UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


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





For the
quarterly period ended:March
31, 2008





Or




[__]
            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




SINO
CLEAN 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 [X] No [__]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
accelerated
filer                                           [__]                                                                                                       
Accelerated filer [__]





Non-accelerated
filer                                             [__]
(Do not check if a smaller reporting
company)                       Smaller
reporting company [X]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes [__]
No [X]





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: 84,681,750 issued and outstanding as of May 12,
2008.





Transitional
Small Business Disclosure Form (Check one): Yes [__] No [X]





Table of Contents





TABLE OF CONTENTS


TO
QUARTERLY REPORT ON FORM 10-Q


FOR
QUARTER ENDED MARCH 31, 2008








PART
      I
            FINANCIAL
      INFORMATION
            PageItem
      1.
            Financial Statements
            1Item
      2.
            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            19Item
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            22Item
      4.
            Controls and Procedures
            22








PART
      II
            OTHER
      INFORMATIONItem
      1.
            Legal Proceedings
            23Item
      1A.
            Risk Factors
            23Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            23Item
      3.
            Defaults Upon Senior Securities
            23Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            23Item
      5.
            Other Information
            23Item
      6.
            Exhibits
            23Signatures
            
            25Exhibits






(REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK)













































































-i-
 Table of Contents





CAUTION
REGARDING FORWARD-LOOKING INFORMATION





All
statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) for
Sino Clean 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: 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-Q 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-Q, unless the context
requires otherwise, “we” or “us” or “Registrant” or the “Company” means Sino
Clean Energy Inc. and its subsidiaries.














-ii-
 Table of Contents





PART
I - FINANCIAL INFORMATION





Item
1.                       Financial
Statements









































SINO
      CLEAN ENERGY INC. AND SUBSIDIARIESConsolidated
      Financial StatementsFor
      the Three Months Ended March 31, 2008 and
2007











-1-
 Table of Contents





SINO
CLEAN ENERGY INC. AND SUBSIDIARIES


Consolidated
Financial Statements


For
the Three Months Ended March 31, 2008 and 2007








Page(s)Consolidated Balance Sheets
            
            3Consolidated Statements of Income (Operations) and Other
      Comprehensive Income
            
            5Consolidated Statements of Changes in Shareholders'
      Equity
            
            7Consolidated Statements of Cash Flows
            
            8Notes to Consolidated Financial
    Statements
            
            9








The
accompanying notes are an integral part of these financial
statements.
 -2-
 Table of Contents








Sino CleanEnergy Inc. and SubsidiariesConsolidated
      Balance Sheets(Amounts
      expressed in U.S. Dollars)March
      31,
            
            
            December
      31,2008
            
            
            2007(Unaudited)
            
            
            (Audited)ASSETSCurrent
      assetsCash
      and cash equivalent
            
            $
            4,267,153
            
            
            $
            2,832,132Accounts
      receivable, net (Note 2(d))
            
            
            2,299,588
            
            
            
            1,068,303Deposits
      and prepayments (Note 5)
            
            
            1,266,391
            
            
            
            2,542,929Other
      receivables
            
            
            195,432
            
            
            
            138,523Prepaid
      land use right - current portion (Note 9)
            
            
            37,742
            
            
            
            36,285Government
      grant receivable (Note 6)
            
            
            -
            
            
            
            411,000Assets
      on discontinued operationOther
      receivable - related (Note 15(b))
            
            
            -
            
            
            
            141,795Inventories
      (Note 7)
            
            
            75,283
            
            
            
            40,959Total
      current assets
            
            
            8,141,589
            
            
            
            7,211,926Property,
      plant and equipment, net (Note 8)
            
            
            5,637,959
            
            
            
            5,435,804Prepaid
      land use right - non current portion (Note 9)
            
            
            1,778,342
            
            
            
            1,718,744Intangible
      assets, net (Note 10)
            
            
            1,420
            
            
            
            1,478Total
      assets
            
            $
            15,559,310
            
            
            $
            14,367,952





The
accompanying notes are an integral part of these financial
statements.
 -3-
 Table of Contents








Sino
      Clean Energy Inc. and SubsidiariesConsolidated
      Balance Sheets(Amounts
      expressed in U.S. Dollars)March
      31,
            
            
            December
      31,2008
            
            
            2007(Unaudited)
            
            
            (Audited)LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
            
            $
            16,688
            
            
            $
            41,827Accrued
      expenses and other payables (Note 11)
            
