**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





x
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934****For
                the fiscal year ended December 31, 2006**o
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934****For
                the transition period from ____________ to ______________**





**Commission
      File Number** **000-51753**





**CHINA
      WEST COAL ENERGY INC.**


(Exact
      name of Registrant as specified in its charter)





**NEVADA**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **75-2882833**
              (I.R.S.
                Employer Identification No.)





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





**(8629)
                8209-1099**
              (Issuer's
                telephone number, including area code)Securities
                registered pursuant to Section 12(b) of the Act:Title
                of each class
              **None**
            Name
                of each exchange on which registered
              **None**Securities
                registered pursuant to Section 12(g) of the Act:Title
                of Class
              **Common
                Stock, $.001 par value**




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the Registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o





Check
      if there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and will not be contained, to the best
      of
      Registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. o





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





Issuer's
      revenues for its most recent fiscal year: $7,253,887







The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the Registrant on April 30, 2007 was approximately
      $10,246,510 .
      The per
      share stock price for computational purposes was $0.55, based on the closing
      sale price per share for the Registrant's common stock on the OTC Bulletin
      Board
      on April 30, 2007. This value is not intended to be a representation as to
      the
      value or worth of the Registrant's common stock. The number of non-affiliates
      of
      the Registrant has been calculated by subtracting the number of shares held
      by
      persons affiliated with the Registrant from the number of outstanding
      shares.





The
      number of shares of the Registrant's common stock outstanding on April 30 2007
      was 28,227,250.





Transitional
      Business Disclosure Format (Check One). Yes o No
      x





**TABLE
      OF CONTENTS**


**TO
      ANNUAL REPORT ON FORM 10-KSB**


**FOR
      YEAR ENDED DECEMBER 31, 2006**





**Page**Introductory
                Notes - Forward Looking Statements and Certain Terminology
            A-2


**PART
                  I**Item
                  1.
              Description
                    of Business
              1Item
                  2.
              Description
                    of Property
              7Item
                  3.
              Legal
                    Proceedings
              8Item
                  4.
              Submission
                    of Matters to a Vote of Security Holders
              8


**PART
                  II**Item
                  5.
              Market
                    for Registrant's Common Equity and Related Stockholder Matters
              9Item
                  6.
              Management's
                    Discussion and Analysis or Plan of Operation
              12Item
                  7.
              Financial
                    Statements
              30Item
                  8.
              Changes
                    in and Disagreements on Accounting and Financial
                    Disclosure
              31Item
                  8A.
              Controls
                    and Procedures
              31Item
                  8B.
              Other
                    Information
              31


**PART
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act
            31Item
                10.
            Executive
                Compensation
            33Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
            35Item
                12.
            Certain
                Relationships and Related Transactions
            35Item
                13.
            Exhibits
            37Item
                14.
            Principal
                Accountant Fees and Services
            38




**Signatures**
            
            40





A-1


**INTRODUCTORY
      NOTES - FORWARD LOOKING STATEMENTS AND CERTAIN TERMINOLOGY**





Some
      of the statements made by us in this Annual Report on Form 10-KSB are
      forward-looking in nature, including but not limited to, statements relating
      to
      our future revenue, product development, demand, acceptance and market share,
      gross margins, levels of research and development, our management's plans and
      objectives for our current and future operations, and other statements that
      are
      not historical facts. Forward-looking statements include, but are not limited
      to, statements that are not historical facts, and statements including forms
      of
      the words "intend", "believe", "will", "may", "could", "expect", "anticipate",
      "plan", "possible", and similar terms. Actual results could differ materially
      from the results implied by the forward looking statements due to a variety
      of
      factors, many of which are discussed throughout this Annual Report and
      particularly in the sections titled “Factors That May Affect Future Results” and
“Factors Affecting Business, Operating Results and Financial Condition”, both of
      which are included in the section titled “Management’s Discussion and Analysis
      of Plan of Operation.” Readers are cautioned not to place undue reliance on
      these forward-looking statements, which speak only as of the date hereof. We
      undertake no obligation to publicly release any revisions to these
      forward-looking statements that may reflect events or circumstances after the
      date hereof or to reflect the occurrence of unanticipated events. Factors that
      could cause actual results to differ materially from those expressed in any
      forward-looking statement made by us include, but are not limited to:


●
              our
                  ability to finance our activities and maintain our financial liquidity;
 ●
              our
                  ability to attract and retain qualified, knowledgeable
                  employees;
 ●
              the
                  impact of general economic conditions on our
                  business;
 ●
              postponements,
                  reductions, or cancellations in orders from new or existing
                  customers;
 ●
              the
                  limited number of potential customers for our
                  products;
 ●
              the
                  variability in gross margins on our products;
 ●
              our
                  ability to design and market new products
                  successfully;
 ●
              our
                  failure to acquire new customers in the
                  future;
 ●
              deterioration
                  of business and economic conditions in our markets;
 ●
              intensely
                  competitive industry conditions with increasing price competition;
                  and
 ●
              the
                  rate of growth in the alternative fuel
                  markets.




In
      this document, the words "we," "our," "ours," "us," and “Company” refer to China
      West Coal Energy Inc. and our subsidiaries.





A-2


**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





**History
      Of Endo Networks, Inc.**





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, CWCE conducted through,
      and
      all of CWCE’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 helped businesses acquire new customers and build sales
      and loyalty with existing customers. The Company used interactive technology
      such as touch screen kiosks, handheld computers, and websites, combined with
      promotional marketing tactics to filter large numbers of consumers, to find
      qualified prospects, and even precondition them for a sale. Our services can
      be
      deployed within a business' own retail environment, to increase sales with
      their
      own customer base by increasing frequency of visit and/or average spend with
      individual customers, or they can be deployed within a partner location such
      as
      an office tower or a consumer show, to find and acquire qualified new customers.
      The Company’s prior areas of expertise included: web, kiosk, handheld, wireless,
      loyalty, promotional marketing, direct marketing, integration with point of
      sale, surveys, incentive, sampling, and field and event marketing. The client
      base included specialty retail, general retail, food service, automotive,
      alcohol, energy, consumer packaged goods, entertainment, amateur sports, and
      telecommunications companies.





However,
      since its inception, the Company had incurred losses and had substantial trouble
      maintaining consistent cash flow necessary to operate our business. As recently
      as its last fiscal year and quarter, the Company reported losses and working
      with a capital deficit for those same periods. The additional investment and
      infrastructure needed to sustain our business and develop our operations could
      not be supported by its current cash flow. In view of the foregoing, the
      Company’s lack of our growth and the limited platform for our future growth in
      its current state, the Company’s Board determined that it would be in our
      stockholders’ best interests to sell all of Endo’s assets to Peter B. Day, the
      Company’s previous President, CEO and sole director prior to the Closing of the
      Share Exchange. In making the determination to sell all of our assets to Mr.
      Day, the Board gave primary consideration to Mr. Day’s familiarity with our
      operations and business relations. The Company’s Board believed that Mr. Day’s
      knowledge of our operations would lead to an efficient and expeditious sale
      process. The Board was also able to negotiate Mr. Day’s agreement to assume any
      liability with respect to the Company’s assets prior to the Closing. The Asset
      and Share Purchase Agreement (the “Purchase Agreement”) by and between the
      Company and Mr. Day was approved by our Board and executed on June 26, 2006,
      and
      a majority of our shareholders approved the Purchase Agreement at our Annual
      Shareholder meeting on September 5, 2006. The Purchase Agreement was filed
      as
      Exhibit A to our Schedule 14A Information Statement, which was filed with the
      Securities and Exchange Commission on August 8, 2006, and is incorporated herein
      by reference. The description of the Purchase Agreement contained herein and
      the
      transactions contemplated thereby do not purport to be complete and are
      qualified in their entirety by reference to such documents. On September 30,
      2006, the Company completed its sale of all of its assets and shares of Endo
      Canada to Mr. Day, pursuant to the terms of that certain Purchase Agreement.
      Following the Closing of the Purchase Agreement, the Company sought to identify,
      evaluate and investigate various companies with the intent that, if such
      investigation warrants, a transaction could be negotiated and completed pursuant
      to which the Company would acquire a target company with an operating business
      with the intent of continuing the acquired company’s business as a publicly held
      entity.





On
      October 18, 2006, the Company executed a Share Exchange Agreement (“Exchange
      Agreement”) by and among Hangson Limited, a business company incorporated under
      the laws of the British Virgin Islands (“Hangson”), and the stockholders of 100%
      of Hangson’s common stock (the “Hangson Stockholders”), on the one hand, and
      Endo and a majority of the Company’s stockholders (“Endo Stockholders”), on the
      other hand. The closing of this share exchange transaction (the “Share
      Exchange”) occurred on October 20, 2006 (the “Closing Date” or the “Closing”).
      Separately, Hangson entered into consulting service agreements and
      equity-related agreements (the “Contractual Arrangements”) with Shaanxi Suoang
      Biological Science & Technology Co., Ltd. (“Shaanxi Suoang”), which is a
      limited liability company headquartered in the People’s Republic of China
      (“PRC”) and organized under the laws of the PRC. Hangson’s business operations
      are conducted through Shaanxi Suoang under these Contractual
      Arrangements.


1





Under
      the Exchange Agreement, on the Closing Date, the Company issued a total of
      26,000,000 shares of Common Stock (the “ENDO Shares”) to the Hangson
      Stockholders and to Viking Partners, Inc., a consultant in this transaction,
      in
      exchange for 100% of the common stock of Hangson. Additionally, immediately
      prior to the Closing Date, Peter B. Day, the Company’s then President, CEO and
      sole director voluntarily cancelled 715,500 (post-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 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, and the Company issued an additional 669,600 shares
      pursuant to certain anti-dilution provisions contained in agreements the Company
      had with two consultants. Also pursuant to the Share Exchange, 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.
      After the cancellations, the consultant anti-dilution share issuances, the
      Reverse Split and minor corrective stock issuances for rounding of fractional
      shares resulting from the Reverse Split, the Company had approximately 2,227,250
      shares of common stock outstanding and after the Share Exchange, the Company
      had
      approximately 28,227,250 shares of common stock outstanding, with the Hangson’s
      Shareholders owning approximately 85% of the Company’s common stock. In
      addition, at Closing, Hangson paid the Company’s creditors a total of US
      $500,000 for services rendered, in order to satisfy certain obligations as
      set
      forth in the Exchange Agreement. We accounted for this Share Exchange as a
      reverse acquisition and recapitalization and, as a result, the Company’s
      consolidated financial statements are in substance those of Hangson, with the
      assets and liabilities, and revenues and expenses, of the Company being included
      effective from the date of the Share Exchange.





From
      and after the Closing Date of the Share Exchange, the Company’s primary
      operations consisted of the operations of Hangson and its variable interest
      entity (“VIE”), Shaanxi Suo’ang Biological Science & Technology Co., Ltd.
      (“Shaanxi Suoang”)





Having
      no substantive operation of its own, Hangson, through its VIE, Shaanxi Suoang
      is
      currently engaged in the research, development, production and sale of
“coal-water mixture,” which is a fuel substitute for coal, oil or gas. Shaanxi
      Suoang operates the “coal-water mixture” business through its subsidiary,
      Shaanxi Suo’ang New Energy Enterprise Company Limited .





**Recent
      Developments** ****





On
      May 8, 2006, Shaanxi Suoang entered into an agreement to establish a subsidiary
      named Shaanxi Suo’ang New Energy Enterprise Company Limited (“Suoang New
      Energy”) in which Shaanxi Suoang has injected a capital of $496,000 representing
      an 80% equity interest in Suoang New Energy. Suoang 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.





During
      the majority of the 2006 fiscal year, we were engaged in two lines of business:
      production and sale 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, and also its
“coal-water mixture” fuel substitute business described above. However, the
      Company has subsequently decided to focus solely on its coal-water mixture
      fuel
      product business. In December 2006, we began phasing out of the COPO resin
      product business by selling our patented technology related to COPO resin
      production. Further, we ceased operations of our COPO resin product
      manufacturing plant in January 2007, and we also sold the COPO resin plant
      machinery. Going forward, we will concentrate on the development, production
      and
      sale of our “coal-water mixture” fuel substitute. In January 2007, we entered
      into our first contracts for the sale of our coal water mixture product. We
      expect production of our coal water mixture will commence in July
      2007.





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 includes
      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.




As
      discussed more fully in the Form 8-K Current Report filed 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 will begin on January 1 and end on December 31 of each year, and
      this change is applicable with the year ending December 31,
      2006.


2




Throughout
      the remainder of this report, when we use phrases such as "we," "our,"
      "Company," "us," we are referring to CWCE, Hangson, and Shaanxi Suoang as a
      combined entity.





**Overview
      of Hangson Limited**





Hangson
      is a company that was incorporated on June 2, 2006 under the laws of the British
      Virgin Islands and is the Company’s wholly owned subsidiary. The Company was
      previously engaged in both the production and sale of COPO resin products and
      also the research, development, production and sale of its “coal-water mixture,”
product, an available fuel substitute for coal, oil or gas. However, the Company
      subsequently decided that it would be in the best interest of the Company to
      cease operations of the COPO resin products business and focus on the
“coal-water mixture” product business. Because of the control that the Company
      exercises over Shaanxi Suoang pursuant to the “Contractual Arrangements”
described below by and between Shaanxi Suoang and Hangson, Shaanxi Suoang has
      phased out of the COPO resin products business and will instead focus on
      research, development, production and sale of “coal-water mixture” fuel
      substitute. In December 2006, the patented technology owned through Shaanxi
      Suoang in connection with the COPO resin products was sold to HanZhongWeiDa
      Commercial Company Limited, a company controlled by Leping Yao, a shareholder
      of
      Shaanxi Suoang, for consideration of $256,200. Further, in January 2007, we
      ceased operations at our COPO resin product manufacturing plant and we sold
      our
      COPO resin products’ manufacturing plant machinery to HanZhongWeiDa Commercial
      Company Limited for cash consideration of $89,670 and the related COPO products
      inventory to an unrelated third party for $12,767.





