**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-KSB**


**Amendment
        No. 1**




**xANNUAL
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT** **OF**


**1934**




For
      the
      fiscal year ended December 31, 2005




**oTRANSITION
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT**


**OF
      1934**




*Commission
      File Number: 000-31539*




**CHINA
      NATURAL GAS, INC.**


(Name
      of
      small business issuer in its charter)


Delaware
              98-0231607State
                  or other jurisdiction of
              I.R.S.
                  Employerincorporation
                  or organization
              Identification
                  Number




Tang
      Xing
      Shu Ma Building, Suite 418


Tang
      Xing
      Road


Xian
      High
      Tech Area


Xian,
      Shaanxi Province


China


(Address
      of principal executive office)




Issuer's
      telephone number: 86-29-88323325




Securities
      registered under Section 12(b) of the Exchange Act: None




Securities
      registered under Section 12(g) of the Exchange Act: None




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 xNo o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of the 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
oNo
x




The
      Issuer's revenues for the year ending December 31, 2005 were $4,850,699. As
      of
      March 17, 2006 the number of shares outstanding of the Issuer's common stock
      was
      23,918,516.




As
      of
      March 17, 2006 the aggregate number of shares held by non-affiliates was
      approximately 15,227,500.




As
      of
      March 17, 2006 the aggregate market value of the Issuer's common stock held
      by
      non-affiliates was $65,478,250, based on the average high and low price of
      $4.30
      per share as of March 17, 2006.




**DOCUMENTS
      INCORPORATED BY REFERENCE None**









**EXPLANATORY
        STATEMENT**





This
        Amendment No. 1 to Form 10-KSB, which amends the Company’s Form 10-KSB for the
        year ended December 31, 2005, filed with the Securities and Exchange Commission
        (the “SEC”) on March 22, 2006, is being filed to revise the disclosure regarding
        the Company’s organizational history and the disclosure in Footnote 1 to the
        Company’s Consolidated Financial Statements, in Item 1, Description of Business
        and in Item 6. Management’s Discussion and Analysis or Plan of Operations to
        clarify that Xian Xilan Natural Gas Co. Ltd. is a 100% Variable Interest
        Entity
        of the Company, which financial results are consolidated with those of the
        Company’s in accordance with Financial Interpretation No. 46R, Consolidation of
        Variable Interest Entities ("FIN 46R").




1





**FORM
      10-KSB**




**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2004**


INDEX


PagePART
                  I
              
              
              4ITEM
                  1.
              DESCRIPTION
                  OF BUSINESS
              
              4ITEM
                  2.
              DESCRIPTION
                  OF PROPERTY
              
              7ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              
              8ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITYHOLDERS
              
              8PART
                  II
              
              
              9ITEM
                  5.
              MARKET
                  FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
                  SMALL
                  BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
              
              9ITEM
                  6.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              
              10ITEM
                  7.
              FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY DATA
              
              15ITEM
                  8.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              
              16ITEM
                  8A.
              CONTROLS
                  AND PROCEDURES
              
              16ITEM
                  8B.
              OTHER
                  INFORMATION
              
              16PART
                  III
              
              
              17ITEM
                  9.
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE ACT
              
              17ITEM
                  10.
              EXECUTIVE
                  COMPENSATION
              
              18ITEM
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              
              19ITEM
                  12.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              
              20ITEM
                  13.
              EXHIBITS
              
              21ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              21
  2


**STATEMENT
      REGARDING FORWARD-LOOKING STATEMENTS**




In
      this
      annual report, references to "China Natural Gas," "CHNG," "the Company," "we,"
      "us," and "our" refer to China Natural Gas, Inc.




Except
      for the historical information contained herein, some of the statements in
      this
      Report contain forward-looking statements that involve risks and uncertainties.
      These statements are found in the sections entitled "Business," "Management's
      Discussion and Analysis or Plan of Operation," and "Risk Factors." They include
      statements concerning: our business strategy; expectations of market and
      customer response; liquidity and capital expenditures; future sources of
      revenues; expansion of our proposed product line; and trends in industry
      activity generally. In some cases, you can identify forward-looking statements
      by words such as "may," "will," "should," "expect," "plan," "could,"
      "anticipate," "intend," "believe," "estimate," "predict," "potential," "goal,"
      or "continue" or similar terminology. These statements are only predictions
      and
      involve known and unknown risks, uncertainties and other factors, including,
      but
      not limited to, the risks outlined under "Risk Factors," that may cause our
      or
      our industry's actual results, levels of activity, performance or achievements
      to be materially different from any future results, levels of activity,
      performance or achievements expressed or implied by such forward-looking
      statements. For example, assumptions that could cause actual results to vary
      materially from future results include, but are not limited to: our ability
      to
      successfully develop and market our products to customers; our ability to
      generate customer demand for our products in our target markets; the development
      of our target markets and market opportunities; our ability to manufacture
      suitable products at competitive cost; market pricing for our products and
      for
      competing products; the extent of increasing competition; technological
      developments in our target markets and the development of alternate, competing
      technologies in them; and sales of shares by existing shareholders. Although
      we
      believe that the expectations reflected in the forward looking statements are
      reasonable, we cannot guarantee future results, levels of activity, performance
      or achievements. Unless we are required to do so under US federal securities
      laws or other applicable laws, we do not intend to update or revise any
      forward-looking statements




3


**PART
      I**




**ITEM
      1. DESCRIPTION OF BUSINESS**




**Organizational
      History**





We
      were
      incorporated in the state of Delaware on March 31, 1999, as Bullet Environmental
      Systems, Inc. On May 25, 2000 we changed our name to Liquidpure Corp. and on
      February 14, 2002 we changed our name to Coventure International, Inc.





On
      December 6, 2005, we issued an aggregate of 4 million shares to all of the
      registered shareholders of Xian Xilan Natural Gas Co., Ltd., and entered into
      exclusive arrangements with Xian Xilan Natural Gas Co., Ltd. and these
      shareholders that give us the ability to substantially influence Xian Xilan
      Natural Gas’ daily operations and financial affairs, appoint its senior
      executives and approve all matters requiring shareholder approval. As a result,
      the Company consolidates the financial results of Xian Xilan Natural Gas as
      a
      variable interest entity pursuant to Financial Interpretation No. 46R,
“Consolidation of Variable Interest Entities.” On December 19, 2005, we changed
      our name to China Natural Gas, Inc.




**Overview
      of Business**




We
      primarily engage in the transmission and distribution of natural gas to
      commercial, industrial and residential customers. As well as the distribution
      of
      compressed natural gas as a vehicular fuel to retail end users.




**Business**




**End
      User Delivery of Natural Gas**




We
      are
      the sole authorized provider of natural gas to residential customers in certain
      parts of the Xian area, including Lantian County and the Baqiao District. We
      are
      currently supplying natural gas to approximately 50,000 households in the Xian
      area. Via a connecting point with a high pressure pipeline network from the
      government operated Shaanxi Natural Gas Company, natural gas with much lower
      pressure is delivered to our residential, commercial and industrial customers.
      We own approximately 120 km of high pressure pipeline. We are the only private
      company in Shaanxi province to own this type of high pressure
      pipeline.




Our
      management is seeking to expand supply services to the Shangluo and Ankang
      areas
      of Shaanxi province. Upon approval from the government, we would also have
      the
      exclusive right to provide natural gas to residential and commercial end users
      in those areas. In order to obtain such approval, we were required to submit
      a
      project proposal for the feasibility of supplying gas to each area. In Ankang,
      we applied to the Urban and Rural Construction Bureau. In Shangluo, applications
      were made to the Municipal Administration Bureau. The approval process takes
      approximately four to six months and is pending.




**Wholesale
      to Filling Stations**




We
      sell
      compressed natural gas to filling stations on a wholesale basis. The stations,
      in turn, sell natural gas to taxis and buses in Xian which operate on compressed
      natural gas (CNG) technology. Government statistics indicate that there are
      currently 5,000 buses and 20,000 taxis using natural gas in Xian. Each bus
      uses
      an average of 70 cubic meters of CNG per day and taxis use an average of 30
      cubic meters of CNG per day (source: Xian Clean Fuel Vehicles Commission
      2005).




In
      July
      2005, we purchased a Compressor Station which is operated in proximity to our
      pipeline and which allows us to compress and transport natural gas via truck
      to
      retail gas stations. We also plan to develop a liquefied form of natural gas
      (LNG) that can be transported over longer distances by gas tanker truck and
      which could expand our geographical sales. We are currently conducting a
      feasibility study with regard to LNG production. This study should be completed
      in June 2006. In order to construct an appropriate LNG plant, we will require
      approximately US$19 million (RMB 150 million), with construction of the plant
      completed by year end 2006, testing in October 2007 and production commencing
      in
      December 2007, assuming appropriate financing can be obtained. We can begin
      the
      process with our current licenses but in the future will require approval from
      Shaanxi Development and Reform Commission for LNG production.




4


**Retail
      Filling Stations**




Based
      on
      company estimates, by the end of June 2005, the total demand for compressed
      natural gas vehicular fuel in the Xian area was approximately one million cubic
      meters per day. We expect demand for natural gas as a transport fuel to continue
      to increase based on government clean energy policy as expressed in the proposal
      for the Eleventh Five Year Plan (2006-2010) and the end-user cost advantages
      of
      CNG fuel over gasoline. We estimate that the average filling station in Xian
      pumps approximately 12,000 cubic meters of natural gas per day. Based on a
      survey we conducted, as of November 1, 2005, there were 31 filling stations
      in
      Xian pumping approximately 372,000 cubic meters of CNG fuel per day, a figure
      well below estimated total demand.




As
      of
      February 9, 2006 we have completed construction and are operating two natural
      gas filling stations in the Xian metropolitan area. Currently, we purchase
      natural gas for 1.16 RMB/cubic meter and sell each cubic meter for 1.90RMB
      net
      of VAT. The construction time for each filling station is 45-60 days and the
      cost is approximately US$600,000. As of March 17, 2006, we are in the process
      of
      constructing our third natural gas filling station. We continue to evaluate
      additional sites for natural gas filling stations in the Xian metropolitan
      area.




Our
      management believes that our vertically integrated operation should allow us
      to
      be able to surpass the average sales volume of competing stations, estimated
      at
      12,000 cubic meters per day, based on our proprietary supply of CNG from our
      own
      pipeline.