            
            841,604
            
            
            
            893,732Amount
      due to a director (Note 15 (a))
            
            
            -
            
            
            
            8,527Taxes
      payable
            
            
            162,455
            
            
            
            130,332Deposit
      on sales of property (Note 15 (c))
            
            
            1,567,500
            
            
            
            1,507,000Total
      current liabilities
            
            
            2,588,247
            
            
            
            2,581,418Minority
      interest
            
            
            525,761
            
            
            
            352,789Commitments
      and Contingencies (Note 16)Shareholders'
      EquityPreferred
      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,84,681,750
      issued and outstanding (Note 14)
            
            
            84,682
            
            
            
            84,682Additional
      paid-in capital
            
            
            9,153,174
            
            
            
            9,153,174Retained
      earnings
            
            
            1,209,981
            
            
            
            686,482Statutory
      reserves (Note 13)
            
            
            348,309
            
            
            
            348,309Accumulated
      other comprehensive income
            
            
            1,649,156
            
            
            
            1,161,098Total
      shareholders' equity
            
            
            12,445,302
            
            
            
            11,433,745Total
      liabilities and shareholders' equity
            
            $
            15,559,310
            
            
            $
            14,367,952













-4-
 Table of Contents








Sino
      Clean Energy Inc. and SubsidiariesConsolidated Statements of Income (Operations) and Other
      Comprehensive IncomeFor
      the three months ended March 31, 2008 and 2007(Amounts
      expressed in U.S. Dollars)(Unaudited)Period
      ended March 31,2008
            
            
            2007Revenue
            
            $
            2,485,128
            
            
            $
            -Cost
      of goods sold
            
            
            (1,684,679
            )
            
            
            -Gross
      profit
            
            
            800,449
            
            
            
            -Selling
      expenses
            
            
            2,405
            
            
            
            1,286General
      and administrative expenses
            
            
            163,498
            
            
            
            51,662Income
      (loss) from operations
            
            
            634,546
            
            
            
            (52,948
            )Other
      income (expenses)Rental
      income, net of outgoings
            
            
            53,719
            
            
            
            -Interest
      income
            
            
            -
            
            
            
            6,310Sundry
      income(expenses)
            
            
            -
            
            
            
            (41,319
            )Other
      income
            
            
            37,060
            
            
            
            121,843Total
      other income (expenses)
            
            
            90,779
            
            
            
            86,834Income
      before provision for income taxesand
      minority interest
            
            
            725,325
            
            
            
            33,886Provision
      for income taxes (Note 13)
            
            
            46,083
            
            
            
            -Net
      income before minority interest
            
            $
            679,242
            
            
            $
            33,886






-5-
 Table of Contents





Sino
      Clean Energy Inc. and SubsidiariesConsolidated
      Statements of Income (Operations) and Other Comprehensive
      IncomeFor
      the three months ended March 31, 2008 and 2007(Amounts
      expressed in U.S. Dollars)(Unaudited)Period
      ended March 31,2008
            
            
            2007Minority
      interest
            
            
            (155,743
            )
            
            
            4,356Net
      income
            
            
            523,499
            
            
            
            38,242Other
      comprehensive incomeForeign
      currency translation adjustment
            
            
            488,058
            
            
            
            77,487Comprehensive
      income
            
            $
            1,011,557
            
            
            $
            115,729Weight
      average number of shares-
      Basic and diluted
            
            
            84,681,750
            
            
            
            84,681,750Income
      per common share (Note 14)-
      Basic and diluted
            
            $
            0.0060
            
            
            $
            0.0005








The
accompanying notes are an integral part of these financial
statements.
 -6-
 Table of Contents








Sino CleanEnergy Inc. and
    SubsidiariesConsolidated
      Statements of Shareholders' Equity(Amount
      expressed in U.S. Dollars except number of shares)(Accumulated
            
            
            AccumulatedCommon
      stock
            
            
            Additional
            
            
            Statutory
            
            
            Statutory
            
            
            deficits)
      /
            
            
            otherpaid-in
            
            
            capital
            
            
            welfare
            
            
            Retained
            
            
            comprehensiveShares
            
            
            Amount
            
            
            capital
            
            
            reserves
            
            
            reserves
            
            
            earnings
            
            
            income
            
            
            TotalBalance,
      January 1, 2007, (audited)
            
