UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 10-K




þ ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended July 31, 2010




o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from ___________ to ___________.




Commission file number 000-53480




CHINA WIND ENERGY INC.


(Exact name of registrant as specified in its charter)




Nevada

None(State or Other Jurisdiction of Incorporation of Organization)

(I.R.S. Employer Identification No.)No.2 Haibin Road, Binxi Developing Area

Heilongjiang Province, China

+86 451 56150071(Address of principal executive offices) (ZIP Code)

(Registrant’s telephone number, including area code)




Securities registered pursuant to Section 12(b) of the Act: None
  Securities registered pursuant to Section12 (g) of the Act:Common Stock, $0.0001 par value




Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ




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




Indicate by check mark whether the registration has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that he registrant was required to submit and post such files).  YesoNo o




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer oAccelerated filer oNon-accelerated filer oSmaller reporting company þ




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




State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.




The aggregate market value of Common Stock held by non-affiliates of the Registrant was $24,233,120 based on a $0.60 closing price for the Common Stock on January 27, 2010.  For purposes of this computation, all executive officers and directors have been deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers and directors are, in fact, affiliates of the Registrant.




Number of common shares outstanding at December 7, 2010:  51,902,250









TABLE OF CONTENTS




PART I
2Item 1.  Business
2Item 1A.  Risk Factors
8Item 1B.  Unresolved Staff Comments
8Item 2.  Properties
8Item 3.  Legal Proceedings
8Item 4.  [Removed and Reserved]
8PART II
9Item 5.  Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
9Item 6.  Selected Financial Data
10Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations
10Item 7A.Qualitative and Qualitative Disclosures about Market Risk
14Item 8.  Financial Statements and Supplementary Data
14Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
15Item 9A.  Controls and Procedures
15Item 9B.  Other Information
16PART III
17Item 10.  Directors, Executive Officers and Corporate Governance
17Item 11.  Executive Compensation
20Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
22Item 13.  Certain Relationships and Related Transactions, and Director Independence
23Item 14.  Principal Accountant Fees and Services
24PART IV
25Item 15.  Exhibits, Financial Statement Schedules
25SIGNATURES
26


1




PART I


Item 1.Business




Forward-looking Statements




This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other 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 these forward-looking statements.




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. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.




As used in this annual report, the terms "we", "us", "our", “our company”, and "China Wind" mean China Wind Energy Inc. and all of our subsidiaries, unless otherwise indicated.




All dollar amounts refer to US dollars unless otherwise indicated.




Overview and Recent Business Developments




We were incorporated in Nevada on May 8, 2006.  Prior to November 20, 2007 we were a shell company with nominal assets and operations.  On November 20, 2007 we completed a reverse merger transaction with China Wind Energy Ltd., a Hong Kong company (“China Wind HK”). The closing of this reverse takeover transaction resulted in the acquisition of China Wind HK, and its wholly owned subsidiary XingYe Wind Energy Technology Limited (“XingYe”),  becoming our wholly owned subsidiary.  Xing Ye was in the business of providing management, consulting and administrative services to Harbin SQ Wind Power Ltd. (“Harbin SQ”), a manufacturer of wind turbines in China.





On December 5, 2007 we filed a certificate of change to effect a 5 for 1 forward split of our common stock. This forward split increased our issued common shares and authorized common stock, on a basis of five new common shares for every one existing common share and resulted in an increase from 7,377,450 issued and outstanding common shares to 36,887,250 issued and outstanding common shares. It also increased our authorized common stock from 80,000,000 to 400,000,000 shares.