Hangson
      does not conduct any substantive operations of its own and conducts its primary
      business operations through its VIE, Shaanxi Suoang. Shaanxi Suoang, in turn,
      conducts its coal-water mixture operations through its subsidiary, Suoang New
      Energy.





PRC
      law currently has limits on foreign ownership of certain companies. To comply
      with these foreign ownership restrictions, we operate our business in China
      through Shaanxi Suoang, which is a limited liability company headquartered
      in
      Xi’an, China and organized under the laws of China. Shaanxi Suoang has the
      licenses and approvals necessary to operate our business in China. We have
      contractual arrangements with Shaanxi Suoang and its shareholders pursuant
      to
      which we provide technology consulting and other general business operation
      services to Shaanxi Suoang. Through these contractual arrangements, we also
      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 enable us to control Shaanxi Suoang, we are considered 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 below titled “Contractual
      Arrangements with Shaanxi Suoang and its Shareholders.” 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.




**Contractual
      Arrangements With Shaanxi Suoang And Its Shareholders**





Our
      relationships with Shaanxi Suoang and its shareholders are governed by a series
      of contractual arrangements. Under PRC laws, each of Hangson, and Shaanxi Suoang
      is an independent legal person and none of them is exposed to liabilities
      incurred by the other party. Other than pursuant to the contractual arrangements
      between Hangson and Shaanxi Suoang, Shaanxi Suoang does not transfer any other
      funds generated from its operations to Hangson. As of August 18, 2006, we
      entered into the following contractual arrangements with Shaanxi Suoang as
      described below:





*Consulting
      Services Agreement* *.* Pursuant to the exclusive consulting services agreements between Hangson and
      Shaanxi Suoang, Hangson has the exclusive right to provide to Shaanxi Suoang
      general business operations services as well as consulting services related
      to
      the technological research and development of coal-based products as well as
      general business operation advice and strategic planning (the “Services”). Under
      this agreement, Hangson owns the intellectual property rights developed or
      discovered through research and development, in the course of providing the
      Services, or derived from the provision of the Services. Shaanxi Suoang pays
      a
      quarterly consulting service fees in Renminbi (“RMB”) to Hangson that is equal
      to all of Shaanxi Suoang’s revenue for such quarter.





*Operating
      Agreement* *.* Pursuant to the operating agreement among Hangson, Shaanxi Suoang and all
      shareholders of Shaanxi Suoang (collectively “Shaanxi Suoang’s Shareholders”),
      Hangson provides guidance and instructions on Shaanxi Suoang’s daily operations,
      financial management and employment issues. The shareholders of Shaanxi Suoang
      must designate the candidates recommended by Hangson as their representatives
      on
      Shaanxi Suoang’s board of directors. Hangson has the right to appoint senior
      executives of Shaanxi Suoang. In addition, Hangson agrees to guarantee Shaanxi
      Suoang’s performance under any agreements or arrangements relating to Shaanxi
      Suoang’s business arrangements with any third party. Shaanxi Suoang, in return,
      agrees to pledge its accounts receivable and all of its assets to Hangson.
      Moreover, Shaanxi Suoang agrees that without the prior consent of Hangson,
      Shaanxi Suoang will not engage in any transactions that could materially affect
      the assets, liabilities, rights or operations of Shaanxi Suoang, including,
      without limitation, incurrence or assumption of any indebtedness, sale or
      purchase of any assets or rights, incurrence of any encumbrance on any of its
      assets or intellectual property rights in favor of a third party or transfer
      of
      any agreements relating to its business operation to any third party. The term
      of this agreement is ten (10) years from August 18, 2006 and may be extended
      only upon Hangson’s written confirmation prior to the expiration of this
      agreement, with the extended term to be mutually agreed upon by the
      parties.


3





*Equity
      Pledge Agreement* . ** Under
      the equity pledge agreement between the shareholders of Shaanxi Suoang and
      Hangson, the shareholders of Shaanxi Suoang pledged all of their equity
      interests in Shaanxi Suoang to Hangson to guarantee Shaanxi Suoang’s performance
      of its obligations under the technology consulting agreement. If Shaanxi Suoang
      or Shaanxi Suoang’s Shareholders breaches its respective contractual
      obligations, Hangson, as pledgee, will be entitled to certain rights, including
      the right to sell the pledged equity interests. Shaanxi Suoang’s Shareholders
      also agreed that upon occurrence of any event of default, Hangson shall be
      granted an exclusive, irrevocable power of attorney to take actions in the
      place
      and stead of the Shaanxi Suoang’s Shareholders to carry out the security
      provisions of the equity pledge agreement and take any action and execute any
      instrument that Hangson may deem necessary or advisable to accomplish the
      purposes of the equity pledge agreement. The shareholders of Shaanxi Suoang
      agreed not to dispose of the pledged equity interests or take any actions that
      would prejudice Hangson’ interest. The equity pledge agreement will expire two
      (2) years after Shaanxi Suoang’s obligations under the exclusive consulting
      services agreements have been fulfilled.





*Option
      Agreement* . ** Under
      the option agreement between the shareholders of Shaanxi Suoang and Hangson,
      the
      shareholders of Shaanxi Suoang irrevocably granted Hangson or its designated
      person an exclusive option to purchase, to the extent permitted under PRC law,
      all or part of the equity interests in Shaanxi Suoang for the cost of the
      initial contributions to the registered capital or the minimum amount of
      consideration permitted by applicable PRC law. Hangson or its designated person
      has sole discretion to decide when to exercise the option, whether in part
      or in
      full. The term of this agreement is ten (10) years from August 18, 2006 and
      may
      be extended prior to its expiration by written agreement of the
      parties.





*Proxy
      Agreement* .
      Pursuant to the proxy agreement among Hangson and Shaanxi Suoang’s Shareholders,
      Shaanxi Suoang’s Shareholders agreed to irrevocably grant a person to be
      designated by Hangson with the right to exercise Shaanxi Suoang’s Shareholders’
voting rights and their other rights, including the attendance at and the voting
      of Shaanxi Suoang’s Shareholders’ shares at the shareholders’ meetings (or by
      written consent in lieu of such meetings) in accordance with applicable laws
      and
      its Article of Association, including but not limited to the rights to sell
      or
      transfer all or any of his equity interests of the Shaanxi Suoang, and appoint
      and vote for the directors and Chairman as the authorized representative of
      the
      shareholders of Shaanxi Suoang. The term of this Proxy Agreement is ten (10)
      years from August 18, 2006 and may be extended prior to its expiration by
      written agreement of the parties.





**Shaanxi
      Suo’ang Biological Science & Technology Co., Ltd.**





As
      discussed above, our operations are conducted through Shaanxi Suoang, which
      is a
      limited liability company headquartered in Xian, China and organized under
      the
      laws of PRC. Shaanxi Suoang was organized in May 2002. As described above,
      Shaanxi Suoang is now solely engaged in research, development, marketing and
      the
      sales of “coal water mixture”, which is an available fuel substitute for oil,
      gas or coal through its subsidiary, Suoang
      New Energy .





**Principal
      Products Or Services**





Shaanxi
      Suoang is 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. The Company believes it is ready to
      commercialize this fuel substitute for use in boilers used for central heating
      for government buildings, schools, armed forces’ barracks, and residential
      communities, and also for use in industrial production facilities. The Company
      is currently constructing a coal water mixture production plant in western
      China. The whole construction project is estimated to cost approximately RMB60
      million (US$7,500,000) in total. We believe that construction will be completed
      by the June 2007 and we expect production of our CWM Fuel product will commence
      in July 2007.


4





**Coal
      Water Mixture Fuel**





CWM
      Fuel is a viscous, heavy liquid fuel that is produced by mixing grinded coal,
      water and chemical additives. This liquid fuel can be stored, pumped and burned
      as a substitute for oil or gas in properly modified furnaces or boilers. In
      general, CWM Fuel is cheaper than oil or gas but its combustion thermal
      efficiency may be similar to oil or gas. Further, CWM Fuel may burn cleaner
      than
      coal and thus, may be a more environmentally friendly fuel.





The
      Company is currently constructing a CWM Fuel production facility in the city
      of
      Tongchuan with an expected annual production capacity of 300,000 tons that
      will
      enable the Company to supply several industrial users and two central heating
      stations in Tongchuan.





China
      is a large producer and consumer of coal and will remain so for the foreseeable
      future. Pollution resulting from coal combustion causes concern both within
      and
      outside China. Approximately 90% of environmental pollution in China is
      attributable to direct coal combustion. The Chinese Government is currently
      developing policies and implementing control-measures to reduce this pollution.
      Clean coal technology (CCT) can play an important part in this process,
      contributing to both improved energy utilization efficiency and reduced
      environmental pollution.





In
      August 1995, the Chinese government formulated “the 9 th Five-Year Plan for Clean Coal Technology in China and a Development Program
      to
      2010.” In the “10 th Five-Year Plan” the State emphasized the need to strengthen clean coal
      technology R&D and also to promote commercialization of proven clean coal
      technologies. The potential clean coal technology market in China is
      substantial. The Company’s CWM Fuel, being a mixture of coal, water, and
      additives, presents itself as a fuel to substitute direct coal combustion.
      Use
      of the CWM Fuel not only allows the mixture to be transported as a fluid, which
      avoids coal dust dispersion and spontaneous combustion during transportation
      and
      storage, but it also allows the equipment used to burn this fuel to be
      simplified. CWM Fuel may enhance the combustion efficiency rate of coal while
      reducing the dust emission rate.





Because
      direct coal combustion has caused serious pollution in China, the Chinese
      government has enacted relevant laws and regulations to require enterprises
      to
      replace old direct coal combustion industrial burners or furnaces with furnaces
      that use cleaner fuels. In the city of Xian, for example, thousands of plants
      continue to use old direct coal combustion burners or furnaces. In addition,
      we
      believe on average, approximately 200 furnaces are purchased by local
      enterprises in Xian each year. But based on prevailing regulations, no new
      direct coal combustion furnace is allowed to be installed within Xian’s city
      limits. Therefore, considering the high and fluctuating prices of petroleum,
      the
      potential demand for the Company’s CWM Fuel product as a cleaner substitute for
      direct coal combustion is expected to be substantial.





In
      2003, Shaanxi Suoang’s board of directors realized this opportunity and
      initiated the development of our CWM Fuel product. After studying the market
      demand for CWM Fuel in the cities of Qingdao, Shenyang, Maoming, Foshan for
      two
      years and conducting a feasibility study, the Company decided to develop its
      CWM
      Fuel product which complies with the environmental protection policies of
“prohibiting the burning of raw coal” in large-sized or medium-sized cities such
      as Xian. Shaanxi Suoang developed a series of technologies in 2004, including
      “techniques for the production of coal water mixture by utilizing the waste
      fluid from paper making and silt in urban area” and the “garbage combustion
      techniques based on coal water mixture.” Given the expected demand for coal
      water mixture products and CWM Fuel product that we have developed, we believe
      that the conditions for the application, promotion and industrialized production
      and sale of CWM Fuel is now mature. The Company has invested approximately
      RMB60
      million to initiate the construction of the production facility base for its
      CWM
      Fuel in the city of Tongchuan, and the Company is currently planning for an
      annual production capacity of 300,000 tons, which would be one of the largest
      in
      Western China.





The
      Company’s future plans relating to its CWM products include either the purchase
      of or becoming a major shareholder in boiler manufacturers in Shaanxi Province
      to facilitate the production of boilers that are compatible with our CWM Fuel.
      Future plans also include the potential purchase of coal mines to supply the
      coal needed to manufacture the CWM Fuel.





**DISTRIBUTION
      METHODS OF THE PRODUCTS OR SERVICES AND OUR CUSTOMERS**





5


Our
      CWM
      Fuel product will be sold and distributed by the Company directly to its
      customers. We plan to conduct promotional marketing activities to publicize
      our
      product and enhance the Company’s image as well as to reinforce the recognition
      of the Company’s brand name through assistance from the local government.





In  January
      2007 ,
      we
      entered into our first contracts for the sale of our CWM Fuel product. Because
      the Company has just commenced sales of our CWM Fuel product, we will be
      dependent on a limited number of customers for a substantial portion of our
      revenues from the sale of this product. Nonrenewal or termination of our
      contracts with major customer or the failure by these customers to issue
      additional orders under the existing contracts would have a materially adverse
      effect on our revenues. There can be no assurance that the Company will be
      able
      to obtain additional contracts for CWM Fuel product sales similar in scope
      to
      those we have recently obtained, that it will be able to retain
      existing customers and attract new customers, or that it will not remain largely
      dependent on a limited customer base accounting for a substantial portion of
      revenues.





**COMPETITION**





In
      regards to our CWM Fuel product, we have no major competitors in Shaanxi
      province but we have four competitors in other provinces: Tai’an Liangda CWM
      Co., Ltd., Datong Huihai CWM Company, Daqing Shengtai Clean Coal Fuel Co.,
      Ltd.,
      and Ningbo Hongyuan CWM Co., Ltd. The Company will be able to compete with
      these
      competitors because of its strong R&D capability, extensive sales network,
      abundant coal resources, the local government’s assistance and the lack of
      competitors in the Shaanxi market.





**SOURCES
      AND AVAILABILITY OF RAW MATERIALS AND THE PRINCIPAL SUPPLIERS**





Our
      principal raw material is coal that is supplied directly from the local coal
      mines and used to manufacture our products. The prices for this raw material
      are
      subject to market forces largely beyond our control, including energy costs,
      market demand, and freight costs. The prices for this raw material have varied
      significantly in the past and may vary significantly in the future.





**PATENTS,
      TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR
      CONTRACTS**





We
      rely on a combination of patent, trademark, copyright and trade secret
      protection laws in China and other jurisdictions, as well as confidentiality
      procedures and contractual provisions to protect our intellectual property
      and
      our brand. We previously owned an issued patented special technology in regards
      to our COPO products in China that was valid for 10 years. However, we have
      ceased operations of our COPO products business and have decided to concentrate
      on our CWM Fuel business. Thus, in December 2006, we entered into an agreement
      for the sale of the above-described patented technology to a
      related company HanZhongWeiDa Commercial Company Limited which was controlled
      by
      Leping Yao, a shareholder of Shaanxi Suo'ang for
      consideration of $256,200.