**Marketing**




We
      market
      to the end user delivery of the natural gas segment of the business through
      advertising in the general media and direct solicitation of real estate
      development companies and government officials. We participate in trade shows
      and conferences such as the 7th Xian Global Gas Fuels Technology Equipment
      and
      Auto Service Station Exhibition which was held in June 2005. For the retail
      filling station segment of the business, we will target advertising to taxi
      drivers, who are the largest segment of end-users of the company's CNG fuel
      product. A discount loyalty card will be made available to the professional
      driving community including taxi and bus drivers. Brochures, radio and newspaper
      advertisements and point of sale displays will also be utilized.




**Suppliers**




Currently,
      we have only one natural gas supplier, the Shaanxi Natural Gas Co., Ltd., a
      government owned enterprise. In the past, contracts were renewed on an annual
      basis. However, as the volume of usage has increased, Shaanxi Natural Gas has
      revised their policies, and contract terms are now six months and subject to
      review prior to renewal. Our management reports that we do not expect any issues
      or difficulty in continuing to renew the supply contracts going forward. Price
      points for natural gas are strictly controlled by the government and have
      remained stable over the past 3 years.




**Customers**




**Residential/Commercial**




We
      supply
      natural gas to approximately 50,000 residential customers in Lantian County,
      Lintong and Baqiao Districts in the jurisdiction of Xian. These residences
      include apartment blocks and small estates. Commercial customers include small
      businesses like restaurants and office buildings.




**Industrial**




Within
      the Xian region there are several industries to which we supply natural gas
      as a
      raw material for their production process including the Xiwei Aluminum
      Company.




**Wholesale
      to Filling Stations**




Currently,
      we supply natural gas to several of the privately owned and operated CNG filling
      stations in the Xian area. Upon the completion of construction of our
      company-owned filling stations, we will also supply our own filling stations
      for
      sales to retail end users.




5


**Industry
      Overview**




China's
      rapidly expanding economy is stretching the limits of its energy resources.
      Currently, only 3% of China's total energy usage is natural gas, while the
      world's average consumption of natural gas is 24% of total energy usage.
      (source: US Energy Information Administration ("EIA"), August 2005) Over the
      next 5 years, China's use of natural gas is generally expected to double.
      China's domestic reserve of natural gas was estimated to be 53.3 trillion cubic
      feet (tcf) at the beginning of 2005 (source: EIA August 2005). The country's
      largest reserves are located in western and north central China, including
      the
      Province of Shaanxi, the home of CHNG.




In
      order
      to meet the growth in natural gas demand, the PRC government has encouraged
      private companies to invest in and build the natural gas infrastructure. On
      December 27, 2002, the Ministry of Construction issued a memorandum stating
      that
      regulation of the public utility industry (including gas distribution) should
      be
      liberalized and foreign and private investment participation should be
      encouraged and welcomed. The memorandum encouraged private investment in the
      sector and provided a legal framework for private urban natural gas
      distribution.




**Intellectual
      Property**




We
      have
      applied for a service mark on the "Xilan" name, which is used in connection
      with
      all services.




**Research
      and Development**




We
      have
      not had any material research and development expenses over the past two years.
      We project expenditures of approximately $100,000 for research and development
      in 2006. The funding source for all research and development expenses is
      expected to come from operating cash flows.




**Governmental
      and Environmental Regulation**




To
      date,
      we have been compliant with all registrations and requirements for the issuance
      and maintenance of all licenses required by the applicable governing authorities
      in China. These licenses include:




·
              Qualified
                    Urban Fuel Operator Business License authorized by the Shaanxi
                    Construction Bureau, the local office of the Ministry of Construction,
                    effective from January 2, 2004 to January 2,
                    2009.




(License
      number SHAANRANZHI 166)


·
              License
                  to Supply, Install Equipment and Maintain Gas Fuel Lines issued
                  by the
                  local Gas Fuels for Heating Bureau, an agency of the Ministry of
                  Construction and the Xian Natural Gas Management
                  Bureau.




(License
      number: XIRAN 136)


·
              Safety
                  and Inspection Regulation for Special Equipment Safety Inspection
                  Standards for High Pressure Pipeline and Technical Safety Inspection
                  Regulations from the Shaanxi Quality and Technology Inspection
                  Bureau for
                  compressor stations and pressure storage tank system. (Approval
                  letter
                  reference:
                  2004SHAANGUOCHUHAN033)




·
              Annual
                  Safety Inspection of Lightning Conductor Equipment approved by
                  the Shaanxi
                  Meteorology Bureau. (Certificate number
                  0005274)




The
      Citygate and Compressor Stations are approved by the local office of the
      Ministry of Construction.




Fuel
      service station standards are subject to regulation by the Ministry of
      Construction, the General Administration of Quality Supervision, and the Bureau
      of Inspection and Quarantine of the People's Republic of China. Certificates
      will be issued upon satisfactory inspection of service stations.




There
      are
      various standards that must be met for filling stations including handling
      and
      storage of gas, tanker handling, and compressor operation. These standards
      are
      regulated by the Local Ministry of Construction and the Gas Field Operation
      Department of the Municipal Administration Committee. Inspections will be
      carried out by the Municipal Development and Reform Commission which will issue
      a certificate for the handling of dangerous chemical agents.




6


Standards
      for the design and construction of filling stations must conform to GB50156-2202
      and technology standard BJJ84-2000.




**Competition**




The
      three
      largest state owned energy companies, CNPC (China National Petroleum
      Corporation) Group, SINOPEC, and CNOOC are principally engaged in the upstream
      supply of energy and are major players in exploration and transportation of
      oil
      and gas. They build much of the country's high pressure pipeline infrastructure.
      Natural gas is distributed to smaller regional firms that redistribute the
      gas
      to the end user, either through lower pressure pipeline networks, or via tankers
      in the form of liquid natural gas (LNG).




We
      are
      aware of two privately owned companies in China which may be considered to
      be
      our direct competitors: Xinjiang Guanghui LNG Development Corporation Ltd and
      Xin'Ao Gas Field Ltd. Xinjiang Guanghui LNG Development Corporation Ltd is
      primarily involved in the transportation of LNG via tanker truck to storage
      facilities from natural gas wells. Xin'Ao Gas Field Ltd. is a publicly owned
      company traded on the Hong Kong Exchange, distributing natural gas via pipeline,
      doing business in 13 provinces and municipalities that have a combined
      population of 31 million. Neither Xinjiang Guanghui nor Xin'Ao is approved
      to
      supply natural gas to any area in which Xilan is currently
      operating.




Currently,
      there are approximately 31 filling stations in Xian City. Thirteen of these
      stations are state owned enterprises. The other 18 stations are privately owned
      with the majority of these being single station operators. We believe that
      we
      can effectively compete with the stations based upon our organization,
      experience and financial resources.




**Employees**




As
      of
      March 17, 2006 we had a total of 243 employees in the following capacities:
      6 in
      management; 16 in administrative; 87 in operations; 5 in sales department;
      38 in
      R&D ; 16 in finance and 75 employees at the retailing filling station. We
      have not experienced any work stoppages and we consider relations with our
      employees to be good. We are not a party to any collective bargaining
      agreements.




**ITEM
      2. DESCRIPTION OF PROPERTY**




Our
      principal executive offices are located at Tang Xing Shu Ma Building, Suite
      418,
      Tang Xing Road, Xian High Tech Area, Xian, Shaanxi Province, China. Office
      #1
      consists of approximately 137.9 square meters which are rented on a monthly
      basis for $510.11 and office #2 consists of approximately 265.59 square meters
      which are rented on a monthly basis for $982.45.




Our
      properties are located in Lantian county, Baqiao District and Gaoxin District
      of
      Xian, Shaanxi province. We own a 120km high-pressure underground pipeline
      network and two Citygate stations (terminals) with accompanying buildings and
      equipment. We lease the main office building where we are headquartered and
      three filling station sites.




We
      believe that current facilities are adequate for our current and immediately
      foreseeable operating needs. We do not have any policies regarding investments
      in real estate, securities or other forms of property.




7


**ITEM
      3. LEGAL PROCEEDINGS**




From
      time
      to time, we may become involved in various lawsuits and legal proceedings,
      which
      arise in the ordinary course of business. However, litigation is subject to
      inherent uncertainties, and an adverse result in these or other matters may
      arise from time to time that may harm our business. We are currently not aware
      of any such legal proceedings or claims that we believe will have, individually
      or in the aggregate, a material adverse affect on our business, financial
      condition or operating results.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.**




None




8


**PART
      II**




**ITEM
      5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
      BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.**




On
      March
      17, 2004, our common stock was approved for listing on the Over-the-Counter
      Bulletin Board under the symbol "CVNI" and on December 19, 2005 our symbol
      was
      changed to "CHNG" and our fiscal year end was changed to December 31.
      The
      following table sets forth, for the range of high and low closing bid quotations
      for our common stock since our common stock was listed on the Over-the-Counter
      Bulletin Board, reflecting the applicable fiscal periods based on the change
      in
      our fiscal year end. The quotations represent inter-dealer prices without retail
      markup, markdown or commission, and may not necessarily represent actual
      transactions.




Period
              
              High*
              
              Low*December
                  31, 2005
              
              $
              3.60
              
              $
              0.5275July
                  31, 2005
              
              $
              6.00
              
              $
              0.50April
                  30, 2005
              
              $
              2.90
              
              $
              1.05January
                  31, 2005
              
              $
              7.25
              
              $
              0.45October
                  30, 2004
              
              $
              0.45
              
              $
              0.45July
                  31, 2004
              
              $
              1.50
              
              $
              0.25April
                  30, 2004
              
              $
              0.30
              
              $
              0.30




As
      of
      February 13, 2006, there were approximately 50 holders of record and 492
      beneficial owners of our common stock.




**Dividends**




There
      are
      no restrictions in our articles of incorporation or bylaws that prevent us
      from
      declaring dividends. The Delaware General Corporation Law, however, does
      prohibit us from declaring dividends where, after giving effect to the
      distribution of the dividend:




1.
      We
      would not be able to pay our debts as they become due in the usual course of
      business; or




2.
      Our
      total assets would be less than the sum of our total liabilities plus the amount
      that would be needed to satisfy the rights of shareholders who have preferential
      rights superior to those receiving the distribution.




We
      have
      never declared or paid any cash dividends on our common stock. We currently
      intend to retain future earnings, if any, to finance the expansion of our
      business. As a result, we do not anticipate paying any cash dividends in the
      foreseeable future.




**Recent
      Issuances of Unregistered Securities.**




On
      January 17, 2006, the Company entered into securities purchase agreements with
      an accredited investor and completed the sale of $2,824,802 of units. The units
      contained an aggregate of 1,008,857 shares of common stock and 274,633 common
      stock purchase warrants. Each common stock purchase warrant is exercisable
      for a
      period of three years at an exercise price of $3.60 per share. Pursuant to
      the
      terms of the warrant, each investor has contractually agreed to restrict its
      ability to exercise the warrants to an amount which would not exceed the
      difference between the number of shares of common stock beneficially owned
      by
      the holder or issuable upon exercise of the warrant held by such holder and
      9.9%
      of the outstanding shares of common stock of the Company.