On May 16, 2008 we entered into a share exchange agreement with Power Profit Technology Development Limited, a Hong Kong company (“Power Profit”), and Wan Yi Tse, the holder of 100% of the issued and outstanding share capital of Power Profit.  The closing of this share exchange agreement on May 26, 2008 resulted in:





a)
the acquisition of 100% of the equity interests of Power Profit;





b)
the acquisition of 82.14% of the equity interests of Power Profit’s majority owned subsidiary, Harbin SQ





c)
Wan Yi Tse’s designees becoming the holders of 29% of all of our issued and outstanding common stock;





2




d)
Power Profit becoming our wholly owned subsidiary and Harbin SQ becoming our majority-owned subsidiary;





e)
the termination of an agreement for the provision of management, consulting and administrative services by XingYe, our subsidiary, to Harbin SQ; and





f)
the appointment of Shouquan Sun as our President, Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Secretary, Treasurer, and director to replace Jian Ren who resigned from all of his positions with us.





In the first half of 2010, we signed a ten-year wind turbine blade supply agreement with Xu Ji Wind Energy Technology Company (“Xu Ji”), a subsidiary to State Grid Corporation of China (“State Grid”). Pursuant to the terms of the agreement, we agreed to supply blades for wind turbines rated at 2.0 MW and above with a length of 45.3 meters. We are now developing and producing the required blade moulds to satisfy this order.





Description of Business





Harbin SQ, our majority-owned subsidiary, focuses primarily on the production of wind turbine blades and combine harvesters.  Our primary product is a blade for wind turbine generators which allows for variable pitch and speed.  Different from other blades of the 600KW and 750KW type produced in China, our blade products provide variable speed and pitch adjustments to achieve high efficiency.  We have 5 individual patents on our wind turbine blades.





Organizational Structure





Our current organizational structure is summarized by the illustration below:













3





Sales of Blades





We have currently generated revenue only from the sale of combine harvesters which we were previously in the business of manufacturing.  We anticipate that we will begin producing and selling our wind turbine product shortly and we anticipate that we will generate revenues from sales of our wind turbine blades to customers who install turbines and other equipment in wind farms.





Factors that may affect sales volumes for our wind turbine blades include:




o
world gross domestic product growth;





o
the availability of alternative sources of energy; and





o
the growth in demand for wind powered energy.





Factors that may affect the prices for our wind turbine blades include:




o
world economic environment;





o
industry operating rate, which is based on the supply and demand; and





o
relative strength of the Chinese currency.





The Market for Wind Turbine Blades





Wind energy is considered a “green” energy that does not pollute the environment, and is attractive to many countries in the world.  China has a shortage of energy resources.  The Chinese wind energy industry, while in its infancy, could grow to be an important source of energy production.  On the eve of the 2005 Beijing International Renewable Energy Conference, a report released by the Chinese Renewable Energy Industries Association and sponsored by Greenpeace and the European Wind Energy Association showed that China could at least double its current wind production by 2020.





Wind energy is a rapidly growing market segment for the composites industry and is a fast growing energy sector. According to related research report, 38,310 MW of new wind generating capacity was installed in 2009, an increase of 31.6 percent compared to the previous year. One third of the new wind generating capacity is made in China. We are initially focusing on the domestic market in China, but will be looking to distribute our products throughout the world, with a focus on Europe.





Raw Materials





We source our raw materials from various metal smelting and electronics manufacturers in our local vicinity.  Although we have not been subject to shortages of any of the components used in the fabrication of our wind turbines, we may be subject to cutbacks and price increases as we do not currently have any long term contracts with our supplies.  In the event that prices do increase; we may not be able to pass these increases on to our customers.





4





Competition





The table below contains a description of our principal competitors in mainland China.





No
Enterprises
Form
Shareholders
Location
Date of Establishment
Output and Scale1
LM Fiber Reinforced Plastics