We
      also enter into confidentiality, non-compete and invention assignment agreements
      with our employees and consultants and nondisclosure agreements with third
      parties. Coal and bio-technology companies are at times involved in litigation
      based on allegations of infringement or other violations of intellectual
      property rights. Furthermore, the application of laws governing intellectual
      property rights in the PRC and abroad is uncertain and evolving and could
      involve substantial risks to us.





**GOVERNMENT
      APPROVAL AND REGULATION OF THE COMPANY’S PRINCIPAL PRODUCTS OR
      SERVICES**





The
      State Environmental Protection Laws of the PRC governs us and our products.
      The
      Company is subject to various PRC federal, state and local environmental laws
      and regulations, including the State Environmental Protection Laws concerning
      emissions to the air, discharges to waterways, the release of materials into
      the
      environment, the generation, handling, storage, transportation, treatment and
      disposal of waste materials or otherwise relating to the protection of the
      environment. The Company endeavors to ensure the safe and lawful operation
      of
      its facilities in manufacturing and distribution of products and believes it
      is
      in compliance in all material respects with applicable PRC laws and
      regulations.





No
      enterprise may start production at its facilities until it receives approval
      from the Ministry of Commerce to begin operations. The Company currently has
      obtained the requisite approval and licenses from the Ministry of Commerce
      in
      order to operate our production facilities.


6





**COSTS
      AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS**





No
      environmental compliance expenses were required in 2006 for the Company’s
      current COPO products production facility. Further, the Company does not expect
      to incur any material environmental compliance costs in connection with its
      CWM
      Fuel business.




**RESEARCH
      AND DEVELOPMENT**





We
      will continue to conduct research and development (“R&D”) to
      further
      develop and improve the quality of our CWM Fuel products. In 2006, we had
      approximately $37,718 in R&D expenses.





**EMPLOYEES**





In
      2005, the Company had 80 employees, 80 of which were full time employees. In
      2006, the Company had 76 employees, 76 of which were full time employees. We
      believe the success of our business depends, in part, on our ability to attract
      and retain qualified personnel, particularly qualified scientific, technical
      and
      key management personnel and we strive to have good relationships with our
      employees.





**PRINCIPAL
      EXECUTIVE OFFICES**





Our
      principal executive office is located at Room 2205, Suite A, Zhengxin Building,
      No. 5, Gaoxin 1st Road, Gao Xin District, Xi’an, Shaanxi Province, People’s
      Republic of China and our telephone number is (029) 8209-1099.





**REPORTS
      TO SECURITY HOLDERS**





We
      file reports including our annual report, information statements as well as
      other reports required of publicly held companies with the Securities and
      Exchange Commission ("SEC"). You can read and copy any materials we file with
      the Commission at its' Public Reference Room at 450 Fifth Street, NW,
      Washington, DC 20549. You can obtain additional information about the operation
      of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In
      addition, the SEC maintains an Internet site (www.sec.gov) that contains
      reports, proxy and information statements, and other information regarding
      issuers that file electronically with the Commission, including
      us.




**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**





The
      Company’s headquarters are currently located in approximately 298 square meters
      of office space and production facilities at Room 2205, Suite A, Zhengxin Bldg.,
      No.5, Gaoxin 1st Road, Gao Xin District, Xi’an, Shaanxi Province, People’s
      Republic of China. The Company leases this office space. We terminated the
      tenancy agreement for our COPO resin product manufacturing plant in December
      2006. However, the Company is also currently constructing a production facility
      for the CWM Fuel product in Tongchuan City, China. In July, 2006, the Company
      purchased a land use right for the property located at Yao Zhou Ou in Tongchuan
      City for the CWM Fuel production facility and is currently in the process of
      obtaining the land use right certificate for this property.





The
      table below provides summary descriptions of the properties used for the
      Company’s business operations in 2006:


**Property
                  Location**
              **Area
                  (sq. meters)**
              **Lease
                  Expiration Period**
              **Purpose**Room
                  2205, Suite A, Zhengxin Bldg., No.5, Gaoxin 1st Road, Gao Xin District,
                  Xi’an, Shaanxi Province, People’s Republic of China
              248
              March
                  17, 2008
              OfficesNo.
                  36 Da Xing Lu,
                Xian
                  Shi, People’s Republic of China
              2,310
              December
                  30, 2013
                (Company
                  terminated the tenancy agreement in 12/2006.)
              COPO
                  Resin Products Production and Manufacturing FacilityYao
                  Zhou Ou,
                Tongchuan
                  City,
                People’s
                  Republic of China
              40,626
              None
                  - Company owned
              Production
                  facility for coal water mixture - under
                  construction




7





During
      the year 2004, the Company exchanged leasehold properties consisting of three
      floors in a commercial building located in the Hanzhong City, China and having
      a
      net book value of $1,691,555 for another 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 accounted 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.





In
      order
      to raise funds to support the Company’s new CWM
      Fuel
      business, on June 13, 2006, the Company signed a property transfer
      agreement with Hanzhong Si Xiong Ke Chuang Business Company Limited (“Buyer”), a
      company controlled by Yanjun Zhao, a Company shareholder, to dispose of the
      above-described leasehold properties together with the leasehold improvement
      at
      the cash consideration of approximately $2,450,000. According to the property
      transfer agreement, the cash consideration would be settled by installment
      with
      the last installment on or before March 31, 2007 and the title of the property
      will be passed to buyer upon receipt of the 95% of the total consideration
      due
      to the Company under the property transfer agreement. As of December 31, 2006,
      the Company has received $1,409,100 in connection with this property transfer
      transaction.





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
      upon the Buyer’s payment of the remaining balance of approximately $1,041,900 to
      the Company on or before May 31, 2007.





**ITEM
      3.**  **LEGAL
      PROCEEDINGS**





We
      may be subject to, from time to time, various legal proceedings relating to
      claims arising out of our operations in the ordinary course of our business.
      We
      are not currently a party to any legal proceedings, the adverse outcome of
      which, individually or in the aggregate, would have a material adverse effect
      on
      the business, financial condition, or results of operations of the
      Company.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





The
      Company held its Annual Meeting of Stockholders at its offices located at 2624
      Dunwin Drive, Unit #3, Mississauga, Ontario, Canada L5l 3T5 on September 5,
      2006
      at 9:30 A.M. As described more fully in the Company’s Definitive Proxy Statement
      on Schedule 14A filed on August, 8, 2006, we held the meeting: (a) to elect
      Peter B. Day as the sole member of the Company’s Board of Directors, whose terms
      are described in the proxy statement; (b) to consider and vote on approval
      of
      the sale of all of our assets and shares of Endo Networks, Inc. (Canada) to
      Mr.
      Peter Day pursuant to that certain Asset and Share Purchase Agreement, dated
      as
      of June 26, 2006; (c) to grant our Board of Directors the authority to effect
      a
      reverse stock split of up to 20 to 1; and (d) to grant our Board of Directors
      the authority to effect a forward stock split of up to 20 to 1. The following
      is
      the results of the voting:





**1.** **Election
      of Director:**




**Nominees**
            
            **Number
                of Shares**Peter
                B. Day
            
            For:
            
            11,957,113Against:
            
            0Abstain:
            
            1,600,253





**2.**
            **To
                approve****Asset
                and Share Purchase Agreement, dated as of June 26,
                2006**





8





**Approve**
            
            **Number
                of Shares**Asset
                and Share Purchase Agreement
            
            For:
            
            11,957,113Against:
            
            0Abstain:
            
            1,600,253




**3.**
            **To
                approve****grant
                of authority to the Board to effect a reverse stock split of up to
                20 to
                1.**





**Approve**
            
            **Number
                of Shares**Authority
                for Reverse Stock Split
            
            For:
            
            11,957,113Against:
            
            0Abstain:
            
            1,600,253




**4.**
            **To
                approve****grant
                of authority to Board to effect a forward stock split of up to 20
                to
                1.**





**Approve**
            
            **Number
                of Shares**Authority
                for Reverse Stock Split
            
            For:
            
            11,957,113Against:
            
            0Abstain:
            
            1,600,253







**PART
      II**





**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





Our
      common stock is not listed on any stock exchange. The common stock is traded
      over-the-counter on the Over-the-Counter Electronic Bulletin Board under the
      symbol "CWCE". The following table sets forth the high and low bid information
      for the common stock for each quarter within the last two fiscal years (for
      fiscal year ended December 31), as reported by the Over-the-Counter Electronic
      Bulletin Board. The bid prices reflect inter-dealer quotations, do not include
      retail markups, markdowns or commissions and do not necessarily reflect actual
      transactions.  9




**LOW**
            
            **HIGH****2006**Fourth
                Quarter
            
            $
            0.00
            
            $
            0.80Third
                Quarter
            
            $
            0.13
            
            $
            0.16Second
                Quarter
            
            $
            0.14
            
            $
            0.15First
                Quarter
            
            $
            0.10
            
            $
            0.14**2005**Fourth
                Quarter
            
            $
            0.10
            
            $
            0.10Third
                Quarter
            
            $
            0.10
            
            $
            0.10Second
                Quarter
            
            $
            0.10
            
            $
            0.10First
                Quarter
            
            $
            0.09
            
            $
            0.10




As
      of April 30, 2007, there were approximately 112 stockholders of record of our
      common stock.





**DIVIDENDS**





We
      have never paid any dividends on the Common Stock or the Preferred Stock whereas
      our VIE Shaanxi Suoang paid $4,440,960 in 2006. We currently
      anticipate that any future earnings will be retained for the development of
      our
      business and do not anticipate paying any dividends on the Common Stock or
      the
      Preferred Stock in the foreseeable future.





**TRANSFER
      AGENT**





Our
      transfer agent is Signature Stock Transfer, Inc., 2301
      Ohio
      Drive - Suite 100, Plano, Texas 75093 .
      Their telephone number is (972) 612-4120.





**EQUITY
      COMPENSATION PLAN INFORMATION**





We
      currently do not have any effective equity compensation plans. ******





**CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS**




As
      described in full detail in our Current Report on Form 8-K filed on November
      17,
      2006, which is incorporated herein by reference, on November 9, 2006, the
      Company's Board of Directors elected to dismiss Lopez, Blevins, Bork &
Associates, L.L.P. (“LBB”) as its independent registered public accounting firm
      (“Independent Accountant”) and also elected to retain Schwartz Levitsky Feldman
      LLP, Chartered Accountants as its new Independent Accountant. During the
      Company’s fiscal year ended September 30, 2005 and the subsequent interim period
      through November 9, 2006, the date of the dismissal of LBB, the Company did
      not
      have any disagreement with LBB on any matter of accounting principles or
      practices, financial statement disclosure, or auditing scope or procedure.
      The
      decision to change Independent Accountants was approved by the Board of
      Directors.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





Pursuant
      to the Share Exchange Agreement entered by and among Hangson Limited, a British
      Virgin Islands company (“Hangson”), and the stockholders of 100% of Hangson’
common stock (the “Hangson Stockholders”), on the one hand, and the Registrant
      and a majority of the Registrant’s stockholders (“ENDO Stockholders”), on the
      other hand, the Company issued 26,000,000 shares of the Company’s common stock
      (the “ENDO Shares”) to the Hangson Shareholders and to Viking Partners, Inc.
      (“Viking”), a consultant in the Share Exchange transaction, in exchange for 100%
      of the common stock of Hangson. The issuance of the Endo Shares to the Hangson
      Shareholders and Viking pursuant to the Share Exchange Agreement was exempt
      from
      registration under the Securities Act pursuant to Section 4(2) and/or Regulation
      S thereof. We made this determination based on the representations of the
      Hangson Shareholders and Viking which included, in pertinent part, that such
      shareholders were either (a) "accredited investors" within the meaning of Rule
      501 of Regulation D promulgated under the Securities Act, and/or (b) not a
      "U.S.
      person" as that term is defined in Rule 902(k) of Regulation S under the Act,
      and that such shareholders were acquiring our common stock, for investment
      purposes for their own respective accounts and not as nominees or agents, and
      not with a view to the resale or distribution thereof, and that each member
      understood that the shares of our common stock may not be sold or otherwise
      disposed of without registration under the Securities Act or an applicable
      exemption therefrom.


10




On
      May 2, 2006, we entered into a consulting agreement (the “TriPoint Agreement”)
      with TriPoint Capital Advisors, LLC (“TriPoint”), a business consultant, in
      order to assist us in our business development, with the structuring of capital
      transactions, to provide mergers and acquisition support services, and corporate
      compliance support. As consideration for their services under the agreement,
      we
      agreed to issue Tripoint 472,000 shares (94,400 shares after giving effect
      for
      the 5:1 reverse stock split on October 17, 2006) of our common stock. Based
      on
      the last trading price prior to the issuance of the stock a non-cash consulting
      expense of $70,800 was recorded for the issuance of these shares. The TriPoint
      Agreement provided that if a reduction in shares occurs after the date of the
      agreement by reason of a reverse stock split, then the Company is obligated
      to
      issue TriPoint a warrant for the purchase of additional shares of common stock,
      at the then par value, sufficient to preserve the original share issuance in
      the
      agreement of 472,000 (the “TriPoint Agreement Anti-Dilution Provision”). The
      shares were issued pursuant to the exemption from registration provided by
      Section 4(2) of the Securities Act for issuances not involving a public
      offering.





On
      May 2, 2006, we entered into a consulting agreement (the “Progressive
      Agreement”) with Progressive Capital Markets, LLC (“Progressive”), a business
      consultant, in order to assist us in our business development, with the
      structuring of capital transactions, to provide mergers and acquisition support
      services, and corporate compliance support. As consideration for their services
      under the agreement, we agreed to issue Progressive 365,000 (73,000 shares
      after
      giving effect for the 5:1 reverse stock split on October 17, 2006) shares of
      our
      common stock. Based on the last trading price prior to the issuance of the
      stock
      a non-cash consulting expense of $54,750 was recorded for the issuance of these
      shares. The Progressive Agreement provided that if a reduction in shares occurs
      after the date of the agreement by reason of a reverse stock split, then the
      Company is obligated to issue Progressive a warrant for the purchase of
      additional shares of common stock, at the then par value, sufficient to preserve
      the original share issuance in the agreement of 365,000 (the “Progressive
      Agreement Anti-Dilution Provision”). The shares were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act
      for
      issuances not involving a public offering.