            
            84,681,750
            
            
            $
            84,682
            
            
            $
            9,153,174
            
            
            $
            232,206
            
            
            $
            116,103
            
            
            $
            (330,456
            )
            
            $
            432,312
            
            
            $
            9,688,021Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            38,242
            
            
            
            -
            
            
            
            38,242Foreign
      currency translation gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            77,487
            
            
            
            77,487Balance,
      March 31, 2007, (unaudited)
            
            
            84,681,750
            
            
            $
            84,682
            
            
            $
            9,153,174
            
            
            $
            232,206
            
            
            $
            116,103
            
            
            $
            (292,214
            )
            
            $
            509,799
            
            
            $
            9,803,750Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            978,696
            
            
            
            -
            
            
            
            978,696Foreign
      currency translation gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            651,299
            
            
            
            651,299Balance,
      December 31, 2007, (audited)
            
            
            84,681,750
            
            
            $
            84,682
            
            
            $
            9,153,174
            
            
            $
            232,206
            
            
            $
            116,103
            
            
            $
            686,482
            
            
            $
            1,161,098
            
            
            $
            11,433,745Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            523,499
            
            
            
            -
            
            
            
            523,499Foreign
      currency translation gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            488,058
            
            
            
            488,058Balance,
      March 31, 2008, (unaudited)
            
            
            84,681,750
            
            
            $
            84,682
            
            
            $
            9,153,174
            
            
            $
            232,206
            
            
            $
            116,103
            
            
            $
            1,209,981
            
            
            $
            1,649,156
            
            
            $
            12,445,302








The
accompanying notes are an integral part of these financial
statements.
 -7-
 Table of Contents








Sino
      Clean Energy Inc. and SubsidiariesConsolidated Statements of Cash Flows(Amounts
      expressed in U.S. Dollars)(Unaudited)Period
      ended March 31,2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            523,499
            
            
            $
            38,242Adjustments
      to reconcile net income to cashprovided
      by operating activities:Minority
      Interest
            
            
            155,743
            
            
            
            (4,356
            )Depreciation
      and amortization
            
            
            72,443
            
            
            
            35,338(Increase)
      decrease in assets:Accounts
      receivable
            
            
            (1,165,463
            )
            
            
            -Deposits and prepayments
            
            
            1,345,638
            
            
            
            (2,528,393
            )Other receivables
            
            
            (52,454
            )
            
            
            (2,049
            )Assets on discontinued operationAccounts
      receivable
            
            
            -
            
            
            
            441,705Other
      receivables
            
            
            141,795
            
            
            
            210,606Inventories
            
            
            -
            
            
            
            13,458Inventories
            
            
            (32,049
            )
            
            
            -Increase
      (decrease) in liabilities:Accounts
      payable
            
            
            (26,301
            )
            
            
            -Accounts
      payable - discontinued operation
            
            
            -
            
            
            
            (591,341
            )Advance
      from customers
            
            
            -
            
            
            
            574,581Accrued
      expenses and other payable
            
            
            (71,403
            )
            
            
            (57,741
            )Taxes
      payables
            
            
            26,372
            
            
            
            -Taxes
      payables - discontinued operation
            
            
            -
            
            
            
            (66,266
            )Net
      cash provided by (used in) operating activities
            
            
            917,820
            
            
            
            (1,936,216
            )Cash
      flows from investing activities:Purchase
      of property, plant and equipment
            
            
            (40,962
            )
            
            
            (29,623
            )Net
      cash used in investing activities
            
            
            (40,962
            )
            
            
            (29,623
            )Cash
      flows from financing activities:Repayment
      from a director
            
            
            -
            
            
            
            18,341(Repayment
      to) advance from a director
            
            
            (8,527
            )
            
            
            80,195Receipt
      of government grant
            
            
            411,000
            
            
            
            -Net
      cash provided by financing activities
            
            
            402,473
            
            
            
            98,536Effect
      of foreign currency translation
            
            
            155,690
            
            
            
            (3,786
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            1,435,021
            
            
            
            (1,871,089
            )Cash
      and cash equivalents, beginning of year
            
            
            2,832,132
            
            
            
            4,450,557Cash
      and cash equivalents, end of period
            
            $
            4,267,153
            
            
            $
            2,579,468Interest
      paid
            
            $
            -
            
            
            $
            -Income
      taxes paid
            
            $
            -
            
            
            $
            -








The
accompanying notes are an integral part of these financial
statements.
 -8-
 Table of Contents