On
      January 10, 2006 through January 13, 2006 the Company entered into securities
      purchase agreements with four accredited investors and completed the sale of
      $2,195,198 of units. The units contained an aggregate of 783,999 shares of
      common stock and 213,422 common stock purchase warrants. Each common stock
      purchase warrant is exercisable for a period of three years at an exercise
      price
      of $3.60 per share. Pursuant to the terms of the warrant, each investor has
      contractually agreed to restrict its ability to exercise the warrants to an
      amount which would not exceed the difference between the number of shares of
      common stock beneficially owned by the holder or issuable upon exercise of
      the
      warrant held by such holder and 9.9% of the outstanding shares of common stock
      of the Company. New York Global Securities acted as the placement agent of
      the
      transaction and received warrants to purchase 121,955 shares of common stock
      on
      the same terms and conditions as the investors.




9


On
      January 6, 2006 and January 9, 2006, the Company entered into securities
      purchase agreements with four accredited investors and completed the sale of
      $5,380,000 of units. The units contained an aggregate of 1,921,572 shares of
      common stock and 523,055 common stock purchase warrants. Each common stock
      purchase warrant is exercisable for a period of three years at an exercise
      price
      of $3.60 per share. Pursuant to the terms of the warrant, each investor has
      contractually agreed to restrict its ability to exercise the warrants to an
      amount which would not exceed the difference between the number of shares of
      common stock beneficially owned by the holder or issuable upon exercise of
      the
      warrant held by such holder and 9.9% of the outstanding shares of common stock
      of the Company. New York Global Securities acted as the placement agent of
      the
      transaction and received warrants to purchase 298,888 shares of common stock
      on
      the same terms and conditions as the investors.




*
      All of
      the above offerings and sales were deemed to be exempt under Section
      4(2) of the Securities Act of 1933, as amended. No advertising or general
      solicitation was employed in offering the securities. The offerings and sales
      were made to a limited number of persons, all of whom were accredited investors,
      business associates of our company or executive officers of our company, and
      transfer was restricted by our company in accordance with the requirements
      of
      the Securities Act of 1933. In addition to representations by the
      above-referenced persons, we have made independent determinations that all
      of
      the above-referenced persons were accredited or sophisticated investors, and
      that they were capable of analyzing the merits and risks of their investment,
      and that they understood the speculative nature of their investment.
      Furthermore, all of the above-referenced persons were provided with access
      to
      our Securities and Exchange Commission filings.




Pursuant
      to a Share Purchase Agreement, which closed on December 6, 2005, we issued
      an
      aggregate 4,000,000 shares of common stock to former shareholders of Xian Xilan
      Natural Gas Co., Ltd. These shares were issued in reliance upon the exemption
      from registration provided by Regulation S under the Securities Act of 1933,
      as
      amended




**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




**INTRODUCTION**




The
      following discussion should be read in conjunction with the Financial Statements
      and Notes thereto. Our fiscal year ends December 31. This document contains
      certain forward-looking statements including, among others, anticipated trends
      in our financial condition and results of operations and our business strategy.
      (See "Factors Which May Affect Future Results"). These forward-looking
      statements are based largely on our current expectations and are subject to
      a
      number of risks and uncertainties. Actual results could differ materially from
      these forward-looking statements. Important factors to consider in evaluating
      such forward-looking statements include (i) changes in external factors or
      in
      our internal budgeting process which might impact trends in our results of
      operations; (ii) unanticipated working capital or other cash requirements;
      (iii)
      changes in our business strategy or an inability to execute our strategy due
      to
      unanticipated changes in the industries in which the Company operates; and
      (iv)
      various competitive market factors that may prevent us from competing
      successfully in the marketplace.




**Corporate
      History**





We
      were
      incorporated in the state of Delaware on March 31, 1999, as Bullet Environmental
      Systems, Inc. On May 25, 2000 we changed our name to Liquidpure Corp. and on
      February 14, 2002 we changed our name to Coventure International, Inc.





On
      December 6, 2005, we issued an aggregate of 4 million shares to all of the
      registered shareholders of Xian Xilan Natural Gas Co., Ltd., and entered into
      exclusive arrangements with Xian Xilan Natural Gas Co., Ltd. and these
      shareholders that give us the ability to substantially influence Xian Xilan
      Natural Gas’ daily operations and financial affairs, appoint its senior
      executives and approve all matters requiring shareholder approval. As a result,
      the Company consolidates the financial results of Xian Xilan Natural Gas as
      a
      variable interest entity pursuant to Financial Interpretation No. 46R,
“Consolidation of Variable Interest Entities.” On December 19, 2005, we changed
      our name to China Natural Gas, Inc.




10


**Critical
      Accounting Policies**




**Use
      of Estimates**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires us to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and 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. Actual results
      could differ from those estimates.




**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents include cash on hand and cash in time deposits, certificates
      of
      deposit and all highly liquid debt instruments with original maturities of
      three
      months or less.




**Accounts
      and Other Receivable**




We
      maintain reserves for potential credit losses on accounts receivable. We review
      the composition of accounts receivable and analyzes historical bad debts,
      customer concentrations, customer credit worthiness, current economic trends
      and
      changes in customer payment patterns to evaluate the adequacy of these reserves.
      Reserves are recorded primarily on a specific identification basis.




**Inventory**




Inventory
      is stated at the lower of cost, as determined on a first-in, first-out basis,
      or
      market. We compare the cost of inventories with the market value, and allowance
      is made for writing down the inventories to their market value, if lower.
      Inventory consists of material used in the construction of pipelines.




**Property
      and Equipment**




Property
      and equipment are stated at cost. Expenditures for maintenance and repairs
      are
      charged to earnings as incurred; additions, renewals and betterments are
      capitalized. When property and equipment are retired or otherwise disposed
      of,
      the related cost and accumulated depreciation are removed from the respective
      accounts, and any gain or loss is included in operations. Depreciation of
      property and equipment is provided using the straight-line method for
      substantially all assets with estimated lives as follows:




Office
                  equipment
              
              
              5
                  yearsOperating
                  equipment
              
              
              5-20
                  yearsVehicles
              
              
              5
                  yearsBuildings
              
              
              30
                  years




**Construction
      In Progress**




Construction
      in progress consists of the cost of constructing building and plant for our
      company's use. The major cost of construction in progress relates to material,
      labor and overhead.




**Contracts
      in Progress**




Contracts
      in progress consist of the cost of constructing pipelines for customers. The
      major cost of construction relates to material, labor and overhead. Revenue
      from
      construction and installation of pipelines is recorded when the contract is
      completed and accepted by the customers. The construction contracts are usually
      completed within one to two months time.




**Revenue
      Recognition**




Our
      revenue recognition policies are in compliance with Staff accounting bulletin
      (SAB) 104. Revenue is recognized when services are rendered to our customers
      when a formal arrangement exists, the price is fixed or determinable, the
      delivery is completed, no other significant obligations by us exist and
      collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue. Revenue from gas sales is recognized when gas is pumped through
      pipelines to the end users. Revenue from construction and installation of
      pipelines is recorded when the contract is completed and accepted by the
      customers. The construction contracts are usually completed within one to two
      months time.




11


**Stock-Based
      Compensation**




In
      October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
      Compensation". SFAS No. 123 prescribes accounting and reporting standards for
      all stock-based compensation plans, including employee stock options, restricted
      stock, employee stock purchase plans and stock appreciation rights. SFAS No.
      123
      requires compensation expense to be recorded (i) using the new fair value method
      or (ii) using the existing accounting rules prescribed by Accounting Principles
      Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
      related interpretations with pro forma disclosure of what net income and
      earnings per share would have been had we adopted the new fair value method.
      We
      use the intrinsic value method prescribed by APB 25 and has opted for the
      disclosure provisions of SFAS No.123.




**Income
      Taxes**




We
      utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized.




**Local
      PRC Income Tax**




Pursuant
      to the tax laws of China, general enterprises are subject to income tax at
      an
      effective rate of 33%. The Company is in the natural gas industry whose
      development is encouraged by the government. According to the income tax
      regulation, any company engaged in the natural gas industry enjoys a favorable
      tax rate. Accordingly, the Company's income is subject to a reduced tax rate
      of
      15%.




**Foreign
      Currency Transactions and Comprehensive Income (Loss)**




Accounting
      principles generally require that recognized revenue, expenses, gains and losses
      be included in net income. Certain statements, however, require entities to
      report specific changes in assets and liabilities, such as gain or loss on
      foreign currency translation, as a separate component of the equity section
      of
      the balance sheet. Such items, along with net income, are components of
      comprehensive income. Our transactions occur in Chinese Renminbi. The unit
      of
      Renminbi is in Yuan.




**Recent
      Accounting Pronouncements**




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections."
      This statement applies to all voluntary changes in accounting principle and
      requires retrospective application to prior periods' financial statements of
      changes in accounting principle, unless this would be impracticable. This
      statement also makes a distinction between "retrospective application" of an
      accounting principle and the "restatement" of financial statements to reflect
      the correction of an error. This statement is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005.




In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
      Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities". 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 SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation, clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
      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 the Company's first fiscal year that begins
      after September 15, 2006.




12


In
      December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
      an
      Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
      companies to recognize in the statement of operations the grant- date fair
      value
      of stock options and other equity-based compensation issued to employees. FAS
      No. 123R is effective beginning in the Company's first quarter of fiscal
      2006.




In
      June
      2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
      Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance
      on
      determining the amortization period for leasehold improvements acquired in
      a
      business combination or acquired subsequent to lease inception. The guidance
      in
      EITF 05-6 will be applied prospectively and is effective for periods beginning
      after June 29, 2005. EITF 05-6 is not expected to have a material effect on
      its
      consolidated financial position or results of operations.




We
      believe that the adoption of these standards will have no material impact on
      our
      financial statements.




Twelve
      Months Ended December 31, 2005 compared to Twelve Months Ended December 31,
      2004




Revenue.
      The Company generated revenues of $4,850,699 for the twelve months ended
      December 31, 2005, an increase of $3,966,286 or 448%, compared to $884,413
      for
      the twelve months ended December 31, 2004. The increase in revenues was due
      to
      increased construction and installation revenue as the company signed new
      residential and commercial customers as well as the sale of natural gas. The
      sale of natural gas increased 450% over the previous year. The new households
      pay approximately 60% of the construction costs up front and the balance is
      paid
      as part of the monthly natural gas bill.