On
      October 11, 2006, pursuant to the TriPoint Agreement Anti-Dilution Provision
      and
      because the Company engaged in a 1 for 5 Reverse Stock Split (as discussed
      more
      fully above), the Company issued TriPoint a warrant (the “TriPoint Warrant”) for
      the purchase of an additional 377,600 shares of the Company’s common stock with
      an exercise price of $.001 per share, so as to preserve the number of shares
      held by TriPoint prior to the Reverse Split at 472,000 shares as required under
      the TriPoint Agreement. The warrant was issued pursuant to the exemption from
      registration provided by Section 4(2) of the Securities Act for issuances not
      involving a public offering.





On
      October 11, 2006, pursuant to the Progressive Agreement Anti-Dilution Provision
      and because the Company engaged in a 1 for 5 Reverse Stock Split (as discussed
      more fully above), the Company issued Progressive a warrant (the “Progressive
      Warrant”) for the purchase of an additional 292,000 shares of the Company’s
      common stock with an exercise price of $.001 per share, so as to preserve the
      number of shares held by Progressive prior to the Reverse Split at 365,000
      shares as required under the Progressive Agreement. The warrant was issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act for issuances not involving a public offering.





On
      October 17, 2006, TriPoint exercised their TriPoint warrant, as described above,
      and the Company issued to TriPoint 377,600 shares of the Company’s common stock
      at an exercise price of $.001 per share to TriPoint. These shares were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act for issuances not involving a public offering.





On
      October 17, 2006, Progressive exercised their Progressive warrant, as described
      above, and the Company issued to Progressive 292,000 shares of the Company’s
      common stock at an exercise price of $.001 per share to Progressive. These
      shares were issued pursuant to the exemption from registration provided by
      Section 4(2) of the Securities Act for issuances not involving a public
      offering.




During
      July 2005, the Company issued 55,000 shares (11,000 shares after giving effect
      for the 5:1 reverse stock split on October 17, 2006) of its common stock to
      consultants for consulting services valued $0.10 per share or $5,500, which
      was
      the fair value of common stock on the date issued. These transactions were
      exempt from registration requirements in reliance on Section 4(2) of the
      Securities Act of 1933. There was no form of general solicitation or general
      advertising undertaken and the investor is accredited.


11





During
      July 2004, the Company issued 96,500 (19,300 shares after giving effect for
      the
      5:1 reverse stock split on October 17, 2006) shares of common stock to
      consultants for consulting services valued $0.07 per share or $6,755, which
      was
      the fair value of common stock on the date issued. These transactions were
      exempt from registration requirements in reliance on Section 4(2) of the
      Securities Act of 1933. There was no form of general solicitation or general
      advertising undertaken and the investor is accredited.





**ITEM
      6.**  **MANAGEMENT'S
      DISCUSSION AND ANALYSIS**





**Overview**





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.





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 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.





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 above titled “Contractual
      Arrangements with Shaanxi Suoang and its Shareholders.” 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.





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, as
      described more fully in Item 1 above titled “Description of Business,” as
      of January 2007, the Company ceased operations of its COPO resin products
      business and is now focused on its CWM Fuel product business. Shaanxi Suoang
      conducts its CWM Fuel operations through its subsidiary, Suoang New
      Energy.





**Significant
      Accounting Policies**


12




*Intangible
      assets*





The
      land use right is amortized over the expected period 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 Impairment of Long-Lived Assets to be Disposed Of* ,
        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
  *Foreign
        currency transactions*
 
 The
        Company determines its functional currency based on the criteria of SFAS
        52, *Foreign
        Currency Translation* and has
        determined RMB to be their functional currency. Transactions denominated
        in
        foreign currencies are translated into the functional currency at the exchange
        rates prevailing on the transaction dates. Monetary assets and liabilities
        denominated in foreign currencies are translated into the functional currency
        at
        the exchange rates prevailing on the balance sheet date. Exchange gains or
        losses are included in the statement of operations.
 
 *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.


13




FISCAL
      YEAR END





On
      January 16, 2007, the Company adopted the fiscal year end of Hangson, the
      accounting acquirer in the reverse acquisition described above and the Company’s
      operating business after the share exchange transaction. Thus the Company new
      fiscal year end is December 31, commencing with the Company’s annual report for
      the year ending December 31, 2006.





GOING
      CONCERN





In
      January 2007, 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 not commenced production as of the
      date
      of this report. 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 2007, the Company entered into
      sales contracts for the sale of its CWM Fuel product. Management believes
      the Company will be able to commence production of its CWM Fuel product and
      be
      able to generate sufficient cash flow from these sales contracts to meet its
      obligations on a timely basis in the foreseeable future.





**RESULT
      OF OPERATIONS**





**Fiscal
      year ended December 31, 2006 as compared to fiscal year ended December 31,
      2005**





REVENUES.
      All revenues are related to the discontinued operation. During the year ended
      December 31, 2006, we had revenues of $7,253,887 as compared to revenues of
      $5,426,591  during
      the year ended December 31, 2005, an increase of approximately 34%. In general,
      this increase is mainly attributable to an increase in the number of
      distributors in the Company’s COPO resin product business,
      which ceased operation during the year.





GROSS
      PROFIT. Cost of goods sold, which consist of raw materials, direct labor and
      manufacturing overhead, were $5,434,301 for the year ended December 31, 2006
      as
      compared to $4,417,584 for the year ended December 31, 2005. Gross profit was
      $1,819,586 for the year ended December 31, 2006 as compared to $1,009,007 for
      the year ended December 31, 2005, representing gross margins of approximately
      25% and 19%, respectively. All gross profit of the Company is
      attributable to our implementation of better cost controls in the
      Company's ceased COPO resin product business.





SELLING
      EXPENSES. Selling expenses, which consist of commission, advertising and
      promotion expenses, freight charges and salaries in relation to the
      Company's ceased COPO resin product business totaled $285,235 for the year
      ended December 31, 2006 as compared to $143,231 for the year ended December
      31,
      2005, an increase of approximately 99%. This increase is mainly due to increases
      in freight charges and salaries.





GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
      $655,054 for the year ended December 31, 2006 as compared to $475,938 for the
      year ended December 31, 2005, an increase of approximately 17%. This increase
      is
      primarily attributable to the expansion of our operations and an increase in
      legal and professional fees incurred in connection with compliance with the
      Company’s SEC reporting obligations.


14





NET
      INCOME. We had a net loss of $92,020 for the year ended December 31, 2006
      as compared to a net income $842,692 for the year ended December 31, 2005.
      The decrease in net income is primarily attributable to the payment of $575,000
      for merger costs, impairment of plant and machineries of $170,166 and loss
      on
      disposal of patent of $291,206.





**LIQUIDITY
      AND CAPITAL RESOURCES**





For
      the year ended December 31, 2006, we generated cash from operating activities
      of
      $1,412,517, of
      which
      $3,709,360 were generated from the discontinued operation, while the continued
      operation generated a net cash spent of $2,296,843, as compared to
      $987,016 for the year ended December 31, 2005. The
      increase is primarily attributable to the receipt of a deposit from property
      held for resale. The expenditure in investing activities for 2006 consisted
      of,
      among others, payment of $1,877,867 for the purchases of property, plant and
      equipment and payment of construction costs for of our new CWM Fuel
      manufacturing plant. On the other hand, we generated $3,966,249 from financing
      activities for 2006 (as compared to $468,656 used in financing activities for
      2005), which, among others, consisted of proceeds from paid in capital from
      subsidiaries of $4,440,960.




As
      of
      December 31, 2006, the Company had cash of $4,450,557. Our total current assets
      were $10,384,944 and our total current liabilities were $2,759,458, which
      resulted in a net working capital of $7,625,486.





**CONTRACTUAL
      OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS**





**Contractual
      Obligations** ******





We
      have certain commitments that include future payments. We have presented below
      a
      summary in order to assist in the review of this information within the context
      of our consolidated financial position, results of operations, and cash flows.





**Payments
                Due by Period****Total**
            
            **Less
                than 1 year**
            
            **1-3
                Years**
            
            **3-5
                Years**
            
            **5
                Years +**Contractual
                Obligations:Capital
                Lease Obligations
            
            $
            831,649
            
            
            831,649
            
            
            --
            
            
            --
            
            
            --Operating
                Leases
            
            $
            13,745
            
            
            --
            
            
            13,745
            
            
            --
            
            
            --Total
                Contractual Obligations:
            
            $
            845,394
            
            
            831,649
            
            
            13,745
            
            
            --
            
            
            --




Operating
      lease amounts include minimum lease payments under our non-cancelable operating
      leases for office premises and production plants of Hangson. The amounts
      presented are consistent with contractual terms and are not expected to differ
      significantly, unless a substantial change in our headcount needs requires
      us to
      exit an office facility early or expand our occupied space.




Capital
      commitments include capital contribution to a subsidiary and purchase of
      machines for our production of “coal-water mixture” of Hangson.





**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.





**Related
      Party Transactions**


15





For
      a description of our related party transactions see Item 12 of this Annual
      Report entitled “Certain Relationships and Related Transactions, and Director
      Independence.”





**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 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.




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:





**2006**
            
            **2005**Balance
                sheet items, except for the registered and paid-up capital, as of
                December
                31
            
            
            USD0.1281:RMB1
            
            
            USD0.124:RMB1Amounts
                included in the statement of operations, statement of changes in
                stockholders’ equity and statement of cash flows for the years ended
                December 31
            
            
            USD0.126:RMB1
            
            
            USD0.122:RMB1







**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 Annual 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**





***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.***




16


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 January
      2007, 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.
      We believe the first phase of the construction of our CWM Fuel manufacturing
      plant will be completed in June 2007, and that production and delivery of our
      CWM Fuel product will commence in July 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 complete the construction
      of
      our CWM Fuel plant and commence 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 not
        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 not yet 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 substantial
      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.





17


***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;





●
            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 budgeted amounts
      of
      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.


18


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 are subject to a number of risks relating to the
      PRC.***





We
      are also subject to a number of risks relating to the PRC, including the
      following:





The
      central and local PRC governments continue to support the development and
      operation of coal industry in China. 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.





***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 operations, 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:


19





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





●
            we
                will develop additional patentable
                products;





●
            the
                patents we have been 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.


20




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 clinical 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 significant 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, some of which are currently in the early stages of
      development, will 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





●
            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 or our manufacturers 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.


21




***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, coal-based product
      and bio-technology 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 and
      bio-technology 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.





***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.


22





**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, our resellers
      and
      their customers 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;





●
            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.


23




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.





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.


24





***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.




***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.


25





***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 substantially all
      of
      our assets are located in China. In addition, most of our senior executive
      officers reside within China. As a result, it may not be possible to effect
      service of process within the United States or elsewhere outside China upon
      our
      senior executive officers, including with respect to matters arising under
      U.S.
      federal securities laws or applicable state securities laws. Moreover, our
      PRC
      counsel has advised us that the PRC does not have treaties with the United
      States or many other countries providing for the reciprocal recognition and
      enforcement of judgment of courts.





***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.


26





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




Our
      business could be adversely affected by the effects of SARS or another epidemic
      or outbreak. China reported a number of cases of SARS in April 2004. Any
      prolonged recurrence of SARS or other adverse public health developments in
      China may have a material adverse effect on our business operations. For
      instance, health or other government regulations adopted in response may require
      temporary closure of our production facilities or of our offices. Such closures
      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 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.





***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.


27





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 Current 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. However, the Company does not rule out the
      possibility of applying for listing on the Nasdaq National Market or other
      exchanges.





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.





***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.


28





***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.





***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.




29


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
      will be 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.





***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
      7.**  **FINANCIAL
      STATEMENTS**





The
      Company’s Financial Statements commence on the following page.





30








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


AND
      ITS
      SUBSIDIARIES


CONSOLIDATED
      FINANCIAL STATEMENTS


FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005






















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


AND
      ITS
      SUBSIDIARIES





INDEX
      TO
      FINANCIAL STATEMENTS





PagesReport
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheets
            F-3Consolidated
                Statements of Operations
            F-4Consolidated
                Statements of Changes in Stockholders’ Equity
            F-5Consolidated
                Statements of Cash Flows
            F-6Notes
                to Consolidated Financial Statements
            F-7
                to F-27





F-1





**Schwartz
          Levitsky Feldman llp**
 CHARTERED
          ACCOUNTANTS
 LICENSED
          PUBLIC ACCOUNTANTS
 TORONTO ·  MONTREAL
  REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
        the
        Board of Directors and Stockholders of
 China
        West Coal Energy Inc. (Formerly Endo Networks, Inc.)
 
 We
        have
        audited the accompanying consolidated balance sheet of China West Coal Energy
        Inc. (formerly Endo Networks, Inc.) as at December 31, 2006 and the related
        consolidated statements of operations, cash flows and changes in stockholders’
equity for the year ended December 31, 2006. These consolidated financial
        statements are the responsibility of the management of China West Coal Energy
        Inc. Our responsibility is to express an opinion on these consolidated financial
        statements based on our audit . The
        financial statements of Hangson Limited, the accounting acquirer of China
        West
        Coal Energy Inc. (formerly Endo Networks, Inc.) (see Note1) as of December
        31,
        2005, were audited by other auditor whose report dated June 5, 2006 expressed
        an
        unqualified opinion on those statements before restatement.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the consolidated financial statements. An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement presentation.
        We believe that our audit provides a reasonable basis for our
        opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of China West Coal Energy
        Inc.
        as of December 31, 2006 and the results of its operations and its cash flows
        for
        the year ended December 31, 2006 in conformity with United States generally
        accepted accounting principles.
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As described in Note 3 to the financial
        statements, the Company ceased its COPO resin operation which was the main
        resource of its working capital and 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 production facilities
        of the
        CWM are under construction and operations have not yet commenced. These
        conditions raise substantial doubt about the company’s ability to continue as a
        going concern. Management’s plans in regard to these matters are described in
        Note 20. The financial statements do not include any adjustments that might
        result from the outcome of this uncertainty.
 