SINO CLEAN ENERGY INC.AND SUBSIDIARIES


NOTES TOCONSOLIDATED FINANCIAL STATEMENTS


FOR THE
THREE MONTHS ENDED MARCH 31, 2008 AND 2007








1.           
CORPORATIONREORGANZATIONAND BUSINESS
ACTIVITIES





Sino
Clean Energy Inc. (the “Company”) was originally incorporated in Texas as
“Discount Mortgage Services, Inc.” on July 11, 2000.  In November
2001, the Company changed its name to Endo Networks, Inc. and was redomiciled to
the State of Nevada in December 2002.  On January 4, 2007, the Company
changed its name to “China West Coal Energy Inc.”  Further on August
15, 2007, the Company changed its name to “Sino Clean Energy Inc.”





In 2006,
the Company had principally been engaged in production and sales of coal-polymer
(“COPO”) resin products. In December 2006, the Company decided to cease its
operations in COPO products manufacturing and shift all its resources towards
the production and sale of “coal-water mixture” products.





2.          
 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 and its controlled
subsidiary.  All significant inter-company transactions and balances
among the Company, Hangson and its variable interest entities are eliminated
upon consolidation.





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.            
Cash and cash
equivalents





Cash and
cash equivalents consist of cash on hand and bank deposits.





d.           
 Accounts
receivable





Accounts
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
period.  As of March 31, 2008 and December 31, 2007, accounts
receivable were net of allowances of $5,584 and $5,368,
 respectively.





e.            
Inventories





Inventories
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.





-9-
 Table of Contents








f.          
  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:





Buildings
            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








g.            
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.





h.           
 Prepaid land use
rights





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





i.           
 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.





j.            
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
other comprehensive income of $1,649,156 and $509,799 for the periods ended
March 31, 2008 and 2007, respectively.  The other comprehensive income
arose from the changes in foreign currency exchange rate.





k.            
 Fair value of
financial instruments





The
Company believes that the carrying values of its cash and cash equivalents,
accounts receivable, accounts payable, other receivables and other payables as
of March 31, 2008 and December 31, 2007 approximate to their respective fair
values due to the short-term nature of those instruments.





l.             
Revenue
recognition





Revenues
of the Company arising from sales of coal water mixture.





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.





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m.           
 Earnings per
share





Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
periods.





n.             
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.


o.           
 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 within the shareholder's
equity.





p.          
  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.





q.            
Recently issued
accounting pronouncements





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 determined that the adoption of this standard had no
material effect 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 determined that the adoption of
this standard had no material effect on its financial
statements.





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.





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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
determined that the adoption of this standard had no material
effect on its financial statements.


On March
19, 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement
No. 161, Disclosures about Derivative Instruments and Hedging
Activities.  The new standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity’s financial position, financial performance, and cash
flows.  It is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged.  "Use and complexity of derivative instruments
and hedging activities have increased significantly over the past several
years.  This has led to concerns among investors that the existing
disclosure requirements in FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, do not provide enough information about how
these instruments and activities affect the entity’s financial position and
performance," explained Kevin Stoklosa, project manager.  "By
requiring additional information about how and why derivative instruments are
being used, the new standard gives investors better information upon which to
base their decisions."  The new standard also improves transparency
about the location and amounts of derivative instruments in an entity’s
financial statements; how derivative instruments and related hedged items are
accounted for under Statement 133; and how derivative instruments and related
hedged items affect its financial position, financial performance, and cash
flows. FASB Statement No. 161 achieves these improvements by requiring
disclosure of the fair values of derivative instruments and their gains and
losses in a tabular format.  It also provides more information
about an entity’s liquidity by requiring disclosure of derivative features that
are credit risk-related.  Finally, it requires cross-referencing
within footnotes to enable financial statement users to locate important
information about derivative instruments.  Management is currently
evaluating the effect of this pronouncement on the Company's financial
statements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), “Business Combinations”
(“FAS 141R”).  FAS 141R replaces Statement of Financial
Accounting Standards No. 141, “Business Combinations” (“FAS 141”),
although it retains the fundamental requirement in FAS 141 that the
acquisition method of accounting be used for all business
combinations.  FAS 141R establishes principles and requirements
for how the acquirer in a business combination (a) recognizes and measures
the assets acquired, liabilities assumed and any noncontrolling (“minority”)
interest in the acquiree, (b) recognizes and measures the goodwill acquired
in a business combination or a gain from a bargain purchase and
(c) determines what information to disclose regarding the business
combination.  FAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
Company’s 2009 fiscal year.  The Company is currently assessing the
potential effect of FAS 141R on its financial statements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling (“minority”) Interests in Consolidated Financial
Statements” (“FAS 160”).  FAS 160 establishes accounting and
reporting standards for the noncontrolling (“minority”) interest in a
subsidiary, commonly referred to as minority interest.  Among other
matters, FAS 160 requires (a) the noncontrolling (“minority”) interest
be reported within equity in the balance sheet and (b) the amount of
consolidated net income attributable to the parent and to the noncontrolling
(“minority”) interest to be clearly presented in the statement of
income.  FAS 160 is effective for the Company’s 2009 fiscal
year.  FAS 160 is to be applied prospectively, except for the
presentation and disclosure requirements, which shall be applied retrospectively
for all periods presented.  The Company is currently assessing the
potential effect of FAS 160 on its financial statements.