Gross
      profit. The Company achieved a gross profit of $2,446,662 for the twelve months
      ended December 31, 2005, an increase of $2,076,295 or 560%, compared to $370,367
      for the twelve months ended December 31, 2004. Gross margin, as a percentage
      of
      revenues, increased to 50.4% for the twelve months ended December 31, 2005,
      from
      41.9% for the twelve months ended December 31, 2004. The increase in gross
      profit is due to the increased construction and installation activity and a
      396%
      increase in the gross profit achieved from the sale of natural gas over the
      same
      period the previous year. The increase in gross margin is attributable to the
      margins that are received during construction and installation, the company
      works with gross margins that are approximately 50%, mostly due to the low
      cost
      of labor. This segment of our business, although not a monthly recurring
      business is highly profitable.




Operating
      expenses. The Company incurred operating expenses of $975,083 for the twelve
      months ended December 31, 2005, an increase of $444,866 or 83.9%, compared
      to
      $530,217 for the twelve months ended December 31, 2004. These operating expenses
      are related to increased sales and marketing costs to sign new residential
      and
      commercial customers that were put on line in 2005. In addition the company
      began to address the filling station strategy, identifying possible locations
      for the filling stations and commencing the process of applying to the proper
      governmental agencies for all necessary approvals and licenses to construct
      the
      new filling stations.




Net
      Income. Net income increased to $1,473,039 for the twelve months ended December
      31, 2005, an increase of $1,634,807, from $(161,768) for the twelve months
      ended
      December 31, 2004. After tax net income was $1,252,083 for the twelve months
      ended December 31, 2005, there was no income tax in the year ended December
      2004, the company had a net loss for the year. The increase is attributed to
      the
      growth of construction and installation fees and the sale of natural
      gas.




**Liquidity
      and Capital Resources**




As
      of
      December 30, 2005 the Company had $675,624 cash and cash equivalents on hand
      compared to $62,998 cash and cash equivalents as of December 30, 2004. Based
      on
      past performance and current expectations, we believe our cash and cash
      equivalents, cash generated from operations, as well as future possible cash
      investments, will satisfy our working capital needs, capital expenditures and
      other liquidity requirements associated with our operations. In January 2006,
      we
      entered into securities purchase agreements with several accredited investors
      and completed the sale of $10.4 million of units. The proceeds of the financing
      are intended for the investment necessary to construct natural gas filling
      stations, purchase of raw materials and working capital.




13


The
      Company had net cash flows provided by operations of $1,935,871 for the twelve
      months ended December 30, 2005 as compared to net cash provided by operations
      of
      $24,035 in the corresponding period last year. The increase in net cash flows
      from operations in the current period as compared to corresponding period last
      year was mainly due to the decrease of payables to related parties in 2004
      of
      $917,642, an increase of $662,950 in other payables during the twelve months
      ended December 31, 2005. However, unearned revenue did decrease $642,254 during
      the twelve months ended December 31, 2005.




Cash
      outflows for investing activities increased from $4,773 to $4,871,821 as a
      result of advance payments made to equipment suppliers for investments necessary
      to construct and build the filling stations and for construction materials
      used
      to build the pipelines to individual households. The Company had inflows from
      investment activities of $3,504,460 during the year ended December 31, 2005,
      Xilan issued 29,000,000 shares of common stock prior to the merger with the
      company.




The
      majority of the Company's revenues and expenses were denominated primarily
      in
      Renminbi ("RMB"), the currency of the People's Republic of China.




There
      is
      no assurance that exchange rates between the RMB and the U.S. Dollar will remain
      stable. The Company does not engage in currency hedging. Inflation has not
      had a
      material impact on the Company's business.





14





**ITEM
      7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




**FINANCIAL
      STATEMENT INDEX**


China
        Natural Gas, Inc. and Subsidiary
 Consolidated
        Financial Statements
 Years
        Ended December 31, 2005 and 2004


Contents
  PageReport
                  of Independent Registered Public Accounting Firm
              
              
              F-1Financial
                  Statements:Consolidated
                  Balance Sheet as of December 31, 2005
              
              
              F-2Consolidated
                  Statements of Operations and Other Comprehensive Income for the
                  years
                  ended December 31, 2005 and 2004
              
              
              F-3Consolidated
                  Statement of Stockholders' Equity for the years ended December
                  31, 2005
                  and 2004
              
              
              F-4Consolidated
                  Statements of Cash Flows for the years ended December 31, 2005
                  and
                  2004
              
              
              F-5Notes
                  to Consolidated Financial Statements
              
              
              F-6





15


**Report
      of Independent Registered Public Accounting Firm**




Board
      of
      Directors and Stockholders of


China
      Natural Gas, Inc.




We
      have
      audited the accompanying consolidated balance sheets of China Natural Gas,
      Inc.
      and subsidiary as of December 31, 2005, and the related consolidated statements
      of operations and other comprehensive income, stockholders' equity, and cash
      flows for the years ended December 31, 2005 and 2004. These consolidated
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.




We
      conducted our audits 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 financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall consolidated financial statement presentation. We
      believe that our audits provide a reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of China Natural
      Gas, Inc. and subsidiary as of December 31, 2005, and the consolidated results
      of their operations and their consolidated cash flows for the years ended
      December 31, 2005 and 2004, in conformity with U.S. generally accepted
      accounting principles.


/s/
                Kabani & Company, Inc.,Certified Public Accountants
                Los
                  Angeles, CaliforniaFebruary
                  24, 2006


F-1


**CHINA
      NATURAL GAS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEET**


**AS
      OF DECEMBER 31, 2005**




ASSETSCURRENT
                ASSETS:Cash
                & cash equivalents
            
            $
            675,624Accounts
                receivable
            
            
            6,096Other
                receivable
            
            
            158,584Inventory
            
            
            45,361Advances
                to suppliers
            
            
            13,712Prepaid
                expense
            
            
            15,882Total
                current assets
            
            
            915,259PROPERTY
                AND EQUIPMENT, net
            
            
            8,267,897CONSTRUCTION
                IN PROGRESS
            
            
            1,726,810INTANGIBLE
                ASSETS
            
            
            1,096TOTAL
                ASSETS
            
            $
            10,911,062LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable & accrued expense
            
            $
            193,592Other
                payables
            
            
            738,745Unearned
                revenue
            
            
            303,175Total
                current liabilities
            
            
            1,235,512STOCKHOLDERS'
                EQUITY:Preferred
                stock, $0.0001 per share; authorized 5,000,000 shares; none
                issuedCommon
                stock, $0.0001 per share; authorized 30,000,000 shares; issued and
                outstanding 20,204,088
            
            
            2,020Additional
                paid-in capital
            
            
            8,331,458Cumulative
                translation adjustment
            
            
            228,747Statutory
                reserve
            
            
            169,722Retained
                earnings
            
            
            943,603Total
                stockholders' equity
            
            
            9,675,550TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            10,911,062





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




F-2





**CHINA
      NATURAL GAS, INC. AND SUBSIDIARY**


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


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


Years
                  Ended December 31,2005
              
              2004RevenueNatural
                  gas revenue
              
              $
              1,687,154
              
              $
              306,306Construction
                  / installation revenue
              
              
              3,163,545
              
              
              578,107Total
                  revenue
              
              
              4,850,699
              
              
              884,413Cost
                  of revenueNatural
                  gas cost
              
              
              1,293,585
              
              
              226,944Construction
                  / installation cost
              
              
              1,110,452
              
              
              287,1022,404,037
              
              
              514,046Gross
                  profit
              
              
              2,446,662
              
              
              370,367Operating
                  expensesSelling
                  expenses
              
              
              474,855
              
              
              387,768General
                  and administrative expenses
              
              
              500,228
              
              
              142,449Total
                  operating expenses
              
              
              975,083
              
              
              530,217Income
                  (loss) from operations
              
              
              1,471,579
              
              
              (159,850
              )Non-operating
                  income (expense):Interest
                  income
              
              
              2,131
              
              
              1,618Other
                  expense
              
              
              (671
              )
              
              (3,536
              )Total
                  non-operating income (expense)
              
              
              1,460
              
              
              (1,918
              )Income
                  (loss) before income tax
              
              
              1,473,039
              
              
              (161,768
              )Income
                  tax
              
              
              220,956
              
              
              —Net
                  income (loss)
              
              
              1,252,083
              
              
              (161,768
              )Other
                  comprehensive income / (loss)Foreign
                  currency translation gain
              
              
              228,175
              
              
              —Comprehensive
                  Income (loss)
              
              $
              1,480,258
              
              $
              (161,768
              )Basic
                  and diluted weighted average shares outstanding
              
              
              16,299,469
              
              
              9,275,362Basic
                and diluted earnings (loss) per share
              
              $
              0.08
              
              $
              (0.02
              )




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


F-3


CHINA
      NATURAL GAS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
      FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


Additional
                
                Accumulative
                    Other
                
                Retained
                
                TotalCommon
                    Stock
                
                Paid
                
                Comprehensive
                
                Statutory
                
                Earnings
                
                stockholders'Shares
                
                Amount
                
                in
                    Capital
                
                Gain
                
                Reserve
                
                (deficit)
                
                equityBalance
                    January 1, 2004
                
                
                9,275,362
                
                $
                928
                
                $
                4,831,468
                
                $
                —
                
                $
                3,457
                
                $
                19,553
                
                $
                4,855,406Cumulative
                    translation adjustment
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                
                572Net
                    loss for the year ended December 31, 2004
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (161,768
                )
                
                (161,768
                )Balance
                    December 31, 2004
                
                
                9,275,362
                
                
                928
                
                
                4,831,468
                
                
                572
                
                
                3,457
                
                
                (142,215
                )
                
                4,694,210Shares
                    issued for cash
                
                
                6,724,638
                
                
                672
                
                
                3,503,788
                
                
                —
                
                
                —
                
                
                —
                
                
                3,504,460Recapitalization
                    on reverse acquisition
                
                
                4,204,088
                
                
                420
                
                
                (3,798
                )
                
                —
                
                
                —
                
                
                —
                
                
                (3,378
                )Cumulative
                    translation adjustment
                
                
                —
                
                
                —
                
                
                —
                
                
                228,175
                
                
                —
                
                
                —
                
                
                228,175Net
                    Income for the year ended December 31, 2005
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,252,083
                
                
                1,252,083Retained
                    earning for year 2005 reserve
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                166,265
                
                
                (166,265
                )
                