 **“SCHWARTZ
        LEVITSKY FELDMAN LLP”**
 Toronto,
                    Ontario, Canada
                Chartered
                    AccountantsMarch
                    9, 2007
                Licensed
                    Public Accountants
  1167
            Caledonia Road
 Toronto,
            Ontario M6A 2X1
 Tel:
            416 785 5353
 Fax:
            416 785 5663





F-2





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


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS AS OF DECEMBER 31, 2006 AND 2005**








2006
            
            2005**ASSETS****Current
                Assets**Cash
                on hand and at bank
            
            $
            4,450,557
            
            $
            691,268Amounts
                due from directors (Note 18)
            
            
            206,186
            
            
            119,397Deposits
                and prepayments (Note 7)
            
            
            1,830,769
            
            
            -Short
                term loan to related party (Notes 9,18)
            
            
            411,970
            
            
            -Discontinued
                operations (Note 14)
            
            
            3,485,462
            
            
            3,475,66410,384,944
            
            
            4,286,329**Non-Current
                Assets**Long
                term investment (Note 8)
            
            
            -
            
            
            335,500Prepaid
                rental
            
            
            -
            
            
            59,520Long-term
                loan to a related party (Notes 9, 18)
            
            
            -
            
            
            372,000Intangible
                assets, net (Note 11)
            
            
            1,533,349
            
            
            628,640Property,
                plant and equipment, net (Note 10)
            
            
            623,934
            
            
            92,648**Total
                Assets**
            
            $
            12,542,227
            
            $
            $
                5,774,637**LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                Liabilities**Accrued
                expenses and other payables (Note 12)
            
            $
            372,125
            
            $
            140,125Amount
                due to a director (Note 18)
            
            
            20,702
            
            
            -Discontinued
                operations (Note 14)
            
            
            2,366,631
            
            
            104,669**Total
                Current Liabilities**
            
            
            2,759,458
            
            
            244,794Minority
                interest
            
            
            94,748
            
            
            -**Commitments
                and Contingencies (Note 19)**
              **Related
                Party Transactions (Notes 9, 14,18)****Shareholders’
                Equity**Common
                stock, $0.001 par value, 200,000,000 shares authorized, 28,227,250
                issued
                and outstanding
            
            
            28,227
            
            
            4,712,137Additional
                paid-in capital
            
            
            9,209,629
            
            
            84,759Statutory
                reserves (Note 13)
            
            
            348,309
            
            
            159,371Accumulated
                comprehensive income
            
            
            432,312
            
            
            125,594(Accumulated
                deficit) retained earnings
            
            
            (330,456
            )
            
            447,982**Total
                Shareholders’ Equity**
            
            
            9,688,021
            
            
            5,529,843**Total
                Liabilities and Shareholders’ Equity**
            
            $
            12,542,227
            
            $
            $
                5,774,637





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





F-3





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


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED** **STATEMENTS
      OF OPERATIONS AND COMPREHENSIVE INCOME**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





2006
            
            2005**Revenue**
            
            $
            -
            
            $
            -Cost
                of goods sold
            
            
            -
            
            
            -**Gross
                profit**
            
            
            -
            
            
            -**Operating
                expenses**Research
                and development expenses
            
            
            37,718
            
            
            -General
                and administrative expenses
            
            
            263,174
            
            
            -**Loss
                from operations**
            
            
            (300,892
            )
            
            -**Other
                income (expenses)**Merger
                costs
            
            
            (575,000
            )
            
            -Interest
                income
            
            
            60,678
            
            
            28,957Sundry
                income(expenses)
            
            
            -
            
            
            4,024Finance
                costs
            
            
            (82
            )
            
            (2
            )Total
                other (expense) income
            
            
            (514,404
            )
            
            32,979**(Loss)
                income from continuing operations before income taxes**
            
            
            (815,296
            )
            
            32,979Provision
                for income taxes (Note 16)
            
            
            -
            
            
            -**Net
                (loss) income from continuing operation**
            
            
            (815,296
            )
            
            32,979**Net
                income from discontinued operations (Note 14)**
            
            
            690,482
            
            
            809,713**Net
                (loss) income before minority interest**
            
            
            (124,814
            )
            
            842,692**Minority
                interest**
            
            
            32,794
            
            
            -**Net
                (loss) income**
            
            
            (92,020
            )
            
            842,692**Other
                comprehensive income**Foreign
                currency translation adjustment
            
            
            306,718
            
            
            125,594**Net
                comprehensive income**
            
            $
            214,698
            
            $
            968,286Net
                (Loss) earnings per share from continuing operation (Note 17)
              -
                Basic
            
            
            (0.029
            )
            
            0.001-
                Diluted
            
            
            (0.029
            )
            
            0.001Net
                earnings per share from discontinued operation
              -
                Basic
            
            $
            0.024
            
            $
            0.029-
                Diluted
            
            $
            0.024
            
            $
            0.029


Weighted
                average number of common shares outstanding
              -
                Basic
            
            
            28,227,250
            
            
            28,227,250-
                Diluted
            
            
            28,227,250
            
            
            28,227,250




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





F-4





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


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED** **STATEMENTS
      OF CHANGES IN SHAREHOLDERS’ EQUITY**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Common
                      stockShares
                  
                  Amount
                  
                  Additional
                      paid-in capital
                  
                  Statutory
                      capital reserves
                  
                  Statutory
                      welfare reserves
                  
                  Accumulated
                      comprehensive income
                  
                  Retained
                      earnings
                    (Deficit)
                  
                  TotalBalance
                      at January 1, 2005 (at par $0.1208)
                  
                  
                  39,000,000
                  
                  $
                  4,712,137
                  
                  $
                  84,759
                  
                  $
                  15,839
                  
                  $
                  7,920
                  
                  $
                  -
                  
                  $
                  209,558
                  
                  $
                  5,030,213Foreign
                      Currencytranslation
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  125,594
                  
                  
                  -
                  
                  
                  125,594Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  842,692
                  
                  
                  842,692Transfer
                      to statutory reserves
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  90,408
                  
                  
                  45,204
                  
                  
                  -
                  
                  
                  (135,612
                  )
                  
                  -Dividend
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (468,656
                  )
                  
                  (468,656
                  )**Balance
                      at December 31, 2005 (at par $0.1208)**
                  
                  
                  39,000,000
                  
                  $
                  4,712,137
                  
                  $
                  84,759
                  
                  $
                  106,247
                  
                  $
                  53,124
                  
                  $
                  125,594
                  
                  $
                  447,982
                  
                  $
                  5,529,843Capital
                      injection of subsidiaries
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,440,960
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,440,960Exchange
                      of share prior to recapitalization
                  
                  
                  (39,000,000
                  )
                  
                  (4,712,137
                  )
                  
                  4,712,137
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -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
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (92,020
                  )
                  
                  (92,020
                  )Transfer
                      to statutory reserves
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  123,849
                  
                  
                  62,979
                  
                  
                  -
                  
                  
                  (186,828
                  )
                  
                  -Effect
                      on translation difference
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  
                  
                  2,110
                  
                  
                  
                  
                  
                  306,718
                  
                  
                  
                  
                  
                  308,828Dividend
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (499,590
                  )
                  
                  (499,590
                  )**Balance
                      at**
                    **December
                      31, 2006**
                  
                  
                  28,227,250
                  
                  $
                  28,227
                  
                  $
                  9,209,629
                  
                  $
                  232,206
                  
                  $
                  116,103
                  
                  $
                  432,312
                  
                  $
                  (330,456
                  )
                  $
                  9,688,021




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


F-5


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


**AND
      ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


2006
              
              2005**Cash
                  flows from operating activities**Net
                  (loss) income
              
              $
              (92,020
              )
              $
              842,692Adjustments
                  to reconcile net income to net cash provided by (used in) operating
                  activities:Net
                  income from discontinued operations
              
              
              (690,482
              )
              
              (809,713
              )Minority
                  interest
              
              
              (32,794
              )
              
              -Depreciation
                  and amortization
              
              
              129,259
              
              
              110,218Provision
                  for doubtful debts
              
              
              443
              
              
              -Interest
                  income
              
              
              -
              
              
              (28,957
              )Change
                  in operating assets and liabilities:(Increase)
                  decrease in:Other
                  receivables, deposits and prepayments
              
              
              (1,798,207
              )
              
              -Increase
                  (decrease) in:Accrued
                  expenses and other payable
              
              
              186,958
              
              
              (14,395
              )Net
                  cash provided by discontinued operations (Note 14)
              
              
              3,709,360
              
              
              887,171Net
                  cash generated from operating activities
              
              
              1,412,517
              
              
              987,016**Cash
                  flows from investing activities**Increase
                  in interest receivable to a related party
              
              
              (27,206
              )
              
              -(Increase)
                  decrease in amount due from a director
              
              
              (81,452
              )
              
              13,858Interest
                  received
              
              
              -
              
              
              84,941Payment
                  for land use right
              
              
              (1,522,136
              )
              
              -Payment
                  for establishment of a subsidiary
              
              
              -
              
              
              (335,500
              )Proceeds
                  from disposal of subsidiary
              
              
              346,369
              
              
              -Purchase
                  of intangible assets
              
              
              -
              
              
              (905
              )Purchase
                  of property, plant and equipment
              
              
              (593,442
              )
              
              (1,029
              )Net
                  cash used in investing activities
              
              
              (1,877,867
              )
              
              (238,635
              )**Cash
                  flows from financing activities**Amounts
                  due from shareholders
              
              
              20,355
              
              
              -Dividend
                  paid
              
              
              (499,590
              )
              
              (468,656
              )Decrease
                  in paid-in capital
              
              
              4,524
              
              
              -Proceeds
                  from paid in capital from subsidiaries
              
              
              4,440,960
              
              
              -Net
                  cash generated from (used in) financing activities
              
              
              3,966,249
              
              
              (468,656
              )**Effect
                  of exchange rate changes**
              
              
              258,390
              
              
              7,947**Net
                  increase in cash**
              
              
              3,759,289
              
              
              287,672Cash,
                  beginning of year
              
              $
              691,268
              
              $
              403,596Cash,
                  end of year
              
              $
              4,450,557
              
              $
              691,268**Supplemental
                  disclosure information**Finance
                  costs paid
              
              $
              82
              
              $
              2Income
                  taxes paid
              
              $
              126,119
              
              $
              -





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





F-6





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


**AND
      ITS SUBSIDIARIES** ****


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





1.
            CORPORATE
                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.





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.





Additionally,
      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.











F-7





1.
              CORPORATE
                  REORGANZATION AND BUSINESS ACTIVITIES
                  (CONT’D)


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 a subsidiary of which 80% interest is
      controlled by Shaanxi Suoang New Energy Enterprise Company Ltd. (“New Energy”).
      From January 2007 , Shaanxi Suoang will cease its original operation in COPO
      products business and act as holding company for 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 effected 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.








F-8








1. CORPORATE
      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 had
      been 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 at December 31, 2006, the plant was under
      construction and the Company expects to commence operation around July
      2007.





2.
            FISCAL
                YEAR END





Prior
      to
      the acquisition, Hangson’s reporting fiscal year end was December 31. However,
      the Company’s reporting year-end was September 30. The Company has decided to
      adopt the fiscal year end of Hangson, its operating business after the share
      exchange transaction described above, and thus on
      January 15, 2007, the
      Company Company ’s
      Board
      of Directors  approved
      a change of its fiscal year by an unanimous written consent. The Company’s new
      fiscal year will begin on January 1 and end on December 31 of each year, and
      this change shall be applicable with the year ending December 31,
      2006.





3.
            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 January 2007, 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 not 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.





F-9








4.
            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 are classified as assets held for sale and discontinued operation.





On
      September 15, 2005, the Company established a subsidiary named Shaanxi Suoke
      New
      Energy Industry Company Limited (“Shaanxi Suoke”) in which the Company injected
      a capital of $335,500 representing a 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, who
      established another subsidiary named Suo’ang New Energy together with Shaanxi
      Suo’ang, at cost with a cash consideration of $335,500.





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 year ended December 31, 2005 and 2006, because
      of the lack of ability to control Shaanxi Suoke. Results of Shannxi Suoke since
      its establishment to December 31, 2005 and 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.





F-10








4.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)





(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 December 31, 2006, accounts and other
      receivables were net of allowances of $3,772 and Nil, respectively. As of
      December 31, 2005, accounts and other receivables were net of allowances of
      $3,215 and Nil, respectively.





(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-11





4.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)





(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) Intangible
      assets





The
      land
      use right is amortized over the expected period 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 Impairment of Long-Lived Assets to be Disposed Of* ,
      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
      comprehensive income of $432,312 and $125,594 for the years ended December
      31,
      2006 and 2005 respectively. The comprehensive income arose from the changes
      in
      foreign currency exchange rate.





(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 December 31, 2006 approximate to
      their respective fair values due to the short-term nature of those
      instrument.





(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. The Company incurred
      advertising expenses of $986 and $1,258 for the years ended December 31, 2006
      and 2005, respectively.








F-12




4.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)




(m)
                Research
                    and development costs
 Research
        and development costs are expensed to operations as incurred.


(n)
            Stock based
              compensation




The
      Company has adopted Statement of Financial Accounting Standards No. 123R
“Accounting for Stock-Based Compensation” (“SFAS123”), which defines a
      fair-value-based method of accounting for stock based employee compensation
      and
      transactions in which an entity issues its equity instruments to acquire goods
      and services from non-employees. Stock compensation for stock granted to
      non-employees has been determined in accordance with SFAS 123R and the Emerging
      Issues Task Force consensus in Issue No. 96-18, “Accounting for Equity
      Instruments that are issued to Other than Employees for Acquiring, or in
      Conjunction with Selling Goods or Services” (“EITF 96-18”), as the fair value of
      the consideration received or the fair value of equity instruments issued,
      whichever is more reliably measured.




(o)
                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.


(p)
                  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.