3.            
CONCENTRATIONOF CREDIT
RISK





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





b.
            As
      of March 31, 2008 and 2007, 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 March 31, 2008 and 2007, all of the Company's sales
      arose in the PRC.  All accounts receivable as of March 31, 2008
      and 2007 also arose in the PRC.





-12-
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d.           
 Details of the customers accounting for 10% or more of the Company’s total
sales for the periods ended March 31, 2008 and 2007 are as follows:





Periods
      ended March 31,2008
            
            
            2007Company
      A
            
            $
            -
            
            
            $
            4,850Company
      B
            
            
            606,182
            
            
            
            -Company
      C
            
            
            564,204
            
            
            
            -Company
      D
            
            
            561,498
            
            
            
            -Company
      E
            
            
            408,246
            
            
            
            -





The
accounts receivable from the customers accounting for 10% or more of the
Company’s total sales represent 66% and 71% of the balance of the account at
March 31, 2008 and December 31, 2007, respectively.  Accounts
receivable at March 31, 2008 originated from the coal water mixture
business.  Accounts receivables that originated from the COPO
resin business, which business was discontinued in 2007, have been
reclassified to discontinued operations.





4.            
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.





5.            
DEPOSITS AND
PREPAYMENTS





Deposits
and prepayments consist of the following,





March
      31,
            
            
            December
      31,2008
            
            
            2007Prepayment
      for construction in progress and machinery purchases
            
            $
            945,431
            
            
            $
            908,561Purchase
      security deposit
            
            
            277,875
            
            
            
            1,609,750Prepaid
      expenses
            
            
            40,988
            
            
            
            22,600Other
            
            
            2,097
            
            
            
            2,018$
            1,266,391
            
            
            $
            2,542,929





6.           
 GOVERNMENT GRANT
RECEIVABLE





The
amount represents a subsidy from the Provincial Government.  The
subsidy is unconditional and was received in the first quarter of
2008.





7.            
INVENTORIES





Inventories
consist of the following,





March
      31,
            
            
            December
      31,2008
            
            
            2007Raw
      materials
            
            $
            52,120
            
            
            $
            22,615Packing
      materials
            
            
            1,226
            
            
            
            1,751Finished
      goods
            
            
            21,937
            
            
            
            16,593$
            75,283
            
            
            $
            40,959








-13-
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8.           
 PROPERTY, PLANT
AND EQUIPMENT





Property,
plant and equipment consists of the following,





March
      31,
            
            
            December
      31,2008
            
            
            2007Construction
      in progress
            
            $
            123,954
            
            
            $
            119,169Buildings
            
            
            3,959,449
            
            
            
            3,806,628Leasehold
      improvements
            
            
            242,250
            
            
            
            232,900Plant
      and machinery
            
            
            1,660,240
            
            
            
            1,596,161Office
      equipment
            
            
            68,040
            
            
            
            65,414Motor
      vehicles
            
            
            174,839
            
            
            
            127,9356,228,772
            
            
            
            5,948,207Less:
      Accumulated depreciation and amortization
            
            
            590,813
            
            
            
            512,403$
            5,637,959
            
            
            $
            5,435,804





Construction
in progress included above was the construction of buildings, production lines
and machinery for the “Coal-water mixture” business.





The
depreciation expenses on property, plant and equipment for the three months
ended March 31, 2008 and 2007 were $72,443 and $9,729,
respectively.