(Tianjin) Ltd
Foreign Capital
Denmark LM Co.
Wuqing Development, Tientsin
August 2001
600 Sets per year2
LM Urumchi Blade Works
Joint Venture using Chinese and foreign investment
Denmark LM Co. and Sinkiang Jinfeng Stock-joint Co.
Urumchi
Started production in August 2007
Supply products for Sinkiang Jinfeng joint venture.3
Denmark VESTAS Wind Energy Electricity Equipment Limited
Foreign Capital
Denmark VESTAS Limited
West District in Tientsin Development
May 2005
1.5MW 200 sets of blades per year4
SUZLON Resource Limited (Tientsin)
Foreign Capital
India SUZLON
HuaYuan Technology Development, Tientsin Development
2006
300-500 sets of blades per year5
Tientsin Dongqi Wind Energy Blade Engineering Co.
Joint-stock
Orient Electric Group
Chemic Industry Garden in Tientsin Development
August 2006
Invested 279,000,000 RMB in first period, 1.5MW600 per year6
Baoding China Air Huiteng Wind Power Equipment Limited
Joint-Venture using Chinese and Foreign Investment
NORDEX German Co.
Baoding New High-technology Development
August 2005
1.3MW Blades and provide to customers of Nordex in China





Competitive Advantages and Strategy





We believe that our unique technology, price points, relationships, infrastructure, proven quality control standards, and reputation represent substantial competitive advantages.  We are currently able to maintain lower costs of manufacturing than competitors based in the United States and Europe.  Furthermore, our competitive advantage in China is protected by our significant knowledge of government regulations, business practices, strong relationships, and patent protection.





We have been developing and plan to implement the following strategies to aide in the growth of our business:





1.
Management and Innovation Strategies


We have implemented a scientific approach to blade manufacture which relies on innovation.  We also have a rigorous quality control program in place.





2.
Broaden Development Strategies


We have improved the reputation of our products by developing and implementing a marketing plan which will allow us to increase the value of our brand.





3.
Optimize Work Environment


We have implemented standardized safety procedures for our employees.  Together with our quality control program, we hope this will result in high quality products for our customers.





4.
Cost Strategies


We plan to implement cost control measures in order to be more competitive in our domestic markets.





5.
Grow Capacity


We anticipate growing demand and have prepared to increase our production capacity in our current facility as well considered offsite manufacturing possibilities.





6.
Widen Sales Channels


We are actively seeking distribution contracts and increased sales through international channels.





5





Intellectual Property





We have received five patents in the wind energy industry from the China Patent and Trademark Office:





1.
ZL200620021590.7 - This patent relates to a belt drive accelerator which is fitted to wind power electricity equipment. This patent was obtained in 2006 and expires in 2016.  The belt drive accelerator is especially important to us because it speeds up the blades in a dynamotor. This patent lowers the cost and increases the useful life of our blades.





2.
ZL200520020555.9 -This patent relates to a frame structure tower for wind energy equipment.  The patent was obtained in 2005 and expires in 2015.





3.
ZL200220020019.9 - This patent relates to an integer-stand wind energy dynamotor. This patent was obtained in 2002 and expires in 2012.





4.
ZL200220020018.4 - This patent relates to a super-high-binding and auto-rising tower crane for the wind energy dynamotor.  This patent was obtained in 2002 and expires in 2012.





5.
ZL200520020020.1 – This patent relates to equipment for motional wind energy blade production.  This patent was obtained in 2005 and expires in 2015.





Products





In 2010, the price of blades of below 1.5 MW wind turbine went down; providing low profit margin. Therefore, we suspended the preparations for the production of blades of such specifications in 2010.
 
 In the first half of 2010, we signed a ten-year blade supply agreement with Xu Ji Pursuant to the terms of the agreement, we agreed to supply blades for wind turbines rated at 2.0 MW and above with a length of 45.3 meters. We are now developing and producing the required blade moulds to satisfy this order.We expect to supply 100 sets of blades to Xu Ji in the second half of 2011.
 
 In 2010, we began research and production of an intelligent blade monitor system. The service life of turbine blade is twenty years. Exposed to wind, frog, rain, the damage to them is inevitable. At present, the damage to blades can only be found when it causes the shutdown of turbines. We believe that our intelligent blade monitor system will aid in monitoring blade damage, dynamic balancing, ice covering, turbine and gear case temperature and turbine tower column inclination. Our targeted customers are turbine blade producers, wind turbine generator producers and wind field operators. We anticipate that the products will enter the market in November or December 2010 with commercial levels of production in March of 2011.
 