(q)
                    Foreign
                            currency
                            transactions





The
      Company determines its functional currency based on the criteria of SFAS 52, *Foreign
      Currency Translation* and has
      determined RMB to be their functional currency. Transactions denominated in
      foreign currencies are translated into the functional currency at the exchange
      rates prevailing on the transaction dates. Monetary assets and liabilities
      denominated in foreign currencies are translated into the functional
      currency at the exchange rates prevailing on the balance sheet date. Exchange
      gains or losses are included in the statement of operations.


(r)
                    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.





F-13











4.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)





(s) 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.


(t)
                    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.




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 Consolidated Financial
      Statements.


F-14




4.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)





(t) Recently
      issued accounting pronouncements (cont’d)




The
      FASB
      issued FASB Interpretation No.(“FIN”) 48, “Accounting for Uncertainty in Income
      Taxes,” in July 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 statement.




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-15




5. CONCENTRATION
      OF CREDIT RISK


(a)
              Financial
                  instruments which 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 December 31, 2006 and 2005, 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 years ended December 31, 2006 and 2005, all of the Company’s sales
                  arose in the PRC and were generated by the discontinued operation.
                  All
                  accounts receivable as of December 2006 and 2005 also arose in
                  the PRC
                  generated from the discontinued
                  operation.
 
 (d)
              Details
                  of the customers accounting for 10% or more of total sales as of
                  December
                  31, are as follows:


2006
            
            2005Company
                A
            
            $
            -
            
            $
            610,000Company
                B
            
            
            -
            
            
            586,204Company
                C
            
            
            1,252,276
            
            
            -Company
                D
            
            
            1,174,336
            
            
            -Company
                E
            
            
            1,151,996
            
            
            -Company
                F
            
            
            748,503
            
            
            -





The
      accounts receivable from the three customers with the largest receivable balance
      represents 50% and 48% of the balance of the account at December 31, 2006 and
      2005, respectively. Since these accounts receivable originated from the
      COPO resin business, which was discontinued subsequent to the year-end,
      part of these amounts have been reclassified to discontinued
      operations.





6. 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-16





7.  DEPOSIT
      AND PREPAYMENTS





Deposit
      and prepayment consist of the following as of December 31,





2006
            
            2005Prepayment
                for construction in progress
            
            $
            1,827,932
            
            $
            -Rental
                deposit
            
            
            1,902
            
            
            -Others
            
            
            935
            
            
            -$
            1,830,769
            
            $
            -





8. INVESTMENT





Investment
      consists of the following as of December 31,





2006
            
            2005Capital
                injected in a subsidiary
            
            $
            -
            
            $
            335,500





On
      September 15, 2005, the Company established a subsidiary named Shaanxi Suoke
      New
      Energy Industry Company Limited (“Shaanxi Suoke”) in which the Company injected
      a capital of $335,500 representing a 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, who
      later on established another subsidiary named Suo’ang New Energy together with
      Shaanxi Suo’ang, at cost with a cash consideration of $335,500.





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, no consolidated financial
      statements have been prepared to consolidate Shaanxi Suoke for the year ended
      December 31, 2005 and 2006, because of lack of ability to control Shaanxi Suoke.
      Results of Shannxi Suoke since its establishment to December 31, 2005 and 2006
      were immaterial.





9 . 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 May 2007.








F-17











1 0. PROPERTY,
      PLANT AND EQUIPMENT





Property,
      plant and equipment consists of the following as of December 31,


2006
            
            2005Construction
                in progress
            
            $
            579,610
            
            $
            -Office
                equipment
            
            
            57,771
            
            
            52,964Motor
                vehicles
            
            
            119,624
            
            
            95,571757,005
            
            
            148,535Less:Accumulated
                depreciation and amortization
            
            
            (133,071
            )
            
            (55,887
            )$
            623,934
            
            $
            92,648





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 is expected to be completed and
      become operational in 2007.





The
      depreciation expenses on property, plant and equipment for the years ended
      December 31, 2006 and 2005 were $21,622 and $18,704 respectively.





11.
            INTANGIBLE
                ASSETS





Intangible
      assets consist of the following as of December 31,


2006
            
            2005Land
                use rights
            
            $
            1,547,192
            
            $
            -Patent
            
            
            -
            
            
            930,000Accounting
                software
            
            
            1,832
            
            
            9051,549,024
            
            
            930,905Less:
                Accumulated amortization
            
            
            (15,675
            )
            
            (302,265
            )$
            1,533,349
            
            $
            628,640





During
      the year, the Company paid $1,547,192 for obtaining a land use rights 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 July
      2007 and expects that there should be no legal barriers for the Company to
      obtain an ownership certificate.





On
      formation of Shaanxi Suoang, a former shareholder contributed the patent in
      return for the issuance of 18% common stock in Shaanxi Suoang. The patent was
      carried at the fair value at the time of contribution by that shareholder based
      on an independent appraisal and as agreed among the shareholders of Shaanxi
      Suoang. The patent was related to COPO resin production. As the production
      of
      COPO resin ceased in December 2006, the patent was disposed to a related
      company, HanZhongWeiDa Commercial Company Limited which was controlled by Leping
      Yao, a shareholder of Shaanxi Suoang at a consideration of
      $256,200.





The
        amortization expense on intangible assets for the years ended December 31,
        2006
        and 2005 were $94,684 and $91,514, respectively. For each of the next five
        years, annual amortization expense on the land use rights and accounting
        software will be $30,944 and $366, respectively.


F-18




1 2. ACCRUED
          EXPENSES AND OTHER PAYABLES





Accrued
      expenses and other payables consist of the following as of December
      31,





2006
            
            2005Retention
                payable for leasehold improvement
            
            $
            -
            
            $
            4,340Accrued
                operating expenses
            
            
            235,769
            
            
            49,040Accrued
                staff welfare
            
            
            52,993
            
            
            33,249Other
                payable
            
            
            68,363
            
            
            53,496$
            357,125
            
            $
            140,125





1 3. 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:


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




Statutory
      reserves consist of the following as of December 31,





2006
            
            2005Statutory
                capital reserve
            
            $
            232,206
            
            $
            106,247Statutory
                common welfare fund
            
            
            116,103
            
            
            53,124$
            348,309
            
            $
            159,371








F-19








1 4. DISCONTINUED
      OPERATIONS





(a)
      Assets of discontinued operation consist of the followings as of December 31,




2006
              
              2005**ASSETS****Current
                  Assets**Accounts
                  receivable, net of allowances for doubtful accounts of $3,772 and
                  $3,215,
                  as at December 31, 2006 and 2005 respectively
              
              $
              750,635
              
              $
              639,701Patent
                  transfer receivable
              
              
              256,200
              
              
              -Other
                  receivable
              
              
              39,071
              
              
              39,432Deposits
                  and prepayments
              
              
              -
              
              
              124,863Assets
                  held for sale (Note 15)
              
              
              2,439,556
              
              
              2,671,6683,485,462
              
              
              3,475,664





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





**LIABILITIES****Current
                Liabilities**Accounts
                payable
            
            $
            864,787
            
            $
            64,702Accrued
                expenses and other payables
            
            
            -
            
            
            38,287Deposits
                on property held for resale
            
            
            1,409,100
            
            
            -Taxes
                payable
            
            
            92,744
            
            
            1,680**Total
                Current Liabilities**
            
            
            2,366,631
            
            
            104,669




Accrued
      expenses and other payables of discontinued operation consist of the following
      as of December 31,





2006
            
            2005Retention
                payable for leasehold improvement
            
            $
            -
            
            $
            4,340Accrued
                operating expenses
            
            
            -
            
            
            33,947$
            -
            
            $
            38,287








F-20








14. DISCONTINUED
      OPERATIONS (CONT’D)





(b)
      Results of discontinued operations consist of the following as of December
      31,





2006
            
            2005**Revenue**
            
            $
            7,253,887
            
            $
            5,426,591Cost
                of goods sold
            
            
            5,434,301
            
            
            4,417,584**Gross
                profit**
            
            
            1,819,586
            
            
            1,009,007**Operating
                expenses**Selling
                expenses
            
            
            285,235
            
            
            143,231General
                and administrative expenses
            
            
            354,162
            
            
            475,938**Income
                from discontinued operations**
            
            
            1,180,189
            
            
            389,838**Other
                income (expenses)**Rental
                income, net of outgoings
            
            
            329,741
            
            
            419,875Sundry
                income(expenses)
            
            
            (143,534
            )
            
            -Total
                other income
            
            
            186,207
            
            
            419,875**Income
                from discontinued operations before income taxes**
            
            
            1,366,396
            
            
            809,713Provision
                for income taxes
            
            
            (214,482
            )
            
            -**Net
                income from discontinued operations**
            
            
            1,151,914
            
            
            809,713Loss
                on disposal of patent
            
            
            (291,266
            )
            
            -Impairment
                of plant and machinery
            
            
            (170,166
            )
            
            -**Net
                income from discontinued operations**
            
            $
            690,482
            
            $
            809,713








c)
      Cash
      flows from of discontinued operations consist of the following as of December
      31,





2006
            
            2005**Cash
                flows from discontinued operations**Net
                income
            
            $
            690,482
            
            $
            809,713Adjustments
                to reconcile net income to net cash provided by (used in) discontinued
                operations:Depreciation
                and amortization
            
            
            175,235
            
            
            112,252Impairment
                of plant and equipment
            
            
            170,166
            
            
            -Loss
                on disposal of patent
            
            
            291,266
            
            
            -Change in operating assets and liabilities:(Increase)
                decrease in:Accounts receivable, trade
            
            
            (88,720
            )
            
            (188,422
            )Other receivables, deposits and prepayments
            
            
            187,054
            
            
            42,525Inventories
            
            
            24,350
            
            
            323,489Increase
                (decrease) in:Accounts payable
            
            
            784,568
            
            
            (200,459
            )Deposit from property held for resale
            
            
            1,385,478
            
            
            -Taxes payable
            
            
            89,481
            
            
            (11,927
            )Net
                cash provided by discontinued operations
            
            $
            3,709,360
            
            $
            887,171








F-21











15. ASSETS
      HELD FOR SALE





Assets
      held for sale consist of the following as of December 31,





2006
            
            2005Properties
                and leasehold improvements (Note a)
            
            $
            2,334,934
            
            $
            2,357,421Machinery
                (Note b)
            
            
            89,670
            
            
            275,798Inventory
                (Note c)
            
            
            14,952
            
            
            38,449$
            2,439,556
            
            $
            2,671,668





(a) *Property
      and leasehold improvements*





Property
      and leasehold improvements consist of the following as of December
      31,





2006
            
            2005Cost
            
            $
            2,544,085
            
            $
            2,462,659Accumulated
                depreciation
            
            
            (209,151
            )
            
            (105,238
            )$
            2,334,934
            
            $
            2,357,421





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 March 31, 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
      at 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 agrees to transfer the title of the properties to the buyer
      when the buyer pays the remaining balance of approximately $1,040,900 before
      the
      date of May 31, 2007.





The
      depreciation expense on property and leasehold improvement for the years ended
      December 31, 2006 and 2005 were $98,788 and $91,128 respectively.





F-22








15. ASSETS
      HELD FOR SALE (CONT’D)





(b) *Machinery*





Machinery
      consist of the following as of December 31,





2006
            
            2005Cost
            
            $
            324,086
            
            $
            316,521Impairment
            
            
            (170,166
            )Accumulated
                depreciation
            
            
            (64,250
            )
            
            (40,723
            )$
            89,670
            
            $
            275,798





After
      the
      balance sheet date, 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. The Company accounts for
      impairment of the machinery in accordance with SFAS No.144, *Accounting
      for Impairment of Long-Lived Assets to be Disposed Of* ,
      of
      $170,166 for the year.





The
      depreciation expense on machinery for the years ended December 31, 2006 and
      2005
      were $21,817 and $21,124 respectively.





(c) *Inventories*





Inventories
      consist of the following as of December 31,





2006
            
            2005Raw
                materials
            
            $
            7,608
            
            $
            5,530Finished
                goods
            
            
            5,244
            
            
            31,644Packing
                materials
            
            
            229
            
            
            901Consumables
            
            
            1,871
            
            
            374$
            14,952
            
            $
            38,449





After
      the
      balance sheet date, the Company sold the inventories to unrelated third parties
      in consideration of $12,767 with a loss of $2,185.








F-23








1 6. 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. Current year’s income tax expenses are $214,482, which 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, there is no income and no income tax liability.




The
      Company and Hangson are not subject to any income taxes as the companies have
      no
      income for the year 2006 and 2005.




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





2006
            
            2005U.S.
                statutory rate
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in the U.S.
            
            
            (34.0
            %)
            
            (34.0
            %)China
                preferential income tax rate
            
            
            15.0
            %
            
            15.0
            %Tax
                holiday
            
            
            -
            
            
            (15.0
            %)Effective
                tax rate
            
            
            15.0
            %
            
            -





No
      significant deferred tax liabilities or assets existed as of either December
      31,
      2006 or 2005.





1 7. EARNINGS
      PER SHARE





Basic
      earnings per share (EPS) for the years ended December 31, 2006 and 2005 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:





December
                31,
            
            December
                31,2006
            
            2005Denominator
                for Basic EPS
            
            
            28,227,250
            
            
            28,227,250Weighted
                average effect on denominator for Basic EPS
            
            
            28,227,250
            
            
            28,227,250








F-24








1 8. RELATED
      PARTY TRANSACTIONS





(a) *Related
      party receivables and payables*





Amounts
      receivable from a related party and directors as of December 31, are summarized
      as follows:


2006
            
            2005Loan
                to a related partyShaanxi
                Hanzhong New Century Real Estate Company Limited (see Note
                9)Principal
            
            $
            384,300
            
            $
            372,000Interest
                receivable
            
            
            27,670
            
            
            -411,970
            
            
            372,000Amounts
                due from directorsMr.
                Baowen Ren, also a shareholder of the Company
            
            $
            144,698
            
            $
            119,397Mr.
                Peng Zhou, also a shareholder of the Company and Suoang New Energy
            
            
            61,488
            
            
            -206,186
            
            
            119,397Amount
                due to a directorMr.
                Peng Zhou, also a shareholder of the Company and Suoang New Energy
            
            
            20,702
            
            
            -





Balance
      with Shaanxi Hanzhong New Century Real Estate Company Limited represented an
      interest bearing loan which was fully described in Note 9.





