislative
      Actions, Higher Insurance Costs and Potential New Accounting Pronouncements
      may
      Impact our Future Financial Position and Results of
      Operations.***





There
      have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
      there may potentially be new accounting pronouncements or additional regulatory
      rulings that will have an impact on our future financial position and results
      of
      operations. The Sarbanes-Oxley Act of 2002 and other rule changes as well as
      proposed legislative initiatives following the Enron bankruptcy are likely
      to
      increase general and administrative costs and expenses. In addition, insurers
      are likely to increase premiums as a result of high claims rates over the past
      several years, which we expect will increase our premiums for insurance
      policies. Further, there could be changes in certain accounting rules. These
      and
      other potential changes could materially increase the expenses we report under
      generally accepted accounting principles, and adversely affect our operating
      results.





***Past
      Activities Of The Company And Its Affiliates May Lead To Future Liability For
      The Company.***





Prior
      to
      our entry into the Exchange Agreement with Hangson on October 20, 2006, the
      Company engaged in businesses unrelated to its current operations. Although
      the
      Endo Shareholders are providing certain indemnifications against any loss,
      liability, claim, damage or expense arising out of or based on any breach of
      or
      inaccuracy in any of their representations and warranties made regarding such
      acquisition, any liabilities relating to such prior business against which
      Hangson is not completely indemnified may have a material adverse effect on
      the
      Company.





19




***The
      market price for our stock may be volatile.***




The
      market price for our stock may be volatile and subject to wide fluctuations
      in
      response to factors including the following:





·
            actual
                or anticipated fluctuations in our quarterly operating
                results;





·
            changes
                in financial estimates by securities research
                analysts;





·
            conditions
                in bio-technology and coal-based product
                markets;





·
            changes
                in the economic performance or market valuations of other alternative
                energy and coal-based products
                companies;





·
            announcements
                by us or our competitors of new products, acquisitions, strategic
                partnerships, joint ventures or capital
                commitments;





·
            addition
                or departure of key personnel;





·
            fluctuations
                of exchange rates between RMB and the U.S.
                dollar;





·
            intellectual
                property litigation; and





·
            general
                economic or political conditions in China.




In
      addition, the securities market has from time to time experienced significant
      price and volume fluctuations that are not related to the operating performance
      of particular companies. These market fluctuations may also materially and
      adversely affect the market price of our stock.




***We
      may need additional capital, and the sale of additional shares or other equity
      securities could result in additional dilution to our shareholders.***




We
      believe that our current cash and cash equivalents, anticipated cash flow from
      operations and the net proceeds from this offering will be sufficient to meet
      our anticipated cash needs for the near future. We may, however, require
      additional cash resources due to changed business conditions or other future
      developments, including any investments or acquisitions we may decide to pursue.
      If our resources are insufficient to satisfy our cash requirements, we may
      seek
      to sell additional equity or debt securities or obtain a credit facility. The
      sale of additional equity securities could result in additional dilution to
      our
      shareholders. The incurrence of indebtedness would result in increased debt
      service obligations and could result in operating and financing covenants that
      would restrict our operations. We cannot assure you that financing will be
      available in amounts or on terms acceptable to us, if at all.





***If
      we fail to maintain an effective system of internal controls, we may not be
      able
      to accurately report our financial results or prevent fraud.***




We
      are
      subject to reporting obligations under the U.S. securities laws. The Securities
      and Exchange Commission, or the SEC, as required by Section 404 of the
      Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to
      include a management report on such company’s internal controls over financial
      reporting in its annual report, which contains management’s assessment of the
      effectiveness of the company’s internal controls over financial reporting. In
      addition, an independent registered public accounting firm must attest to and
      report on management’s assessment of the effectiveness of the company’s internal
      controls over financial reporting. Our management may conclude that our internal
      controls over our financial reporting are not effective. Moreover, even if
      our
      management concludes that our internal controls over financial reporting are
      effective, our independent registered public accounting firm may still decline
      to attest to our management’s assessment or may issue a report that is qualified
      if it is not satisfied with our controls or the level at which our controls
      are
      documented, designed, operated or reviewed, or if it interprets the relevant
      requirements differently from us. Our reporting obligations as a public company
      will place a significant strain on our management, operational and financial
      resources and systems for the foreseeable future. Effective internal controls,
      particularly those related to revenue recognition, are necessary for us to
      produce reliable financial reports and are important to help prevent fraud.
      As a
      result, our failure to achieve and maintain effective internal controls over
      financial reporting could result in the loss of investor confidence in the
      reliability of our financial statements, which in turn could harm our business
      and negatively impact the trading price of our stock. Furthermore, we anticipate
      that we will incur considerable costs and use significant management time and
      other resources in an effort to comply with Section 404 and other requirements
      of the Sarbanes-Oxley Act.





20




***We
      will incur increased costs as a result of being a public company.***




As
      a
      public company, we will incur significant legal, accounting and other expenses
      that we did not incur as a private company. In addition, the Sarbanes-Oxley
      Act,
      as well as new rules subsequently implemented by SEC have required changes
      in
      corporate governance practices of public companies. We expect these new rules
      and regulations to increase our legal, accounting and financial compliance
      costs
      and to make certain corporate activities more time-consuming and costly. In
      addition, we will incur additional costs associated with our public company
      reporting requirements. We are currently evaluating and monitoring developments
      with respect to these new rules, and we cannot predict or estimate the amount
      of
      additional costs we may incur or the timing of such costs.