 In 2010 we also we engaged in the upgrading of combine harvesters. We have been manufacturing combine harvesters for over ten years. In the light of market demand, our backpack type harvesters will be upgraded to self-walking harvesters, which can harvest soybeans, wheat, rice and maize. They are now in small-scale trial production stage. We expect to produce 100 sets in 2011.
 
 Customers
 
 For the year ended July 31, 2010, we generated revenues of $194,069. These revenues resulted from the sales of combine harvesters as our wind turbine products are not yet ready for sale.  We plan to distribute our products to various customers including private companies as well as government-backed entities.  As of December 6, 2010 we have not sold any of our wind turbines or related products.
 
 A significant percentage of our revenues for the year ended July 31, 2010 came from a small number of customers and we anticipate this will continue as we begin to produce and sell our wind turbine products due to the cost and nature of the product.
 
 In light of the blade market change in 2010, we made those who are in need of blades of 2.0 MW and above turbines as our main targeted customers.


Customers





For the year ended July 31, 2010, we generated revenues of $194,069. These revenues resulted from the sales of combine harvesters as our wind turbine products are not yet ready for sale.  We plan to distribute our products to various customers including private companies as well as government-backed entities.  As of December 7, 2010 we have not sold any of our wind turbines or related products.





A significant percentage of our revenues for the year ended July 31, 2010 came from a small number of customers and we anticipate this will continue as we begin to produce and sell our wind turbine products due to the cost and nature of the product.




In light of the blade market change in 2010, we made those who are in need of blades of 2.0 MW and above turbines as our main targeted customers.





6





Employees





As of December 7, 2010 we had 400 employees. All employed full time, one of which is Shouquan Sun, our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, and director. Mr. Sun provides us with services in the areas of management, administration and business development. We also engage consultants in the areas of business development consulting, legal and accounting.





Government Regulations





We are subject to environmental regulation by both the Chinese central government and by provincial or local government agencies in China.  Since our inception we have been in compliance with all applicable regulations.





Our manufacturing processes generate noise, wastewater, gaseous and other industrial wastes, and we use, generate and discharge toxic, volatile and otherwise hazardous chemicals and wastes in our operations. As a result, we are required to comply with all national and local regulations regarding protection of the environment. Our operations are subject to regulations promulgated by China’s Environmental Protection Administration, as well as local pollution regulations.  We are also subject to periodic monitoring by local environmental protection authorities in Harbin.  We believe that our manufacturing facilities and equipment are in substantial compliance with all applicable environmental regulations.  Based on the requirements of present law, additional measures to maintain compliance are not expected to materially affect our capital expenditures, competitive position, financial position or results of operations.





The Chinese government has expressed concern about pollution and other environmental hazards. Although we believe that we comply with current national and local government regulations, if it is determined that we are in violation of these regulations, we can be subject to financial penalties as well as the loss of our business license, in which event we would be unable to continue in business. Further, if the national or local government adopts more stringent regulations, we may incur significant costs in complying with such regulations. If we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. Any failure by us to control the use of, or to restrict adequately the discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions of our business operations.





Regulations Governing Electrical Equipment





Our products are subject to regulations that pertain to electrical equipment, which may materially adversely affect our business. These regulations influence the design, components or operation of our products. New regulations and changes to current regulations are always possible and, in some jurisdictions, regulations may be introduced with little or no time to bring related products into compliance with these regulations. Our failure to comply with these regulations may restrict our ability to sell our products in China. In addition, these regulations may increase our cost of supplying the products by forcing us to redesign existing products or to use more expensive designs or components. In these cases, we may experience unexpected disruptions in our ability to supply customers with products, or we may incur unexpected costs or operational complexities to bring products into compliance. This could have an adverse effect on our revenues, gross profit margins and results of operations and increase the volatility of our financial results.





Business License





We, and all of our subsidiaries, have been issued business licenses with the appropriate municipal and provincial governments which specifically authorize the companies to operate their respective businesses. All of these business licenses, which are subject to annual review by the issuing agencies, are current as of the date of this report.