                —Balance
                    December 31, 2005
                
                
                20,204,088
                
                $
                2,020
                
                $
                8,331,458
                
                $
                228,747
                
                $
                169,722
                
                $
                943,603
                
                $
                9,675,550




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




F-4


**CHINA
      NATURAL GAS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


2005
              
              2004CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income (loss)
              
              $
              1,252,083
              
              $
              (161,768
              )Adjustments
                  to reconcile net income (loss) to net cash provided in operating
                  activities:Loss
                  on disposal of property
              
              
              971
              
              
              3,242Depreciation
                  and amortization
              
              
              347,923
              
              
              314,453(Increase)
                  / decrease in assets:Accounts
                  receivable
              
              
              (1,011
              )
              
              (4,943
              )Inventory
              
              
              2,234
              
              
              (46,440
              )Other
                  receivable
              
              
              (132,553
              )
              
              (6,525
              )Advances
                  to suppliers
              
              
              (12,773
              )
              
              14,982Prepaid
                  expense
              
              
              (15,441
              )
              
              (99
              )Contract
                  in progress
              
              
              381,315
              
              
              118,537Increase
                  / (decrease) in current liabilities:Accounts
                  payable
              
              
              92,427
              
              
              (64,344
              )Payable
                  to related party
              
              
              —
              
              
              (917,642
              )Other
                  payables
              
              
              662,950
              
              
              (2,854
              )Unearned
                  revenue
              
              
              (642,254
              )
              
              777,436Net
                  cash provided by operating activities
              
              
              1,935,871
              
              
              24,035CASH
                  FLOWS FROM INVESTING ACTIVITIESPayment
                  on purchase of property and equipment
              
              
              (3,170,629
              )
              
              (5,981
              )Cash
                  acquired in reverse merger transaction
              
              
              86
              
              
              —Additions
                  to construction in progress
              
              
              (1,700,792
              )
              
              —Additions
                  to Intangible assets
              
              
              (1,096
              )
              
              —Proceeds
                  from disposal of property
              
              
              610
              
              
              1,208Net
                  cash used in investing activities
              
              
              (4,871,821
              )
              
              (4,773
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Stock
                  issued for cash
              
              
              3,504,460
              
              
              —Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              44,116
              
              
              —NET
                  INCREASE IN CASH & CASH EQUIVALENTS
              
              
              612,626
              
              
              19,262CASH
                  & CASH EQUIVALENTS, BEGINNING BALANCE
              
              
              62,998
              
              
              43,736CASH
                  & CASH EQUIVALENTS, ENDING BALANCE
              
              
              675,624
              
              $
              62,998SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:Cash
                  paid during the year for:Interest
              
              $
              —
              
              $
              —Income
                  tax
              
              $
              969
              
              $
              210




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




F-5





**Note
      1 - Organization and Basis of Presentation**




**Organization
      and Line of Business**




China
        Natural Gas, Inc. (formerly Coventure International, Inc.) was incorporated
        in
        Delaware on March 31, 1999 as Bullet Environmental Systems, Inc. and on May
        25,
        2000 the Company changed its name to Liquidpure Corp. On February 14, 2002,
        the
        Company changes its name to Coventure International, Inc.
        ("Coventure")




Xi'an
        Xilan Natural Gas Co, Ltd. ("Xian Xilan Natural Gas") was incorporated on
        January 8, 2000 in Xi'an city in the Shaanxi province, China. The core business
        of Xian Xilan Natural Gas is distribution of natural gas to commercial,
        industrial and residential customers, construction of pipeline networks,
        and
        installation of natural gas fittings and parts for end-users. Xian Xilan
        Natural
        Gas has an exclusive permit to provide gas utility service in Lantian County,
        Lintong and Baqiao District of Xi'an city, China.




On
      December 6, 2005, we issued an aggregate of 4 million shares to all of the
      registered shareholders of Xian Xilan Natural Gas Co., Ltd. (“Xian Xilan Natural
      Gas”), and entered into exclusive arrangements with Xian Xilan Natural Gas and
      these shareholders that give us the ability to substantially influence Xian
      Xilan Natural Gas’ daily operations and financial affairs, appoint its senior
      executives and approve all matters requiring shareholder approval. Concurrently,
      Coventure entered into an agreement with John Hromyk, its President and Chief
      Financial Officer, pursuant to which Mr. Hromyk returned 23,884,712 (post-split)
      shares of Coventure's common stock for cancellation. Upon completion of the
      foregoing transactions, Coventure had an aggregate of 20,204,088 (post-split)
      shares of common stock issued and outstanding. On December 19, 2005, we changed
      our name to China Natural Gas, Inc.


As
        a
        result of the share issuance, the stockholders of Xian Xilan Natural Gas
        owned
        approximately 80% of both companies and the directors and executive officers
        became the directors and executive officers of Coventure. Accordingly, the
        transaction has been accounted for as a reverse acquisition of Coventure
        by Xian
        Xilan Natural Gas resulting in a recapitalization of Xian Xilan Natural Gas
        rather than as a business combination. Xian Xilan Natural Gas is deemed to
        be
        the purchaser and surviving company for accounting purposes. Accordingly,
        its
        assets and liabilities are included in the balance sheet at their historical
        book value and the results of operations of Xian Xilan Natural Gas have been
        presented for the comparative prior period. The historical cost of the net
        liabilities of Coventure that were acquired was $3,378. Subsequent to the
        share
        issuance, the stockholders of the Company approved a stock dividend of three
        shares for each share held, which has been accounted for as a four for one
        forward stock split. As a result, the Company consolidates the financial
        results
        of Xian Xilan Natural Gas as variable interest entity pursuant to Financial
        Interpretation No. 46R, “Consolidation of Variable Interest
        Entities.”


**Principles
      of Consolidation**




The
        accompanying consolidated financial statements include the accounts of China
        Natural Gas, Inc. and its 100% VIE, Xian Xilan Natural Gas. All inter-company
        accounts and transactions have been eliminated in
        consolidation.





Consolidation
        of Variable Interest Entity





In
        accordance with FIN 46R, VIEs are generally entities that lack sufficient
        equity
        to finance their activities without additional financial support from other
        parties or whose equity holders lack adequate decision making ability. All
        VIEs
        with which the Company is involved must be evaluated to determine the primary
        beneficiary of the risks and rewards of the VIE. The primary beneficiary
        is
        required to consolidate the VIE for financial reporting
        purposes.





The
        Company entered into exclusive arrangements with Xian Xilan Natural Gas.
        These
        arrangements obligate the Company to absorb a majority of the risk of loss
        from
        Xian Xilan Natural Gas’ activities and enable the Company to receive a majority
        of Xian Xilan Natural Gas’ expected residual returns. As a result, the Company
        accounts for Xian Xilan Natural Gas as a VIE under FIN 46R. The arrangements
        consist of the following agreements:




a.
              Xian
                  Xilan Natural Gas holds the licenses and approvals necessary to
                  operate
                  its natural gas business in
                  China,





b.
              The
                  Company provides exclusive technology consulting and other general
                  business operation services to Xian Xilan Natural Gas in return
                  for a
                  consulting services fee which is equal to Xian Xilan Natural Gas’
                  revenue.





c.
              Xian
                  Xilan Natural Gas’s shareholders have pledged their equity interests in
                  Xian Xilan Natural Gas to the
                  Company.




**Basis
      of Presentation**




The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America.
      The Company's functional currency is the Chinese Renminbi; however the
      accompanying consolidated financial statements have been translated and
      presented in United States Dollars ($).




**Foreign
      Currency Translation**




As
      of
      December 31, 2005 and 2004, the accounts of the Company were maintained, and
      their consolidated financial statements were expressed in the Chinese Yuan
      Renminbi (CNY). Such consolidated financial statements were translated into
      U.S.
      Dollars (USD) in accordance with Statement of Financial Accounts Standards
      ("SFAS") No. 52, "Foreign Currency Translation," with the CNY as the functional
      currency. According to the Statement, all assets and liabilities were translated
      at the exchange rate on the balance sheet date, stockholder's equity are
      translated at the historical rates and statement of operations items are
      translated at the weighted average exchange rate for the year. The resulting
      translation adjustments are reported under other comprehensive income in
      accordance with SFAS No. 130, "Reporting Comprehensive Income."




F-6





**Note
      2 - Summary of Significant Accounting Policies**




**Use
      of Estimates**




The
      preparation of 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 and 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.
      Actual results could differ from those estimates.




**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents include cash on hand and cash in time deposits, certificates
      of
      deposit and all highly liquid debt instruments with original maturities of
      three
      months or less.




**Accounts
      and Other Receivable**




Accounts
      and other receivable are recorded at net realizable value consisting of the
      carrying amount less an allowance for uncollectible accounts, as needed.
      Allowance for uncollectible accounts as of December 31, 2005 is not
      significant.




The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves. Reserves are recorded primarily on a specific
      identification basis.




**Advances
      to Suppliers**




The
      Company advances to certain vendors for purchase of its material. The advances
      to suppliers are interest free and unsecured.




**Inventory**




Inventory
      is stated at the lower of cost, as determined on a first-in, first-out basis,
      or
      market. Management compares the cost of inventories with the market value,
      and
      allowance is made for writing down the inventories to their market value, if
      lower. Inventory consists of material used in the construction of
      pipelines.




**Property
      and Equipment**




Property
      and equipment are stated at cost. Expenditures for maintenance and repairs
      are
      charged to earnings as incurred; additions, renewals and betterments are
      capitalized. When property and equipment are retired or otherwise disposed
      of,
      the related cost and accumulated depreciation are removed from the respective
      accounts, and any gain or loss is included in operations. Depreciation of
      property and equipment is provided using the straight-line method for
      substantially all assets with estimated lives as follows:


Office
                  equipment
              
              
              5
                  yearsOperating
                  equipment
              
              
              5-20
                  yearsVehicles
              
              
              5
                  yearsBuildings
              
              
              30
                  years




At
      December 31, 2005, the following are the details of the property and
      equipment:


Office
                  equipment
              
              $
              31,167Operating
                  equipment
              
              
              7,788,345Vehicles
              
              
              257,847Buildings
              
              
              1,301,5559,378,914Less
                  accumulated depreciation
              
              
              (1,111,017
              )$
              8,267,897





F-7


Depreciation
      expense for the years ended December 31, 2005 and 2004 was $347,923 and
      $314,453, respectively.