9.            
PREPAID LAND USE
RIGHT





The
Company has recorded as prepaid land use rights the costs paid to acquire a
long-term interest to utilize the land underlying the building and production
facility for its “coal-water mixture” business.  This type of
arrangement is common for the use of land in the PRC.  The prepaid
land use rights are amortized on the straight-line method over the term of the
land use rights of 50 years.





The lease
expenses on prepaid land use right for the periods ended March 31, 2008 and 2007
was $9,402 and Nil, respectively.  The lease expenses of the prepaid
land use rights over each of the next five years and thereafter is
$180,710.





10.           INTANGIBLE
ASSETS





Intangible
assets consist of the following,





March
      31,
            
            
            December
      31,2008
            
            
            2007Accounting
      software
            
            $
            2,038
            
            
            $
            1,959Less:
      Accumulated amortization
            
            
            (618
            )
            
            
            (481
            )$
            1,420
            
            
            $
            1,478





The
amortization expenses on intangible assets for the periods ended March 31, 2008
and 2007 were $137 and $201, respectively.





-14-
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11.            
ACCRUEDEXPENSES AND OTHER
PAYABLES





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




March
      31,
              
              
              December
      31,2008
              
              
              2007Accrued
      operating expenses
              
              $
              467,177
              
              
              $
              471,988Prepaid
      land use right payable
              
              
              139,100
              
              
              
              133,731Accrued
      staff welfare
              
              
              99,780
              
              
              
              71,706Construction
      in progress payable
              
              
              12,467
              
              
              
              90,140Non-interest
      bearing loan
              
              
              42,750
              
              
              
              68,627Advance
      from customer
              
              
              57,000
              
              
              
              54,800Other
      payables
              
              
              23,330
              
              
              
              2,740$
              841,604
              
              
              $
              893,732







12.          
 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.





Statutory
reserves consist of the following as of,


March
      31,
            
            
            December
      31,2008
            
            
            2007Statutory
      capital reserve
            
            $
            232,206
            
            
            $
            232,206Statutory
      common welfare fund
            
            
            116,103
            
            
            
            116,103$
            348,309
            
            
            $
            348,309





-15-
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13.           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, the Company’s VIE, 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 years' tax
holiday for 2004 and 2005, within which no income taxes were charged. Shaanxi
Suoang is subject to income tax from 2006.





The
Company and Hangson are not subject to any income taxes as the companies had no
income for the periods ended March 31, 2008 and 2007.





The
income tax expense for the periods ended March 31, consisted of the
following:


March
      31,2008
            
            
            2007Current
      – PRC Enterprise Income Tax
            
            $
            46,083
            
            
            
            -Deferred
            
            
            -
            
            
            
            -Total
      income tax expenses
            
            
            46,083
            
            
            
            -





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


March
      31,2008
            
            
            2007U.S.
      statutory rate
            
            
            34
            %
            
            
            34
            %Foreign
      income not recognized in U.S.
            
            
            (34
            %)
            
            
            (34
            %)Non-deductible
      expenses and other
            
            
            -Tax
      holiday
            
            
            (9
            %)
            
            
            -PRC
      preferential income tax rate
            
            
            15
            %
            
            
            15
            %Effective
      tax rate
            
            
            6
            %
            
            
            15
            %





No
significant deferred tax liabilities or assets existed as of either March 31,
2008 or 2007.





14.           EARNINGS PER
SHARE





Basic
earnings per share for the periods ended March 31, 2008 and 2007 were determined
by dividing net income for the periods by the weighted average number of common
shares outstanding.





The
Company has retroactively adjusted the weighted average number of common shares
outstanding by deeming that the three-for-one (3:1) forward stock split on
August 20, 2007 had occurred as of the beginning of the earliest period
presented.





The
Company did not have dilutive securities outstanding as of and during the
periods ended March 31, 2008 and 2007.




-16-
 Table of Contents





15.           RELATED PARTY
TRANSACTIONS





a.           Related party
payables





Amount
payable from a director as of March 31, 2008 and December 31 2007, is summarized
as follows:





March
      31,
            
            
            December
      31,2008
            
            
            2007Amount
      due to a director:Mr.
      Peng Zhou, also a minority shareholder of the Company’s
      subsidiary
            
            $
            -
            
            
            $
            8,527





This
balance is interest free and unsecured and has no fixed repayment
date.




b.
            Disposal of
      patent





In 2006,
the Company disposed of the patent related to the discontinued COPO resin
product operations to a related company for a consideration of
$256,200.  A loss on disposal of $291,266 was recorded. The balance
that remained outstanding as of December 31, 2007 was $141,795 and was repaid
during the first quarter of 2008.