Beneficial Regulations





In 2010, we have been qualified as a scientific and technological enterprise by our provincial government. This provides us with a preferential income tax levied at a reduced tax rate of 15%.





In its current 5-Year Plan (covering 2006-2011) and in the National Science Mid to Long-Term Development Plan (2006-2020), the Chinese government identified wind power as a viable “green” energy technology that will reduce emissions while increasing the energy supply.




Reports to Security Holders




We intend to furnish our shareholders annual reports containing financial statements audited by our independent auditors and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year.




The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.




7


Item 1A.Risk Factors




As a “smaller reporting company”, we are not required to provide the information required by this Item.




Item 1B.Unresolved Staff Comments




As a “smaller reporting company”, we are not required to provide the information required by this Item.




Item 2.Properties




Our principal executive offices are located at 2 Haibin Road, Binxi Development, Harbin, Heilongjiang Province, China, where we carry out the management of our manufacturing factory. We own this property through our majority owned subsidiary: Harbin SQ. The property consists of a factory of 63,638 square meters (approximately 208,787 square feet) and an office building of 20,000 square meters (approximately 65,616 square feet). Harbin SQ carries out the manufacturing of our wind turbine blades at this location.




Item 3.Legal Proceedings




Our majority owned subsidiary, Harbin SQ, was named as a defendant in a lawsuit in which the plaintiffs alleged that illegal transfers and misleading promotion of Harbin SQ’s shares to the public occurred through securities brokers.  The plaintiffs, 51 current stockholders representing 1,018,000 outstanding shares, acquired Harbin SQ’s shares through securities brokers from Harbin SQ’s initial stockholders and sought monetary damages from Harbin SQ, including the costs of acquiring the shares, expenses and imputed interest.




In September 2008 the claims of the plaintiffs were refuted in a judgment of the Court of Bin County, Heilongjiang Province.  On May 25, 2009, 48 individual plaintiffs appealed the decision to a higher court.  All appeals have been rejected by the courts and we do not anticipate any further liability from these proceedings.




We know of no other material, active or pending legal proceedings against us, our subsidiaries or our property, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholders are an adverse party or have a material interest adverse to us.




Item 4.[Removed and Reserved]
  8




PART II




Item 5.Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities




Market Information




There is a limited public market for our common shares. Our common shares are quoted for trading on the OTC Bulletin Board under the symbol “CWEY”.  The market for our stock is highly volatile. We cannot assure you that there will be a market in the future for our common stock.  OTC Bulletin Board securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.




Our common shares became eligible for quotation on the OTC Bulletin Board on August 2, 2007, but no trades were made until September 11, 2007.




The following table shows the high and low prices of our common shares on the OTC Bulletin Board. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:




Period
High
LowMay 1, 2010 – July 31, 2010
$0.55
$0.0722February 1, 2010 – April 30, 2010
$0.55
$0.051November 1, 2009 – January 31, 2010
$0.99
$0.20August 1, 2009 – October 31, 2009
$1.08
$0.05May 1, 2009 – July 31, 2009
$0.91
$0.51February 1, 2009 – April 30, 2009
$0.91
$0.52November 1, 2008 – January 31, 2009
$0.55
$0.41August 1, 2008 – October 31, 2008
$1.30
$0.51May 1, 2008 – July 31, 2008
$1.60
$0.90




We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future.




Holders




As of December 7, 2010, there were 3,360 holders of record of our common stock.




Dividends




Holders of our common stock are entitled to dividends if declared by the Board of Directors out of funds legally available therefore. As of December 7, 2010 no cash dividends have been declared.




We do not intend to issue any cash or stock dividends in the near future. We intend to retain earnings, if any, to finance the development and expansion of our business. Our future dividend policy will be subject to the discretion of the Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions and other factors.




Equity Compensation Plans




As of December 7, 2010, we did not have any equity compensation plans.




9





Recent Sales of Unregistered Securities




We have not made any previously unreported sales from August 1, 2008 to July 31, 2010.