**Long-Lived
      Assets**




Effective
      January 1, 2002, the Company adopted Statement of Financial Accounting Standards
      No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
      144"), which addresses financial accounting and reporting for the impairment
      or
      disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for
      the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
      and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
      the Results of Operations for a Disposal of a Segment of a Business." The
      Company periodically evaluates the carrying value of long-lived assets to be
      held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
      to be recorded on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets' carrying amounts. In that event,
      a
      loss is recognized based on the amount by which the carrying amount exceeds
      the
      fair market value of the long-lived assets. Loss on long-lived assets to be
      disposed of is determined in a similar manner, except that fair market values
      are reduced for the cost of disposal. Based on its review, the Company believes
      that, as of December 31, 2005 there were no significant impairments of its
      long-lived assets.




**Construction
      In Progress**




Construction
      in progress consists of the cost of constructing building and plant for the
      Company's use. The major cost of construction in progress relates to material,
      labor and overhead.




**Contracts
      in Progress**




Contracts
      in progress consist of the cost of constructing pipelines for customers. The
      major cost of construction relates to material, labor and overhead. Revenue
      from
      construction and installation of pipelines is recorded when the contract is
      completed and accepted by the customers. The construction contracts are usually
      completed within one to two months time. As of December 31, 2005, the Company
      has no contracts in progress.




**Fair
      Value of Financial Instruments**




Statement
      of financial accounting standard No. 107, Disclosures about fair value of
      financial instruments, requires that the Company disclose estimated fair values
      of financial instruments. The carrying amounts reported in the statements of
      financial position for current assets and current liabilities qualifying as
      financial instruments are a reasonable estimate of fair value.




**Revenue
      Recognition**




The
      Company's revenue recognition policies are in compliance with Staff accounting
      bulletin (SAB) 104. Revenue is recognized when services are rendered to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue. Revenue from gas sales is recognized when gas is pumped through
      pipelines to the end users. Revenue from construction and installation of
      pipelines is recorded when the contract is completed and accepted by the
      customers. The construction contracts are usually completed within one to two
      months time.




**Deferred
      Revenue**




Deferred
      revenue represents prepayments by customers for gas purchases and advance
      payments on construction and installation of pipeline contracts. The Company
      records such prepayment as unearned revenue when the payments are
      received.




F-8


**Advertising
      Costs**




The
      Company expenses the cost of advertising as incurred or, as appropriate, the
      first time the advertising takes place. Advertising costs for the years ended
      December 31, 2005 and 2004 were insignificant.




**Stock-Based
      Compensation**




In
      October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
      Compensation". SFAS No. 123 prescribes accounting and reporting standards for
      all stock-based compensation plans, including employee stock options, restricted
      stock, employee stock purchase plans and stock appreciation rights. SFAS No.
      123
      requires compensation expense to be recorded (i) using the new fair value method
      or (ii) using the existing accounting rules prescribed by Accounting Principles
      Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
      related interpretations with pro forma disclosure of what net income and
      earnings per share would have been had the Company adopted the new fair value
      method. The Company uses the intrinsic value method prescribed by APB 25 and
      has
      opted for the disclosure provisions of SFAS No.123. No options have been granted
      for the years ended December 31, 2005.




**Income
      Taxes**




The
      Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
      the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized. At December 31, 2005, there was no significant book
      to
      tax differences. There is no difference between book depreciation and tax
      depreciation as the Company uses the same method for both book and
      tax.




**Local
      PRC Income Tax**




Pursuant
      to the tax laws of China, general enterprises are subject to income tax at
      an
      effective rate of 33%. The Company is in the natural gas industry whose
      development is encouraged by the government. According to the income tax
      regulation, any company engaged in the natural gas industry enjoys a favorable
      tax rate. Accordingly, the Company's income is subject to a reduced tax rate
      of
      15%.




A
      reconciliation of tax at United States federal statutory rate to provision
      for
      income tax recorded in the financial statements is as follows:


For
                  the Years Ended December 31,2005
              
              2004Tax
                  provision (credit) at statutory rate
              
              
              34
              %
              
              (34
              %)Foreign
                  tax rate difference
              
              
              (19
              %)
              
              19
              %Change
                  in valuation allowance
              
              
              —
              
              
              15
              %15
              %
              
              —




**Basic
      and Diluted Earning Per Share**




Earning
      per share is calculated in accordance with the Statement of Financial Accounting
      Standards No. 128 ("SFAS No. 128"), "Earnings per share". SFAS No. 128
      superseded Accounting Principles Board Opinion No.15 (APB 15). Net earning
      per
      share for all periods presented has been restated to reflect the adoption of
      SFAS No. 128. Basic net earning per share is based upon the weighted average
      number of common shares outstanding. Diluted net earning per share is based
      on
      the assumption that all dilutive convertible shares and stock options were
      converted or exercised. Dilution is computed by applying the treasury stock
      method. Under this method, options and warrants are assumed to be exercised
      at
      the beginning of the period (or at the time of issuance, if later), and as
      if
      funds obtained thereby were used to purchase common stock at the average market
      price during the period.




F-9





**Statement
      of Cash Flows**




In
      accordance with Statement of Financial Accounting Standards No. 95, "Statement
      of Cash Flows," cash flows from the Company's operations is calculated based
      upon the local currencies. As a result, amounts related to assets and
      liabilities reported on the statement of cash flows will not necessarily agree
      with changes in the corresponding balances on the balance sheet.




**Segment
      Reporting**




Statement
      of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
      Segments of an Enterprise and Related Information" requires use of the
      "management approach" model for segment reporting. The management approach
      model
      is based on the way a company's management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a company.
      SFAS
      131 has no effect on the Company's consolidated financial statements as the
      Company consists of one reportable business segment. All revenue is from
      customers in The People's Republic of China. All of the Company's assets are
      located in The People's Republic of China.




**Recent
      Pronouncements**




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections."
      This statement applies to all voluntary changes in accounting principle and
      requires retrospective application to prior periods' financial statements of
      changes in accounting principle, unless this would be impracticable. This
      statement also makes a distinction between "retrospective application" of an
      accounting principle and the "restatement" of financial statements to reflect
      the correction of an error. This statement is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005.




In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
      Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities". 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 SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation, clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
      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 the Company's first fiscal year that begins
      after September 15, 2006.




In
      December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
      an
      Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
      companies to recognize in the statement of operations the grant- date fair
      value
      of stock options and other equity-based compensation issued to employees. FAS
      No. 123R is effective beginning in the Company's first quarter of fiscal
      2006.




In
      June
      2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
      Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance
      on
      determining the amortization period for leasehold improvements acquired in
      a
      business combination or acquired subsequent to lease inception. The guidance
      in
      EITF 05-6 will be applied prospectively and is effective for periods beginning
      after June 29, 2005. EITF 05-6 is not expected to have a material effect on
      its
      consolidated financial position or results of operations.




F-10





The
      Company believes that the adoption of these standards will have no material
      impact on its financial statements.




**Note
      3 - Other Payables**




Other
      payable consists of the following as of December 31, 2005:


Other
                  accounts payable
              
              $
              350,151Welfare
                  payable
              
              
              1,933Tax
                  payable
              
              
              377,316Other
                  levies
              
              
              5,908Other
              
              
              3,437$
              738,745




**Note
      4 - Stockholders' Equity**




During
      the year ended December 31, 2005 the Company sold 6,724,638 shares of common
      stock for cash proceeds of $3,504,460. Also, in connection with the reverse
      merger transaction with Coventure, the Company issued 4,204,088 shares (See
      Note
      1). In addition, the Company affected a four to one forward stock split which
      was accounted for retrospectively.




**Note
      5 - Employee Welfare Plan**




The
      Company has established its own employee welfare plan in accordance with Chinese
      law and regulations. The Company makes annual contributions of 14% of all
      employees' salaries to employee welfare plan. The total expense for the above
      plan was $13,275 and $10,045 for the years ended December 31, 2005 and 2004,
      respectively.




**Note
      6 - Statutory Common Welfare Fund**




As
      stipulated by the Company Law of the People's Republic of China (PRC) as
      applicable to Chinese companies with foreign ownership, 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 surplus 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;




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 established for the purpose of providing employee facilities and other
      collective benefits to the Company's employees; and




iv.
      Allocations to the discretionary surplus reserve, if approved in the
      shareholders' general meeting.




The
      Company has appropriated $166,265 as reserve for the statutory surplus reserve
      and welfare fund for the year ended December 31, 2005 and $3,547 for the year
      ended December 31, 2003. No allocation was made for the year ended December
      31,
      2004 as the Company had net loss from operations.




**Note
      7 - Earnings Per Share**




Earnings
      (loss) per share for the years ended December 31, 2005 and 2004 is determined
      by
      dividing net income (loss) for the periods by the weighted average number of
      both basic and diluted shares of common stock and common stock equivalents
      outstanding. At December 31, 2005 and 2004, there were no dilutive
      securities.


F-11


**Note
      8 - Current Vulnerability Due to Certain Concentrations**




For
      the
      years ended December 31, 2005 and 2004, the Company purchased all of the natural
      gas for resale from one vendor, Shaanxi Natural Gas Co., Ltd., a government
      owned enterprise. No amount was owing to this vendor at December 31, 2005.
      The
      Company has had annual agreements with Shaanxi Natural Gas that requires the
      Company to purchase a minimum amount of natural gas. For the years ended
      December 31, 2005 and 2004, the minimum purchases were 2.36 million and 1.60
      million cubic meters, respectively. In the past, contracts were renewed on
      an
      annual basis. However, as the volume of usage has increased, Shaanxi Natural
      Gas
      has revised their policies, and contract terms are now six months and subject
      to
      review prior to renewal. The Company's management reports that it does not
      expect any issues or difficulty in continuing to renew the supply contracts
      going forward. Price points for natural gas are strictly controlled by the
      government and have remained stable over the past 3 years.




For
      the
      year ended December 31, 2005, two supplier accounts for 51.5% and 13.3% of
      the
      total equipment purchased by the Company.




Four
      customers accounted for 34.7%, 21.2%, 14.0% and 10.8% of the Company's revenue
      for the year ended December 31, 2005 and three customers accounted for 37.3%,
      36.1% and 10.0% of the Company's revenue for the years ended December 31,
      2004.




Three
      customers accounted for 40%, 17% and 17%, respectively, of
      construction/installation revenue for 2005. Two customers accounted for 36%
      and
      37%, respectively, of construction/installation revenue in 2004.




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




**Note
      9 - Related Party Transactions**




Included
      in other payables in the accompanying balance sheet at December 31, 2005 is
      $349,916 due to stockholder of the Company.