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 of the Company’s
leasehold properties together with the leasehold improvements for an aggregate
cash consideration of approximately $2,450,000.  The agreed price is
$120,000 lower then the evaluated value according to an appraisal report issued
by an independent professional valuer, Xi’an Zheng Heng Assets Valuation Company
Ltd. because the property title did not transfer from the property developer to
the Company as more fully described in note 16(c). Up to March 31, 2008, a total
of $1,567,500 was received and recorded as deposit on sale of property in the
balance sheet.  On March 25, 2007 and June 21, 2007, the Company and
the buyer entered into the extension agreements 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 May 31, 2007 and October 31,
2007, respectively. On March 6, 2008, the Company entered a supplementary
agreement whereby the Company agreed to transfer the title of the properties to
the buyer before May 31, 2008 and the buyer agreed to pay the Company no later
than one month after the transfer of property title.




16.           COMMITMENTS AND
CONTINGENCIES





a.
            Capital
      expenditure
      commitments





During
the fiscal year 2007, 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 March 31, 2008 are as
follows:





Contracted but not
      accrued for:Purchase
      of machinery
            $
            319,792






-17-
 Table of Contents




b.
            Operating lease
      commitments





As of
March 31, 2008, 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:





Periods
      ending March 31,2009
            
            20,8802010
            
            20,8802011
      and thereafter
            
            6,090Total
      operating lease commitments
            $
            47,850





c.
            Real estate title
      certificate of the
      leasehold property





The
Company has not obtained the real estate title certificate for its leasehold
property with a carrying value of $2,458,013 as of March 31, 2008 and located in
the PRC.  As discussed in Note 15c, the Company has entered into a
property transfer agreement to dispose of this property.





In the
event that the Company fails to transfer the real estate title certificate to
the buyer, there is a risk that the Company might be subject to
penalties.  However, management believes that this possibility is
remote.





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-
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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 the Company's Annual Report on Form 10-KSB filed with
the SEC on April 15, 2008.  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 U.S. 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 U.S. Dollars at various pertinent dates and for pertinent
periods.





In
this Form 10-Q, references to “we”, “our”, “us”, “Company”, “SCE” or the
“Registrant” refer to Sino Clean Energy Inc., a Nevada corporation, and its
subsidiaries.





Overview





Sino
Clean Energy Inc. (“SCE” 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
obligate 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 April 15, 2008.  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.





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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.





Effective
on August 15, 2007, the Company merged with its wholly-owned subsidiary, Sino
Clean Energy Inc., pursuant to Articles of Merger that the Company filed with
the Nevada Secretary of State.  The merger was in the form of a
parent/subsidiary merger, with the Company as the surviving
corporation.  In accordance with Section 92A.180 of the Nevada Revised
Statutes, shareholder approval of the merger was not required.  Upon
completion of the merger, the Company’s name has been changed to “Sino Clean
Energy Inc.” and the Company’s Articles of Incorporation have been amended to
reflect this name change.  We changed our name to better reflect the
direction and business of the Company.




The Board
of Directors of the Company also authorized and approved a 3-for-1 forward stock
split (“Stock Split”) of its issued and outstanding shares of common stock, par
value $0.001 per share (“Common Stock”) by way of share dividend, effective on
August 15, 2007.  To effect the Stock Split, the Company authorized
the issuance of two shares of common stock for each one outstanding share of
common stock held by the shareholders of record (“Split Shares”) on August 15,
2007 (the “Record Date”).





Immediately
prior to the Stock Split, the Company had 28,227,250 shares of common stock
issued and outstanding.  After giving effect to the Stock Split, the
Company has approximately 84,681,750 shares of common stock issued and
outstanding.  The Company's common stock was quoted for trading on a
post-split basis on the National Association of Securities Dealers
Over-the-Counter Bulletin Board under the new trading symbol “SCLX” as of the
open of the market on August 21, 2007.





Critical
Accounting Policies and Estimates





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.










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Revenue
recognition




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.




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.