Balances
      with Mr. Baowen Ren and Mr. Peng Zhou represent cash advances by the Company.
      These balances are interest free and unsecured and have no fixed repayment
      dates. It is expected that the balances will be received or repaid within one
      year.





(b) *Guarantee
      given by a shareholder*





A
      majority shareholder of the Company, 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 9 and above.





(c) *Sale
      of Shaanxi Suoke*





During
      the year, Shaanxi Suo’ang disposed of its 55% equity interest in Shaanxi Suoke
      to one of the shareholders of Shaanxi Suoke and who is also the present minority
      shareholder of Suoang New Energy, Mr. Peng Zhou, at its carrying cost of
      $335,500 as more fully described in Note 8.




(d) *Disposal
      of Patent*





During
      the year, Shaanxi Suo’ang disposed its patent to a related company,
      HanZhongWeiDa Commercial Company Limited which is controlled by Leping Yao,
      a
      shareholder of Shaanxi Suoang at the consideration of $256,200 as more fully
      described in Note 11.





F-25








18. RELATED
      PARTY TRANSACTIONS (CONT’D)





(e) *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 described in Note 15.




19. 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 December 31, 2006 are as
      follows:





Contracted
                but not accrued for:Construction
                of factory buildings
            
            $
            210,787Purchase
                of machinery
            
            
            620,862Total
            
            $
            831,649





(b)
            *Operating
                lease commitments*





As
      of
      December 31, 2006, 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
            
            $
            4,8512008
            
            
            4,8512009
            
            
            4,0432010
                and thereafter
            
            
            -Total
                Operating Lease Commitments
            
            
            13,745





(c) *Ownership
      Certificate of the leased property*





According
      to relevant PRC laws and regulations, a land use right certificate, along with
      government approvals for land planning, project planning, and construction
      need
      to be obtained before construction of building is commenced. An ownership
      certificate shall be granted by the government upon application under the
      condition that the aforementioned certificate and government approvals are
      obtained.





The
      Company has not yet obtained the ownership certificate. However, the developer
      of the leasehold property held for re-sale has applied to obtain the ownership
      certificate for approval. Moreover, the developer of the leasehold property
      held
      for re-sale had already obtained approvals for land planning, project planning,
      and construction.





F-26





19. COMMITMENTS
      AND CONTINGENCIES (CONT’D)





(c) *Ownership
      Certificate of the leased property* *(cont’d)*





Management
      believes, under the condition that the developer is granted a land use right
      certificate and related approvals, there should be no legal barriers for the
      Company to obtain an ownership certificate for the leasehold property held
      for
      re-sale.  However, in the event that the Company fails to obtain the
      ownership certificate for the leasehold property held for re-sale, there is
      the
      risk that the buildings may need to be vacated as illegitimate ownership.
      However, management believes that this possibility while present is very remote.
      As a result, no provision has been made in the financial statements 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.





SUBSEQUENT EVENTS




After
      the
      balance sheet date, the Company ceased its COPO resin operation and is
      principally engaged in research, development, production, marketing and sales
      of
      its coal water mixture (“CWM”)
      product. The CWM business is expected to be 100% carried out by
      Shaanxi Suo’ang’s 80% owned
      subsidiary, Suo’ang New Energy.





The
      Company disposed all its plant and machinery in relation to its COPO resin
      operation with the carrying amount of approximately $263,000 at the
      consideration of approximately $90,000. The disposal loss of those plant and
      machinery has been reflected as an impairment loss in current year.




21.RECLASSIFICATIONS




Certain
        amounts included in the prior year’s consolidated financial statements have been
        reclassified to conform to the current year presentation. Such reclassifications
        did not have any effect on reported net income.




F-27




**ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE.**




As
      described in full detail in our Current Report on Form 8-K filed on November
      17,
      2006, which is incorporated herein by reference, on November 9, 2006, the
      Company's Board of Directors elected to dismiss LBB & Associates Ltd., LLP
      as the Company’s independent registered public accounting firm (“Independent
      Accountant”) and also elected to retain Schwartz Levitsky Feldman LLP, Chartered
      Accountants, as its new Independent Accountant.





**ITEM
      8A.**  **CONTROLS
      AND PROCEDURE**





(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 Director of
                Finance,
                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.




**ITEM
      8B.**  **OTHER
      INFORMATION**




As
      discussed more fully above under Item 1. (“Description of Business”), the
      Company decided to cease operations of its COPO resin products business and
      focus on the Company’s CWM Fuel product business. Thus, in December 2006, the
      Company’s patented technology owned through Shaanxi Suoang in connection with
      the COPO resin products was sold to HanZhongWeiDa Commercial Company Limited
      (“HanZhongWeiDa”), a related company controlled by Leping Yao, a shareholder of
      Shaanxi Suoang, for consideration of $256,200. **** Further,
      and in January 2007, we ceased operations at our COPO resin product
      manufacturing plant and we sold our COPO resin products’ manufacturing plant
      machinery to HanZhongWeiDa Commercial Company Limited for consideration of
      $89,670. The Company obtained an independent appraisal report prior to the
      sale
      of the patent and the COPO plant machinery and the appraised value for the
      patent was approximately RMB2,000,000 (approximately $259,538) and the appraised
      value of the COPO plant machinery was approximately RMB700,000 (approximately
      $ 90,838) .
      The
      Company then sought out buyers who would be interested in purchasing these
      assets for the highest purchase price and also considered the recoverability
      of
      proceeds from the sale of these assets. Of the companies that made an offer
      for
      these assets, HanZhongWeiDa offered the highest price and thus the Company
      sold
      these assets to HanZhongWeiDa. The Company incurred a loss on the disposal
      of
      the patented technology of $291,266 and incurred an impairment loss of $170,166
      in connection with the disposal of the COPO resin product plant machinery.





**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS OF REGISTRANT**





**DIRECTORS
      AND EXECUTIVE OFFICERS**





**Current
      Executive Officers and Directors**





The
      following tables set forth information regarding the Company’s current executive
      officers and directors of the Company. The Board of Directors is comprised
      of
      only one class. Except as otherwise described below, all of the directors will
      serve until the next annual meeting of stockholders or until their successors
      are elected and qualified, or until their earlier death, retirement, resignation
      or removal. Also provided herein are brief descriptions of the business
      experience of each director and executive officer during the past five years
      and
      an indication of directorships held by each director in other companies subject
      to the reporting requirements under the federal securities
      laws.


31




**Name**
            
            **Age**
            
            **Positions**Baowen
                Ren
            
            
            37
            
            CEO,
                President and Chairman of the BoardWenjie
                Zhang
            
            
            34
            
            DirectorPeng
                Zhou
            
            
            38
            
            DirectorCaixia
                Peng
            
            
            28
            
            Chief
                Financial Officer and Treasurer




**Baowen
      Ren** ,
      37, is the Director of Hangson Limited and has been Chairman of the Board of
      Shaanxi Suo’ang Biological Science & Technology, Co., Ltd. (“Shaanxi
      Suo’ang”), Hangson’s Chinese operational variable interest business entity,
      since January 2003 **.** Mr. Ren is a senior economic engineer who graduated from the Business Management
      Department of Hanzhong Normal University in 1992 **.** He had been the president of Shaanxi Lanchao Group Clothe Group Co. Ltd. from
      January 2001 to December 2002 and had been conferred honorable titles of
“Pacemaker in the New Long March”, “Shaanxi Outstanding Young Entrepreneur”,
“Shaanxi Top 100 Entrepreneur”, and “National Model Township Entrepreneur of
      Ministry of Agriculture”. Under his leadership, Shaanxi Suo’ang has convened a
      batch of excellent management personnel for products technology development,
      market strategy and sales, and capital operations for the expansion and
      development of Shaanxi Suoang’s business.





**Peng
      Zhou** ,
      38, is the General Manager of Shaanxi Suo’ang, Hangson’s Chinese operational
      variable interest business entity. Mr. Zhou is an accountant who graduated
      from
      the Statistics Department of Shaanxi Institute of Finance in 1992. Mr. Zhou
      started at Shaanxi Suo’ang as a Project Manager in May 2002 and was promoted to
      his current position as General Manager in May 2005. Mr. Zhou has also been
      engaged in industries such as finance, media, foreign trade, real estate and
      had
      held the posts of manager of credit department, editor, financial supervisor,
      and deputy manager. From June 1997 until March 2002, Mr. Zhou was the Vice
      President of Hanzhong Ruisen Real Estate Company. Mr. Zhou was also in charge
      of
      compiling and reporting work for a number of projects such as Industrial Park
      Project of 3,000-thousand Sets of Clothes, New Construction Material
      Project-Shale Brick Manufacturing Demonstration Base with Annual Output of
      6000-Thousand Pieces, and Erlang Dam Downstream Hydropower Station Cascade
      Development Project.





**Wenjie
      Zhang** ,
      34, has been the General Manager of Hanzhong Minsheng Guomao Department Store
      since January 2004. Mr. Zhang graduated with a degree in administration from
      the
      Xi’an Science Institution in 1995. From January 2001 until December 2003, Mr.
      Zhang was the Sales Manager at Shaanxi Jingyi Wood Group Company.




**Caixia
      Peng** ,
      28, is the Finance Director of Shaanxi Suo’ang, Hangson’s Chinese operational
      variable interest business entity. Ms. Peng started as Shaanxi Suo’ang’s Finance
      Manager in April 2005 and has been Shaanxi Suo’ang’s Finance Director since
      February 2006. Ms. Peng is an accountant who graduated from the Xi’an Finance
& Economy Institution in 1992. From July 2003 until March 2005, Ms. Peng was
      the Finance Manager at Yangling Bodisen Co., Ltd. Prior to that, from July
      2001
      until June 2003, Ms. Peng was the Finance Director at Yangling Tianwei
      Pharmaceutical Co., Ltd.





**Audit,
      Nominating and Compensation Committees**





Due
      to our lack of operations and size, we have not designated an Audit Committee.
      Furthermore, we are currently quoted on the OTC Bulletin Board, which is
      sponsored by the NASD, under the symbol “CWCE ” and the OTCBB does not have any
      listing requirements mandating the establishment of any particular committees.
      Our board of directors acts as our Audit Committee and performs equivalent
      functions, such as: recommending a firm of independent certified public
      accountants to audit the annual financial statements; reviewing the independent
      auditors independence, the financial statements and their audit report; and
      reviewing management's administration of the system of internal accounting
      controls. For these same reasons, we did not have any other committees during
      fiscal 2005.





Our
      Board believes that, considering our size and the members of our Board,
      decisions relating to director nominations can be made on a case-by-case basis
      by all members of the board without the formality of a nominating committee
      or a
      nominating committee charter. To date, we have not engaged third parties to
      identify or evaluate or assist in identifying potential nominees, although
      we
      reserve the right in the future to retain a third party search firm, if
      necessary.





The
      Board does not have an express policy with regard to the consideration of any
      director candidates recommended by shareholders since the Board believes that
      it
      can adequately evaluate any such nominees on a case-by-case basis. The Board
      will evaluate shareholder-recommended candidates under the same criteria as
      internally generated candidates. Although the Board does not currently have
      any
      formal minimum criteria for nominees, substantial relevant business and industry
      experience would generally be considered important, as would the ability to
      attend and prepare for board, committee and shareholder meetings. Any candidate
      must state in advance his or her willingness and interest in serving on the
      board of directors.





32


We
      have not received any recommendations for a director nominee from any
      shareholder.





**Code
      of Ethics**





For
      the
      year ended December 31, 2006, we did not have formal written code of ethics
      applicable to our principal executive officer and principal financial officer,
      because the board of directors has not determined it to be immediately necessary
      from a management perspective to adopt a formal code at this time. However,
      we
      plan to adopt and approve a formal written code of ethics in the near
      future.





**Family
      Relationships**





There
      are no family relationships between or among any of the current directors,
      executive officers or persons nominated or charged by the Company to become
      directors or executive officers.





**Involvement
      in Certain Legal Proceedings**





There
      are no orders, judgments, or decrees of any governmental agency or
      administrator, or of any court of competent jurisdiction, revoking or suspending
      for cause any license, permit or other authority to engage in the securities
      business or in the sale of a particular security or temporarily or permanently
      restraining any of our officers or directors from engaging in or continuing
      any
      conduct, practice or employment in connection with the purchase or sale of
      securities, or convicting such person of any felony or misdemeanor involving
      a
      security, or any aspect of the securities business or of theft or of any felony.
      Nor are any of the officers or directors of any corporation or entity affiliated
      with us so enjoined.




**Compliance
      with Section 16(a) of the Exchange Act**




Section 16(a)
      of the Securities Exchange Act of 1934 requires our executive officers and
      directors, and persons who own more than ten percent (10%) of our common stock
      to file reports of ownership and change in ownership with the Securities and
      Exchange Commission and the exchange on which the common stock is listed for
      trading. Executive officers, directors and more than ten percent (10%)
      stockholders are required by regulations promulgated under the Exchange Act
      to
      furnish us with copies of all Section 16(a) reports filed. To the Company’s
      knowledge, based solely on review of the copies of such reports furnished to
      the
      Company and written representation that no other reports were required, all
      of
      the Company’s other officers, directors and greater than ten percent (10%)
      shareholders complied with all applicable Section 16(a) filing
      requirements.





**ITEM
      10. EXECUTIVE COMPENSATION**





**SUMMARY
      OF EXECUTIVE COMPENSATION**





None
      of current executive officers received compensation in excess of $100,000 for
      the fiscal years ended December 31, 2006 or 2005, respectively. The following
      table summarizes all compensation received by our previous Chief Executive
      Officer, President and Chief Financial Officer in fiscal years 2006 and
      2005.