**Note
      10 - Subsequent Events**




On
      January 6, 2006 and January 9, 2006, the Company entered into securities
      purchase agreements with four accredited investors and completed the sale of
      $5,380,000 of units. The units contained an aggregate of 1,921,428 shares of
      common stock and 523,055 common stock purchase warrants. Each common stock
      purchase warrant is exercisable for a period of three years at an exercise
      price
      of $3.60 per share. Pursuant to the terms of the warrant, each investor has
      contractually agreed to restrict its ability to exercise the warrants to an
      amount which would not exceed the difference between the number of shares of
      common stock beneficially owned by the holder or issuable upon exercise of
      the
      warrant held by such holder and 9.9% of the outstanding shares of common stock
      of the Company. New York Global Securities acted as the placement agent of
      the
      transaction.




The
      Company is obligated to file a registration statement registering the resale
      of
      shares of the Company's common stock and those issuable upon exercise of the
      warrants. If the registration statement is not filed within 45 days from the
      date of investment, or declared effective within 90 days thereafter (135 days
      if
      the registration statement receives a full review by the SEC), or if the
      registration is suspended other than as permitted in the registration rights
      agreement between the Company and the investors, the Company is obligated to
      pay
      the investors certain fees in the amount of 1% of the aggregate amount invested,
      per month, and the obligations may be deemed to be in default.




In
      connection with the offering, the Company paid a placement fee of 10% of the
      proceeds in cash, together with non-accountable expenses in the amount of 3%
      of
      the proceeds, in cash. In addition, the placement agent was issued warrants
      to
      purchase 298,888 shares of common stock on the same terms and conditions as
      the
      investors. The warrants issued to the placement agent are being treated as
      a
      cost of raising capital. The warrants were valued using the Black Scholes
      pricing model; however, recording the value of the warrants in the financial
      statements has no impact as the value of the warrants is both debited and
      credited to additional paid in capital.


F-12


On
      January 10, 2006 through January 13, 2006, the Company entered into securities
      purchase agreements with four accredited investors and completed the sale of
      $2,195,198 of units. The units contained an aggregate of 783,999 shares of
      common stock and 213,422 common stock purchase warrants. Each common stock
      purchase warrant is exercisable for a period of three years at an exercise
      price
      of $3.60 per share. Pursuant to the terms of the warrant, each investor has
      contractually agreed to restrict its ability to exercise the warrants to an
      amount which would not exceed the difference between the number of shares of
      common stock beneficially owned by the holder or issuable upon exercise of
      the
      warrant held by such holder and 9.9% of the outstanding shares of common stock
      of the Company. New York Global Securities acted as the placement agent of
      the
      transaction.




The
      Company is obligated to file a registration statement registering the resale
      of
      shares of the Company's common stock and those issuable upon exercise of the
      warrants. If the registration statement is not filed within 45 days from the
      date of investment, or declared effective within 90 days thereafter (135 days
      if
      the registration statement receives a full review by the SEC), or if the
      registration is suspended other than as permitted in the registration rights
      agreement between the Company and the investors, the Company is obligated to
      pay
      the investors certain fees in the amount of 1% of the aggregate amount invested,
      per month, and the obligations may be deemed to be in default.




In
      connection with the offering, the Company paid a placement fee of 10% of the
      proceeds in cash, together with non-accountable expenses in the amount of 3%
      of
      the proceeds, in cash. In addition, the placement agent was issued warrants
      to
      purchase 121,955 shares of common stock on the same terms and conditions as
      the
      investors. The warrants issued to the placement agent are being treated as
      a
      cost of raising capital. The warrants were valued using the Black Scholes
      pricing model; however, recording the value of the warrants in the financial
      statements has no impact as the value of the warrants is both debited and
      credited to additional paid in capital.




On
      January 17, 2006, the Company entered into securities purchase agreements with
      an accredited investor and completed the sale of $2,824,802 of units. The units
      contained an aggregate of 1,008,857 shares of common stock and 274,633 common
      stock purchase warrants. Each common stock purchase warrant is exercisable
      for a
      period of three years at an exercise price of $3.60 per share. Pursuant to
      the
      terms of the warrant, each investor has contractually agreed to restrict its
      ability to exercise the warrants to an amount which would not exceed the
      difference between the number of shares of common stock beneficially owned
      by
      the holder or issuable upon exercise of the warrant held by such holder and
      9.9%
      of the outstanding shares of common stock of the Company.




The
      Company is obligated to file a registration statement registering the resale
      of
      shares of the Company's common stock and those issuable upon exercise of the
      warrants. If the registration statement is not filed within 45 days from the
      date of investment, or declared effective within 90 days thereafter (135 days
      if
      the registration statement receives a full review by the SEC), or if the
      registration is suspended other than as permitted in the registration rights
      agreement between the Company and the investors, the Company is obligated to
      pay
      the investors certain fees in the amount of 1% of the aggregate amount invested,
      per month, and the obligations may be deemed to be in default.


F-13


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




None




**ITEM
      8A. CONTROLS AND PROCEDURES**




As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our chief executive officer and
      principal financial officer of our disclosure controls and procedures (as
      defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
      this evaluation, our chief executive officer and principal financial officer
      concluded that our disclosure controls and procedures are effective to ensure
      that information required to be disclosed by us in the reports that we file
      or
      submit under the Exchange Act is recorded, processed, summarized and reported,
      within the time periods specified in the Commission's rules and forms. There
      was
      no change in our internal controls or in other factors that could affect these
      controls during our last fiscal year that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.




**ITEM
      8B. OTHER INFORMATION**




None.


16


**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(a) OF THE EXCHANGE ACT.**




Below
      are
      the names and certain information regarding our executive officers and
      directors:




Name
              
              Age
              
              PositionMinqing
                  Lu
              
              43
              
              Chief
                  Executive Officer and DirectorXiaogang
                  Zhu
              
              51
              
              Chief
                  Financial OfficerYuman
                  Chen
              
              35
              
              Vice
                  President - MarketingLiangzhong
                  Li
              
              44
              
              Vice
                  President - ConstructionQinan
                  Ji
              
              48
              
              Chairman
                  of the BoardBo
                  Chen
              
              48
              
              Vice
                  Chairman of the Board




Officers
      are elected annually by the Board of Directors, at our annual meeting, to hold
      such office until an officer's successor has been duly appointed and qualified,
      unless an officer sooner dies, resigns or is removed by the Board.




**Background
      of Executive Officers and Directors**




Qinan
      Ji,
      Chairman of the Board of Directors - Mr. Ji joined Xilan as the Chairman of
      the
      Board of Directors in 2005. In 1996, he founded the Anxian Hotel in Weinan
      City
      in Shaanxi Province. In 2001, he formed the Xian Sunway Technology and Industry
      Co., Ltd. He has more than 20 years experience in the energy and petroleum
      industries in operational, administrative, management and government relations
      roles. He received a Bachelor of Economy Management from North West University
      (Shaanxi).




Bo
      Chen,
      Vice Chairman of the Board of Directors - Mr. Chen was named Vice Chairman
      of
      the Board of Directors of Xilan in October 2005. He is currently the President
      of Bodisen Biotech, Inc., a publicly listed company on the AMEX (symbol: BBC),
      and is one of its original founders and stockholders having joined that company
      in 2000. From August 1997 to August 2001, Mr. Chen was Chief Operations Officer
      and Chief Technology Officer of Shaanxi Bodisen Chemical Co., Ltd. From July
      1994 to December 1997, he was the Chief Executive Officer and President of
      Yang
      Ling Shikanglu Chemical Technology Development Co., Ltd. He received his
      Bachelor of Science degree from Shaanxi Normal College in July
      1984.




Minqing
      Lu, Chief Executive Officer, Member of the Board of Directors - Mr. Lu joined
      Xilan in February 2005. He is Chief Executive Officer and serves on the Board
      of
      Directors. From February 1999 to May 2002, he was the executive director of
      Beijing Peixinkenu Investment Consultancy Company. From May 2002 to July 2004,
      he was President of Fenghua Aidi Air Service Company in Beijing. He received
      a
      Certificate of Management in July 1994 from Central Party College.




Xiaogang
      Zhu, Chief Financial Officer - Mr. Zhu joined Xilan as the Chief Financial
      Officer in January 2005. He spent 16 years working at the Ministry of General
      Logistics 3546 Company and his last position there was manager of the Finance
      Department. From September 2000 to December 2004, Mr. Zhu was the Vice General
      Manager and CFO of Xian Dapeng Biotech Co., Ltd. He received a Bachelor of
      Accounting degree from Xian Jiaotong University.




Yuman
      Chen, Vice President, Marketing - Ms. Chen joined Xilan in the beginning of
      2000. She has spent the last five years at Xilan serving in the finance
      department until January 2001 when she became the manager of the Operations
      Department. In January 2005, she became the Vice President of Marketing
      Development and Customer Support. She received a Bachelors Degree in Management
      from North West University (Shaanxi) in July 1996.




Liangzhong
      Li, Vice President, Construction - Mr. Li joined Xilan in February 2005. He
      has
      15 years experience in the natural gas industry. He is Vice President of
      Construction and oversees the construction pipeline networks and installation
      of
      gas fittings. From 1999 to 2002, he was Vice General Manager of Leqing Pipeline
      of Liquefied Oil Gas Company in Zhejiang Province. From 2002 to 2004, he was
      Vice General Manager and Manager of Construction Department in Leqing Natural
      Gas Company. He received a certificate of literature from North West University
      (Shaanxi) in July 1986.


17


**Board
      of Directors**




Our
      Directors are elected by the vote of a plurality in interest of the holders
      of
      our voting stock and hold office for a term of one year and until a successor
      has been elected and qualified.




A
      majority of the authorized number of directors constitutes a quorum of the
      Board
      for the transaction of business. The directors must be present at the meeting
      to
      constitute a quorum. However, any action required or permitted to be taken
      by
      the Board may be taken without a meeting if all members of the Board
      individually or collectively consent in writing to the action.




Directors
      may receive compensation for their services and reimbursement for their expenses
      as shall be determined from time to time by resolution of the
      Board.




**Compliance
      with Section 16(a) of the Securities Exchange Act of 1934**




Since
      we
      are governed under Section 15(d) of the Exchange Act, we are not required to
      file reports of executive officers and directors and persons who own more than
      10% of a registered class of the Company's equity securities pursuant to Section
      16(a) of the Exchange Act.




**Code
      of Ethics**




The
      Company has adopted a Code of Ethics that applies to all officers, directors
      and
      employees of the Company.




**ITEM
      10. EXECUTIVE COMPENSATION**




The
      following table sets forth all compensation paid in respect of our Chief
      Executive Officer and those individuals who received compensation in excess
      of
      $100,000 per year (collectively, the "Named Executive Officers") for our last
      three completed fiscal years.