Recent Purchases of Equity Securities by us and our Affiliated Purchases




We have not repurchased any of our common stock and have no publicly announced repurchase plans or programs as of December 7, 2010.




Item 6.Selected Financial Data




As a “smaller reporting company”, we are not required to provide the information required by this Item.





Item 7.   Management's Discussion and Analysis or Plan of Operation




We are a development stage company with limited operations and revenues from our business operations. Our auditors have issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional financing to fund our operations. Our only source of cash at this time is investments by others in our company.





Forward-Looking Statements





This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, "could" "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.





While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Prospectus.





Liquidity and Capital Resources





At July 31, 2010 and 2009 we had cash of $257,620 and $65,233 respectively.





Since November 27, 2006 (inception) to July 31, 2010, our accumulated deficit was $13,853,487. We are dependent on the funds raised through our equity or debt financing, investing activities, and revenue generated through the sales of our products to fund our operations. The ability of our Company to continue as a going concern is dependent upon our ability to successfully accomplish our business plans and eventually secure other sources of financing and attain profitable operations. We anticipate that we will incur substantial losses over the next year and our ability to generate any revenues in the next 12 months continues to be uncertain.





As of July 31, 2010 we had total assets of $12,553,642 compared to $22,002,466 as of July 31, 2009.  The decrease in total assets was due to goodwill impairment charge upon our annual goodwill impairment test.  Our total assets as of July 31, 2010 were primarily made up of property, equipment and intangible assets. Our total liabilities increased from $4,365,158 as of July 31, 2009 to $6,156,213 as of July 31, 2010 due to an increase in short term loans.





We used net cash of $1,234,010 in operating activities for the year ended July 31, 2010 as compared to $1,642,454 for the year ended July 31, 2009 and $3,300,771 from inception to July 31, 2010.  The decrease in cash used in operating activities for the year ended is mainly attributed to decrease in accounts receivable.
 
 We used net cash of $31,221 in investing activities for the year ended July 31, 2010 including $319,896 in purchase of property, offset by $288,675 in collection of loans made to related parties. This compares to $303,599 used in investing activities for the year ended July 31, 2009 including $799,738 in purchases of property and equipment and $398,558 in cash paid for construction, offset by $723,541 collection of loans made to related parties.


10





We received net cash of $1,455,906 from financing activities for the year ended July 31, 2010, including $4,382,386 from short term loans, offset by 2,926,480 repayments of short term loans. We received net cash of $1,934,109 from financing activities for the year ended July 31, 2009, including $19,614 as proceeds from related party loans and $2,462,936 from other short term loans.  We also repaid $548,441 towards short term loans during the year ended July 31, 2009.





Our cash position increased by $192,387 during the year ended July 31, 2010 compared to a decrease of $15,115 during the year ended July 31, 2009.





During the year ended July 31, 2010 we secured short term loans from an institutions and individuals to meet our ongoing cash requirements.  Below is a table of these loans at July 31, 2010 and 2009.




2010


2009Bank loan 2010

$
2,217,000


$
-Bank loan 2009


-



1,465,700Loans from individuals


677,160



645,805Short term loan

$
2,894,160


$
2,111,505





Not all of the loans from individuals are interest-bearing. For interest bearing loans, the interest rate is ranging from 14% to 40% per annum. Interest expenses for short term loans were $648,436 for the year ended July 31, 2010 and $239,141 for the year ended July 31, 2009.





Our subsidiary, Harbin SQ provided a loan to Shouquan. Sun, our President, prior to us acquiring it.  No monies have been loaned to Mr. Sun since our acquisition of Harbin SQ.  As of July 31, 2010, Mr. Sun and the company under his control owed us $8,890 compared to $297,097 as of July 31, 2009.  From April 30, 2008 to July 31, 2010, Mr. Sun has repaid a total of $1,271,147 on the loans.  We hope to have the remaining funds settled with Mr. Sun in the near future.