**SUMMARY
                  COMPENSATION TABLE****Name
                  and Principal Position**
              **Year**
              **Salary**
                **($)**
              **Bonus**
                **($)**
              **Stock
                  Awards**
                **($)**
              **Option
                  Awards**
                **($)**
              **Non-Equity
                  Incentive Plan Compensation**
                **($)**
              **Nonqualified
                  Deferred Compensation Earnings**
                **($)**
              **All
                  Other Compensation**
                **($)**
              **Total**
                **($)**Baowen
                  Ren, Chief Executive Officers (1)
              2006
              4,560
              0
              0
              0
              0
              0
              0
              4,5602005
              4,556
              0
              0
              0
              0
              0
              0
              4,556Caixia
                  Peng, Chief Financial Officer(2)
              2006
              2,430
              0
              0
              0
              0
              0
              0
              2,4302005
              2,130
              0
              0
              0
              0
              0
              0
              2,130Peter
                  B. Day, Former CEO and CFO (3)
              2006
              $105,500
              0
              0
              0
              0
              0
              0
              105,5002005
              $103,200
              0
              0
              0
              0
              0
              0
              103,200





33


**__________________________**





(1)
            Salary
                paid to Mr. Ren is expressed in U.S. Dollars based on the interbank
                exchange rate of RMB 7.90 for each 1.00 U.S. Dollar, on October 20,
                2006.





(2)
            Salary
                paid to Ms. Peng is expressed in U.S. Dollars based on the interbank
                exchange rate of RMB 7.90 for each 1.00 U.S. Dollar, on October 20,
                2006.





(3)
            As
                of September 30, 2006, Mr. Day was the Chief Executive Officer, President,
                and Chief Financial Officer of the Company. Mr. Day had not received
                any
                payment for his position and as a result his salary was accrued as
                an
                expense. This liability was purchased from the Company by Mr. Day
                together
                with the assets of Endo Canada pursuant to the June 26, 2006 Asset
                and
                Share Purchase Agreement. Mr. Day resigned as the Company’s Chief
                Executive Officer, President, and Chief Financial Officer on October
                20,
                2006 in connection with the Share Exchange transaction described
                above
                under the section titled “Item 1. Description of
                Business”.




**Narrative
      Disclosure To Summary Compensation Table And Grants Of Plan-Based
      Awards**





We
      currently do not have any employment agreements with our executive
      officers.





**STOCK
      EXERCISES**





For
      the fiscal years ended December 31, 2006 and 2005, the Company had no
      unexercised stock options or stock awards that had not vested because the
      Company had not issued any options or Stock Appreciation Rights (“SARs”) to any
      officers, employees or directors during the last two fiscal years. During the
      fiscal year ended 2004, the Company issued options for the purchase a total
      of
      634,000 shares of the Company’s common stock to consultants of the Company. All
      of these options expired as of September 30, 2006.





**POTENTIAL
      PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL**





SEC
      regulations state that we must disclose information regarding agreements, plans
      or arrangements that provide for payments or benefits to our executive officers
      in connection with any termination of employment or change in control of the
      Company. We
      currently have no employment agreements with any of our executive officers,
      nor
      any compensatory plans or arrangements resulting from the resignation,
      retirement or any other termination of any of our executive officers, from
      a
      change-in-control, or from a change in any executive officer's responsibilities
      following a change-in-control. As
      a
      result, we have omitted this table.





**DIRECTOR
      COMPENSATION**





We
      currently we do not have any compensation agreements with the members of our
      Board of Directors for their service on the Board, and we did not provide any
      director compensation to members of our Board during the last fiscal
      year.


34




**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





**Security
      Ownership of Certain Beneficial Owners and Management**





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of April 16, 2007, for each of the following persons:





•  each
      of our directors and named executive officers;





•  all
      directors and named executive officers as a group; and





•  each
      person who is known by us to own beneficially five percent or more of our common
      stock.




Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission. Unless otherwise indicated in the table, the persons and
      entities named in the table have sole voting and sole investment power with
      respect to the shares set forth opposite the stockholder’s name. Unless
      otherwise indicated, the address of each beneficial owner listed below is Room
      2205, Suite A, Zhengxin Bldg., No.5, Gaoxin 1st Road, Gao Xin District, Xi’an,
      Shaanxi Province, People’s Republic of China. The percentage of class
      beneficially owned set forth below is based on 28,227,250 **** shares
      of common stock outstanding on April 16, 2007.


**Named
                  executive officers and directors:**
              
              Number
                  of
                Shares
                beneficially
                owned
              
              Percentage
                  of
                class
                  beneficially
                owned
                  (1)Baowen
                  Ren, CEO, President, and Chairman
              
              
              9,597,232
              
              
              34.00
              %Wenjie
                  Zhang, Director
              
              
              1,269,234
              
              
              4.50
              %Peng
                  Zhou, Director
              
              
              0
              
              
              0.0
              %Caixia
                  Peng, CFO and Treasurer
              
              
              0
              
              
              0.0
              %All
                  directors and executive officers as a group (4 persons)
              
              
              10,866,466
              
              
              38.5
              %


____________________


*
      less than 1%





(1)
            Based
                on 28,227,250 shares outstanding.




**Securities
      Authorized for Issuance under Equity Compensation Plan**




We
      currently do not have any effective equity compensation plans.





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**





35


**HANGSON’S
      CONTRACTUAL ARRANGEMENTS WITH SHAANXI SUOANG AND ITS SHAREHOLDERS**




PRC
      law currently limits foreign equity ownership of Chinese companies. To comply
      with these foreign ownership restrictions, we operate our business in China
      through a series of contractual arrangements with Shaanxi Suoang and its
      majority shareholders that were executed on August 18, 2006. For a description
      of these contractual arrangements, please see the section under Item 1 above
      titled “Contractual Arrangements with Shaanxi Suoang and Its
      Shareholders.”





**RELATED
      PARTY TRANSACTIONS**





Set
      forth below are the Company’s related
      party
      transactions and the related party transactions between Shaanxi Suoang’s
      shareholders, officers and/or directors, and Shaanxi Suoang, with whom Hangson
      has contractual arrangements which give Hangson the ability to substantially
      influence Shaanxi Suoang’s daily operations and financial affairs, appoint its
      senior executives and approve all matters requiring shareholder approval.





(a)
            ***Related
                party receivables and
                payables***





Amounts
      receivable from a related party, and due from or due to directors as of December
      31 of each year are summarized as follows:




**2006**
            
            **2005**Loan
                to a related partyShaanxi
                Hanzhong New Century Real Estate Company Limited (1)
            
            $
            411,970
            
            $
            372,000Amounts
                due from directorsMr.
                Baowen Ren, also a shareholder of the Company (2)
            
            $
            144,698
            
            $
            119,397Mr,
                Peng Zhou, also a shareholder of the Company (2)
            
            $
            61,488
            
            $
            -Amount
                due to a directorMr,
                Peng Zhou, also a shareholder of the Company and Suoang New Energy
                (2)
            
            $
            20,702
            
            $
            -




(1)
              Balance
                  with Shaanxi Hanzhong New Century Real Estate Company Limited represents
                  a
                  long-term interest bearing loan of $384,300 paid and interest
                  receivable of $57,670 to a company, Shaanxi Hanzhong New Century Real
                  Estate Company Limited is controlled by the shareholder, Mr. Yang
                  Feng.
                  The loan is for 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 Suoang, Shaanxi Hanzhong Blue Tide Costumes Group Corporation
                  Limited, guarantees the repayment of this loan. According to a
                  supplement agreement signed between both parties and witnessed by a
                  PRC lawyer, the loan is repayable in one lump sum in May
                  2007.
 
 (2)
              The
                  balances with Mr. Baowen Ren and Mr. Peng Zhou represent cash advances
                  by
                  the Company. This balance is interest free and unsecured and has
                  no fixed
                  repayment date. It is expected that the balance will be received
                  or repaid
                  within one year.




(b)  ***Guarantee
      given by a shareholder***





A
      majority shareholder of the Shaanxi Suoang, Shaanxi Hanzhong Blue Tide Costumes
      Group Corporation Limited, guarantees the repayment of a long-term interest
      bearing loan advanced to a company, Shaanxi Hanzhong New Century Real Estate
      Company Limited, controlled by Mr. Yang Feng.




36


(c)  ***Sale
      of Shaanxi Suoke***





During
      the year, Shaanxi Suoang disposed its 55% equity interest in Shaanxi Suoke
      to
      Mr. Peng Zhou, director and shareholder of the Company and also minority
      shareholder of Suoang New Energy at its carrying cost of $335,500.




(d)  ***Disposal
      of Patent***





In
      December 2006, Shaanxi Suoang sold its patent to HanZhongWeiDa
      Commercial Company Limited ,
      a company controlled by Leping Yao, a shareholder of Shaanxi Suoang, at the
      consideration of $256,200.





(e)  ***Transfer
      of property***





On
      June
      13, 2006, Shaanxi Suoang entered into a property transfer agreement with
      Hanzhong Sixiong Kechuang Commercial Company Limited, a company controlled
      by
      Mr. Yanjun Zhao, a Company shareholder to dispose of the Company’s leasehold
      property in Hangzhong City, China together with the leasehold improvement
      therein in exchange for cash consideration of approximately $2,450,000. The
      title of the property will not be transferred until the Company receives payment
      of 95% of the cash consideration.




**OTHER
      RELATED PARTY TRANSACTIONS**





Per
      the terms of a verbal agreement the Company paid its former President Mr. Day
      approximately $8,600 per month in consulting fees. The Company accrued
      consulting fees due to Mr. Day in the amount of $251,120 at September 30, 2005.
      These amounts were recorded under “Accrued expenses - related parties” in the
      financial statements and was purchased by Mr. Day together with assets according
      to the Purchase Agreement he signed with the company on June 26,
      2006.





The
      Company also paid for Mr. Day’s home office rent. For the year ended December
      31, 2005, the total rent paid by the Company for the President’s home office was
      $17,900.





On
      September 30, 2006, Peter Day, the Company’s former CEO, President, CFO and sole
      director, purchased all of our assets and shares in Endo Networks, Inc., a
      corporation incorporated under the laws of Canada from us pursuant to that
      certain Asset and Share Purchase Agreement dated as of June 26, 2006. As
      consideration for all of the assets, which currently total $553,015, and all
      of
      the shares of Endo Canada, Mr. Day assumed all of our liabilities prior to
      the
      Share Exchange, which currently total $919,389 (such number includes our assets
      of $553,015 and our excess liabilities of $366,374), except for certain excluded
      liabilities.





**DIRECTOR
      INDEPENDENCE**





The
      Company does not have a separately designated audit, compensation or nominating
      committee of our Board, as it is not required to, and the functions customarily
      delegated to these committees are performed by the full Board. We have
      determined, however, that none of our directors is “independent” as that term is
      defined in Section 4200 of the NASD Marketplace Rule.





**ITEM
      13.**  **EXHIBITS
      AND REPORTS ON FORM 8-K**





**(a)**  **Exhibits
      to the Form 10-KSB** :





**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.3.2
            
            Bylaws
                of Endo Networks, Inc.


37





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. andHanZhongWeiDa
                Commercial Company Limiteddated
                December 25, 2006 *10.3
            
            Machineries Transfer
                Agreement between Shaanxi Suo’ang Biological Science & Technology
                Co., Ltd. andHanZhongWeiDa
                Commercial Company LimiteddatedJanuary
                10, 2007*17.1
            
            Letter
                of Resignation by Mr. Peter B. Day to the Board of Directors of Endo
                Networks, Inc.(3)21
            
            List
                of Subsidiaries *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 *




*
      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.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





AUDIT
      FEES




38


The
      aggregate fees billed by Lopez, Blevins, Bork & Associates, LLP for
      professional services rendered for the review of the Company’s unaudited
      financial statements through the quarter ended June 30, 2006 and the audit
      of
      the Company’s annual financial statements for the year ended September 30, 2005
      or services that are normally provided by the accountant in connection with
      statutory and regulatory filing or engagements for those periods/years was
      $17,100.





The
      aggregate fees billed by GC Alliance Limited for professional services rendered
      for the audit of the Company in connection with the Share Exchange Transaction
      was $105,000.





The
      aggregate fees billed by the newly appointed auditor, Schwartz Levitsky Feldman
      LLP, was $110,000 for professional services rendered for the audit of the
      Company’s annual consolidated financial statements for the fiscal year ended
      December 31, 2006.





AUDIT
      RELATED FEES





There
      were no fees billed for services reasonably related to the performance of the
      audit or review of the financial statements outside of those fees disclosed
      above under “Audit Fees” for the year ended December 31, 2006.





TAX
      FEES





For
      the years ended December 31, 2006 and December 31, 2006, there were no fees
      billed for services for tax compliance, tax advice and tax planning work to
      the
      Company.





ALL
      OTHER FEES





There
      were no fee billed by LBB or SLF during the last two fiscal years for products
      and services provided by LBB or SLF.





PRE-APPROVAL
      POLICIES AND PROCEDURES





Prior
      to engaging its accountants to perform particular services, our board of
      directors obtains an estimate for the service to be performed. All of the
      services described above were approved by the board of directors in accordance
      with its procedure.










**[SIGNATURES
      PAGE FOLLOWS]**





39


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





Dated:
                May 3, 2007
            
            
            **CHINA
                WEST COAL ENERGY INC.**
              (Registrant)By:
            /s/
                Baowen RenBaowen
                Ren
              Chief
                Executive Officer








KNOW
      ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears
      below constitutes and appoints Baowen Ren and Caixia Peng, and each of them,
      jointly and severally, his attorneys in fact, each with full power of
      substitution, for him in any and all capacities, to sign any and all amendments
      to this Report on Form 10-KSB, and to file the same, with exhibits thereto
      and
      other documents in connection therewith, with the Securities and Exchange
      Commission, hereby ratifying and confirming all that each said attorneys-in-fact
      or his substitute or substitutes, may do or cause to be done by virtue hereof.





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**Signature**
            
            **Title**
            
            **Date**/s/
Baowen
              Ren
            
            Chief
                Executive Officer, President and Chairman of the Board
            
            May
                3, 2007Baowen
                Ren/s/
Caixia
              Peng
            
            Chief
                Financial Officer and
              Treasurer
            
            May
                3, 2007Caixia
                Peng/s/
Wenjie
              Zhang
            
            Director
            
            May
                3, 2007Wenjie
                Zhang/s/
Peng
              Zhou
            
            Director
            
            May
                3, 2007Peng
                Zhou





40