**SUMMARY
      COMPENSATION TABLE**


Long
                  Term CompensationAnnual
                  Compensation
              
              Awards
              
              PayoutsName
                  And Principal Position
              
              Year
              
              Salary
                  ($)
              
              Bonus($)
              
              Other
                  Annual Compensation ($)
              
              Restricted
                  Stock Compensation ($)
              
              Securities
                  Under-Lying SARs(#)
              
              LTIP
                  Options/ ($)
              
              Payouts
              
              All
                  Other Compensation($)Minqing
                  Lu, Chief
              
              
              2005
              
              
              7,500
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              
              
              
              -0-
              
              
              -0-
              
              
              
              
              
              -0-Executive
                  Officerand
                  DirectorHuai'pu
                  Zhang,
              
              
              2004
              
              
              5,000
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              -0-
              
              -0-
              
              
              
              
              
              -0-Former
                  President,
              
              
              2003
              
              
              5,000
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              
              
              
              -0-
              
              
              -0-
              
              
              
              
              
              -0-Chief
                  ExecutiveOfficer
                  andDirector


18


**Equity
      Compensation Plan Information**




There
      has
      been no common stock authorized for issuance with respect to any equity
      compensation plan as of the fiscal year ended December 31, 2005.




**Employment
      Agreements**




There
      are
      currently no employment agreements between the Company and any of its named
      executive officers.




**Option
      Grants During 2005 Fiscal Year**




There
      were no options granted to the named executive officers during the 2005 fiscal
      year. The Company does not have any outstanding stock appreciation
      rights.




Aggregated
      Option Exercises During 2005 Fiscal Year and Fiscal Year-End Option
      Values




There
      were no options exercised by the named executive officers during the 2005 fiscal
      year and the named executive officers do not hold an options.




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




The
      following table sets forth certain information, as of March 17, 2006 with
      respect to the beneficial ownership of the outstanding common stock by (i)
      any
      holder of more than five (5%) percent; (ii) each of our executive officers
      and
      directors; and (iii) our directors and executive officers as a group. Except
      as
      otherwise indicated, each of the stockholders listed below has sole voting
      and
      investment power over the shares beneficially owned.


Number
                  of
              
              PercentageShares
              
              of
                  SharesBeneficially
              
              BeneficiallyName
                  of Beneficial Owner (1)
              
              Owned
              
              Owned
                  (2)Minqing
                  Lu
              
              
              695,652
              
              
              2.9
              %Xiaogang
                  Zhu
              
              
              0
              
              
              *Yuman
                    Chen
              
              
              0
              
              
              *Liangzhong
                  Li
              
              
              0
              
              
              *Qinan
                  Ji
              
              
              5,931,596
              (3)
              
              24.8
              %Bo
                  Chen
              
              
              2,063,768
              (4)
              
              8.6
              %Yangling
                    Bodisen BiotechDevelopment
                    Co, Ltd.
              
              
              2,063,768
              (4)
              
              8.6
              %Xiang
                  Ji
              
              
              1,456,232
              
              
              6.1
              %Shaohu
                  Jia
              
              
              1,080,580
              
              
              4.5
              %Xian
                    Sunway Technology &Industry
                    Co., Ltd
              
              
              2,875,364
              (3)
              
              12.0
              %Amaranth
                  LLC
              
              
              1,363,096
              
              
              5.7
              %All
                    officers and directorsas a
                    group (6 persons)
              
              
              8,691,016
              (3)(4)
              
              36.3
              %




*
      Less
      than 1%.




(1)
      Except as otherwise indicated, the address of each beneficial owner is c/o
      Xian
      Xilan Natural Gas Co., Ltd., Tang Xing Shu Ma Building, Suite 418, Tang Xing
      Road, Xian High Tech Area, Xian, Shaanxi Province, China.




(2)
      Applicable percentage ownership is based on 23,918,516 shares of common stock
      outstanding as of February 8, 2006, together with securities exercisable or
      convertible into shares of common stock within 60 days of February 8, 2006
      for
      each stockholder. Beneficial ownership is determined in accordance with the
      rules of the Securities and Exchange Commission and generally includes voting
      or
      investment power with respect to securities. Shares of common stock that are
      currently exercisable or exercisable within 60 days of February 8, 2006 are
      deemed to be beneficially owned by the person holding such securities for the
      purpose of computing the percentage of ownership of such person, but are not
      treated as outstanding for the purpose of computing the percentage ownership
      of
      any other person.


19


(3)
      Of
      which 2,875,364 shares are owned by Xian Sunway Technology & Industry Co.,
      Ltd. ("Sunway"). Qinan Ji owns 42.1% of Xian Sunway and may be deemed to
      beneficially own such shares.


(4)
      Of
      which 2,063,768 shares are owned by Yangling Bodisen Biotech Development Co,
      Ltd. ("Bodisen"). Mr. Chen is President, a member of the Board of Directors
      and
      a 23% stockholder of Bodisen and may be deemed to beneficially own such
      shares.




No
      Director, executive officer, affiliate or any owner of record or beneficial
      owner of more than 5% of any class of voting securities of the Company is a
      party adverse to the Company or has a material interest adverse to the
      Company.




**Securities
      Authorized for Issuance Under Equity Compensation Plans**




The
      following table shows information with respect to each equity compensation
      plan
      under which our common stock is authorized for issuance as of the fiscal year
      ended December 31, 2005.




**EQUITY
      COMPENSATION PLAN INFORMATION**


Plan
                  category
              
              Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              
              Weighted
                  average exercise price of outstanding options, warrants and
                  rights
              
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a)(a)
              
              (b)
              
              (c)Equity
                  compensation plans approved
              
              
              0
              
              
              0
              
              
              0by
                  security holdersEquity
                  compensation plans not
              
              
              0
              
              
              0
              
              
              0approved
                  by security holdersTotal
              
              
              0
              
              
              0
              
              
              0




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




In
      July
      2005, we loaned $77,169 to Qinan Ji, Chairman of the Board. The loan was made
      on
      a interest free basis and was repaid in its entirety in October
      2005.




In
      July
      2005, we loaned $94,393 to Xian Sunway Technology & Industry Co., Ltd., one
      of our principal shareholders. The loan was made on an interest free basis
      and
      was repaid in its entirety on November 2005.


20


**ITEM
      13. EXHIBITS**


Exhibits:
  Exhibit
                  Number
              
              Description
                  of Exhibit3.1
              
              Articles
                  of Incorporation (incorporated by reference to same exhibit filed
                  with the
                  Company's Form 10SB Registration Statement filed September 15,
                  2000, SEC
                  file no. 000-31539).
  3.2
                
                Registrant's
                    By-Laws (incorporated by reference to same exhibit filed with
                    the
                    Company's Form 10SB Registration Statement filed September 15,
                    2000, SEC
                    file no. 000-31539).
  10.1
              
              Share
                  Purchase Agreement made as of December 6, 2005 among Coventure
                  International Inc., Xian Xilan Natural Gas Co., Ltd. and each of
                  Xilan's
                  shareholders. (incorporated by reference to the exhibits to Registrants
                  Form 8-K filed on December 9, 2005).10.2
              
              Return
                  to Treasury Agreement between Coventure International Inc. and
                  John
                  Hromyk, dated December 6, 2005. (incorporated by reference to the
                  exhibits
                  to Registrants Form 8-K filed on December 9, 2005).10.3
              
              Purchase
                  Agreement made as of December 19, 2005 between China Natural Gas,
                  Inc. and
                  John Hromyk (incorporated by reference to the exhibits to Registrants
                  Form
                  8-K filed on December 23, 2005).10.4
              
              Form
                  of Securities Purchase Agreement (incorporated by reference to
                  the
                  exhibits to Registrants Form 8-K filed on January 12,
                  2006).10.5
              
              Form
                  of Common Stock Purchase Agreement (incorporated by reference to
                  the
                  exhibits to Registrants Form 8-K filed on January 12,
                  2006).10.6
              
              Form
                  of Registration Rights Agreement (incorporated by reference to
                  the
                  exhibits to Registrants Form 8-K filed on January 12,
                  2006).31.1*
              
              Certification
                  of Principal Executive Officer pursuant to Rule 13a-14 and Rule
                  15d-14(a),
                  promulgated under the Securities and Exchange Act of 1934, as
                  amended31.2*
              
              Certification
                  of Principal Financial Officer pursuant to Rule 13a-14 and Rule
                  15d 14(a),
                  promulgated under the Securities and Exchange Act of 1934, as
                  amended32.1*
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002 (Chief Executive
                  Officer)32.2*
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002 (Chief Financial
                  Officer)




*
      Filed
      herewith




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




Audit
      Fees. The aggregate fees billed by our auditors, Kabani & Company, Inc. for
      professional services rendered for the audit of our annual financial statements
      for the years ended December 31, 2005 and 2004, and for the reviews of the
      financial statements included in our Quarterly Reports on Form 10-QSB during
      that fiscal year were $32,500, and $32,500, respectively.




The
      aggregate fees billed for professional services rendered by Manning Elliott
      in
      the fiscal year ended July 31, 2005 were $14,750.




Audit
      Related Fees. We incurred no audit related fees during the fiscal years ended
      December 31, 2005 and 2004.




Tax
      Fees.
      We incurred no fees for professional services rendered by Kabani & Company,
      Inc., for tax compliance, tax advice and tax compliance services during the
      fiscal years ended December 31, 2005 and 2004.




The
      aggregate fees billed for professional services rendered by Manning Elliott
      for
      tax compliance services in fiscal year 2005 was $1,775. No fees were billed
      for
      tax advice or tax planning. The fees billed relate to the preparation of income
      tax returns.




The
      Audit
      Committee has considered whether the provision of non-audit services is
      compatible with maintaining the principal accountant's
      independence.





21


**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.




Date:
        November 1, 2007


**CHINA
                  NATURAL GAS, INC.**By:
              /s/
                Qinan JiQinan
                  JiChief
                  Executive Officer
                (Principal
                  Executive Officer)




By:
            /s/
              Xiaogang ZhuXiaogang
                ZhuChief
                Financial Officer
              (Principal
                Financial and Accounting Officer)




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/
                    Qinan
                    Ji
                
                Chairman
                    of the Board
                
                November 1,
                    2007Qinan
                      JiDirector
                
                November
                    1, 2007James
                      A. Garner/s/
                    Zhiqiang Wang
                
                Director
                
                November
                    1, 2007Zhiqiang
                    Wang/s/
                    Xiaogang Zhu
                
                Chief
                    Financial Officer
                
                November
                    1,
                    2007Xiaogang
                    Zhu




22