**Item
      3.**  **Controls
      And Procedures**





(a)
            *Evaluation
                of disclosure controls and procedures*.
                As of the end of the period covered by this report, we carried out
                an
                evaluation, under the supervision and with the participation of our
                management, including our Chief Executive Officer and Chief Financial
                Officer, of the effectiveness of the design and operation of our
                disclosure controls and procedures, as defined in Rules 13a-15(e)
                and
                15d-15(e) under the Securities Exchange Act of 1934, as amended.
                Based
                upon that evaluation, our Chief Executive Officer and Chief Financial
                Officer concluded that our disclosure controls and procedures were
                effective as of the end of the applicable period to ensure that the
                information required to be disclosed by the Company in reports that
                it
                files or submits under the Exchange Act (i) is recorded, processed,
                summarized and reported within the time periods specified in Securities
                and Exchange Commission rules and forms and (ii) is accumulated and
                communicated to our management, including our Chief Executive Officer
                and
                Chief Financial Officer, as appropriate to allow timely decisions
                regarding required disclosures.




(b)
            *Changes
                in internal controls over financial reporting*.
                There was no change in our internal control over financial reporting
                during our most recent fiscal quarter that has materially affected,
                or is
                reasonably likely to materially affect, our internal control over
                financial reporting.





21


**PART
      II - OTHER INFORMATION**





**Item 1.
      Legal Proceedings.**





None.





**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 Securities Holders.**





None.





**Item 5.
      Other Information** .





(a)
            None.




(b)
            There
                were no changes to the procedures by which security holders may recommend
                nominees to our board of directors.




**Item
      6. Exhibits**





**Exhibit
                Number**
            
            **Description**2.1
            
            Share
                Exchange Agreement between Endo Networks, Inc., Endo Majority
                Shareholders, Hangson Ltd. and the Hangson Shareholders dated October
                18,
                2006 (1)3.1
            
            Articles
                of Incorporation of Endo Networks, Inc., a Nevada corporation, as
                amended.
                (3)3.2
            
            Bylaws
                of Endo Networks, Inc. (3)3.3
            
            Text
                of Amendment to our Bylaws (4)10.1
            
            Asset
                and Share Purchase Agreement between Registrant and Peter B. Day
                (for Endo
                Canada) (2)10.2
            
            Contract
                for Technology Transfer between Shaanxi Suo’ang Biological Science &
                Technology Co., Ltd. and HanZhongWeiDa Commercial Company Limited
                dated
                December 25, 2006 (5)10.3
            
            Contract
                for Technology Transfer between Shaanxi Suo’ang Biological Science &
                Technology Co., Ltd. and HanZhongWeiDa Commercial Company Limited
                dated
                January 10, 2007 (5)




22




31.1
            
            Section
                302 Certification by the Corporation’s Chief Executive Officer
                *31.2
            
            Section
                302 Certification by the Corporation’s Chief Financial Officer
                *32.1
            
            Section
                906 Certification by the Corporation’s Chief Executive Officer
                *32.2
            
            Section
                906 Certification by the Corporation’s Chief Financial Officer
                *99.1
            
            Consulting
                Services Agreement by and between Hangson Limited and Shaanxi Suo’ang
                Biological Science & Technology Co., Ltd. dated August 18, 2006
                (3)99.2
            
            Equity
                Pledge Agreement by and between Hangson Limited and Shaanxi Suo’ang
                Biological Science & Technology Co., Ltd. (“Shaanxi Suoang”) and
                Shaanxi Suoang’s Majority Shareholders dated August 18, 2006
                (3)99.3
            
            Operating
                Agreement by and between Hangson Limited and Shaanxi Suo’ang Biological
                Science & Technology Co., Ltd. (“Shaanxi Suoang”) and Shaanxi Suoang’s
                Majority Shareholders dated August 18, 2006
                (3)




99.4
            
            Proxy
                Agreement by and between Hangson Limited and Shaanxi Suo’ang Biological
                Science & Technology Co., Ltd. (“Shaanxi Suoang”) and Shaanxi Suoang’s
                Majority Shareholders dated August 18, 2006 (3)99.5
            
            Option
                Agreement between Hangson Limited and Shaanxi Suo’ang Biological Science
                & Technology Co., Ltd. (“Shaanxi Suoang”) and Shaanxi Suoang’s
                Majority Shareholders dated August 18, 2006 (3)99.6
            
            Agreement
                by and between Shaanxi****Suo’ang
                Biological Science and Technology Co. Ltd. and Hanzhong Si Xiong
                Ke Chuang
                Business Co. Ltd. (3)99.7
            
            Supplementary
                Agreement by and between Shaanxi****Suo’ang
                Biological Science and Technology Co. Ltd. and Hanzhong Si Xiong
                Ke Chuang
                Business Co. Ltd. dated March 25, 2007
                (5)




*
        Filed herewith.




(1)
            Filed
                as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with
                the SEC on October 18, 2006 and incorporated herein by
                reference.





(2)
            Filed
                as Exhibit A of Registrant’s Schedule 14A filed with the SEC on August 8,
                2006 and incorporated herein by
                reference.





(3)
            Filed
                as Exhibits to the Registrant’s Current Report on Form 8-K filed with the
                SEC on October 26, 2006 and incorporated herein by
                reference.





(4)
            Filed
                as an Exhibit to the Registrant’s Current Report on Form 8-K filed with
                the SEC on November 17, 2006 and incorporated herein by
                reference.





(5)
            Filed
                as Exhibits to the Registrant’s Annual Report on Form 10-KSB filed with
                the SEC on May 3, 2007 and incorporated herein by
                reference.




**[SIGNATURES
      PAGE FOLLOWS]**


23




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the Registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**CHINA
                WEST COAL ENERGY INC.**
              (Registrant)Date:
                August 14, 2007
            By:
            /s/ Baowen RenBaowen
                Ren
              Chief
                  Executive Officer




24