RESULTS
OF OPERATIONS





Three
month period ended March 31, 2008 as compared to three month period ended March
31, 2007





REVENUE.
During the three month period ended March 31, 2008, we had revenues from sale of
our coal water mixture of $2,485,128 as compared to revenues of $Nil during the
three month period ended March 31, 2007.  In general, this increase is
mainly attributable to sales revenue received after the Company commenced
operations of its coal water mixture production facility during the third
quarter of 2007.




GENERAL
AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
$163,498 for the three-month period ended March 31, 2008 as compared to $51,662
for the three-month period ended March 31, 2007.  This increasewas primarily caused by
the increase in professional fees, salaries and traveling expenses in connection
with the commencement of our coal water mixture operation.





NET
INCOME. We had net incomeof $523,499 for the
three-month period ended March 31, 2008 as compared to net income of$38,242 for the same
period in 2007.  The increase in net income is primarily attributable
to commencement of our coal water mixture operations and production during the
third quarter in 2007 which resulted in increased  revenue
from sales of our coal water mixture product.





LIQUIDITY
AND CAPITAL RESOURCES





Net cash
flow provided byoperating activities was
$917,820 for the three months ended March 31, 2008 as compared to net cash flow
used inoperating
activities was $1,936,216 for the three months ended March 31,
2007.  The increase in our net cash flow provided by operating
activities for the three months ended March 31, 2008 was mainly due to revenue
received from sales of our coal water mixture product after the commencement of
coal water mixture operations, which started during the third quarter in
2007.




Net cash
flow used in investing activities was $40,962 for the three months ended March
31, 2008 as compared to net cash flow used in investing activities was $29,623
for the same period in 2007. Uses of cash flow for investing activities were
mainly related to purchases of property, plant and equipment for our coal water
mixture operations.





Net cash
flow provided by financing activities was $402,473 three months ended March 31,
2008 as compared to net cash flow provided by investing activities was $98,536
for the same period in 2007. The increase in net cash flow provided by financing
activities was mainly due to the Company’s receipt of a government subsidy grant
from the Provincial Government.





We
believe that we have adequate capital resources to continue our operations 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.





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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.


Item
3.             Quantitative
and Qualitative Disclosures About Market Risk




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 U.S. 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:
 March
      31, 2008
              December
      31, 2007
              March
      31, 2007Balance
      sheet items, except for the registered and paid-up capital, as of end of
      period/year
              
              USD0.1425:RMB1
              
              USD0.1370:RMB1
              
              USD0.1.2910:RMB1Amounts
      included in the statement of operations, statement of changes in
      stockholders' equity and statement of cash flows for the period/ year
      ended
              
              USD0.1400:RMB1
              
              USD0.1320:RMB1
              
              USD0.1265: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.





Item 4.
            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.








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PART
II - OTHER INFORMATION





Item
1.          Legal
Proceedings.





None.





Item
1A.      Risk
Factors





Not applicable.





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





(a)           Exhibits to the Form
10-Q:


Exhibit
              Number
            Description2.1
            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)


3.4
            Articles
      of Merger filed with the Secretary of State of Nevada with an effective
      date of August 15, 2007 (6)


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)


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.





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(“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 ShaanxiSuo’ang Biological
      Science and Technology Co. Ltd. and Hanzhong Si Xiong Ke Chuang Business
      Co. Ltd. (3)99.7
            Supplementary
      Agreement by and between ShaanxiSuo'ang Biological
      Science and Technology Co. Ltd. and Hanzhong Si Xiong Ke Chuang Business
      Co. Ltd. dated March 25, 2007 (5)99.8
            Agreement
      to Defer Payment for Property Transferby and between Shaanxi
      Suo'ang Biological Science and Technology Co. Ltd. and Hanzhong Si Xiong
      Ke Chuang Business Co. Ltd. dated June 21, 2007. *99.9
            Supplementary
      Agreement to the Property Transfer Agreement  by
      and between Shaanxi Suo'ang Biological Science and Technology Co.
      Ltd. and Hanzhong Si Xiong Ke Chuang Business Co. Ltd. dated March 6,
      2008. *





*  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.(6)
                Filed
      as an Exhibit to the Registrant’s Current Report on Form 8-K filed with
      the SEC on August 17, 2007 and incorporated herein by
      reference.




[SIGNATURES
PAGE FOLLOWS]








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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.




SINO
      CLEAN ENERGY INC.
              (Registrant)Date:
      May 19, 2008
            By:
            /s/
      Baowen RenBaowen
      Ren
              Chief
      Executive Officer












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