We expect that our total expenses will increase over the next year as we increase our business operations through Harbin SQ, our majority owned subsidiary. We have not been able to reach the break-even point since our inception and have had to rely on outside capital resources.  Over the next 12 months, we plan to begin manufacturing and selling of our wind turbines.  However, we do not anticipate that we will generate sufficient revenues to fund our proposed operations.





Our approximate monthly cash requirement during the year ended July 31, 2010 was $49,065 compared to $51,031 during the year ended July 31, 2009.  We expect to require approximately $2,374,323 in financing to fund our business operations over the next 12 months (beginning November 2010), as follows:





11





Description

Estimated

expensesResearch and development of wind turbines

$
538,460Marketing


104,130Salaries


565,432Equipment maintenance


20,288Development of distribution chain


140,413Utilities


200,600Professional Fees


220,000General and administrative expenses


585,000Total

$
2,374,323
 
 At present, our cash requirements for the next 12 months outweigh the funds available to maintain or develop our operations. Of the $2,374,323 that we require for the next 12 months, we had $257,620 in cash as of July 31, 2010.  In order to improve our liquidity, we intend to apply for short term mortgage loan from bank. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources that are available
 
 Results of Operations
 
 Revenues
 
 Since our inception to July 31, 2010 we have generated gross revenues of $424,760 from the sale of combine harvesters manufactured by us.  We generated $194,069 during the year ended July 31, 2010 and $82,308 during the year ended July 31, 2009.  Our cost of goods sold was $887,682 for the year ended July 31, 2010 and $631,507 for the year ended July 31, 2009.   .


Expenses





For the year ended July 31, 2010, we have total operating expenses of $10,142,669, including $39,311 in selling expenses, $1,992,398 in general and administrative and $8,110,960 of goodwill impairment loss. By comparison, for the year ended July 31, 2009, we have total operating expenses of $4,334,680, including $101,351 in selling expenses, $2,581,395 in general and administrative and $1,651,934 in loss on disposal of assets.   For the period from inception to July 31, 2010 our total operating expenses were $14,924,118.





Net Loss





Since our inception on November 27, 2006 to July 31, 2010, we incurred a net loss of $16,808,386. For the year ended July 31, 2010, we incurred net loss of $ 11,413,008 compared to $4,961,009 for the year ended July 31, 2009. Our net loss per share was $0.18 for the year ended July 31, 2010 and $0.08 for the year ended July 31, 2009.





Our net loss for the year ended July 31, 2010 was the result of limited revenue of $194,069 counted against $887,682 in cost of goods sold, $39,311 in selling expenses, $1,992,398 in general and administrative expenses and $8,110,960 of goodwill impairment loss. Comparatively, during the year ended July 1, 2009 we generated revenue of $82,308 counted against $631,507 in cost of goods sold, $101,351 in selling expenses, $2,581,395 in general and administrative expenses and $1,651,934 in loss on disposal of assets.





12





Off-Balance Sheet Arrangements





We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.





Inflation





The effect of inflation on our revenue and operating results has not been significant.





Critical Accounting Policies





Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in note 3 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.





Impairment of Long-Lived Assets





Long-lived assets, including property, plant and equipment, identifiable intangible assets and capitalized software costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value.





Goodwill and Other Intangible Assets




Goodwill is not subject to amortization but is tested for impairment on an annual basis (or more frequently if impairment indicators arise). Impairment losses are calculated at the reporting unit level, and represent the excess of the carrying value of reporting unit goodwill over its implied fair value. The implied fair value of goodwill is determined by a two-step process. The first compares the fair value of the reporting unit (measured as the present value of expected future cash flows) to its carrying amount. If the fair value of the reporting unit is less than its carrying amount, a second step is performed. In this step, the fair value of the reporting unit is allocated to its assets and liabilities to determine the implied fair value of goodwill, which is used to measure the impairment loss.





The Company’s evaluation of goodwill completed during the year ended July 31, 2010 resulted in $8,110,960 impairment loss.




Our intangible assets comprised of land use rights and are being amortized on a straight-line basis over their estimated useful life which is 40 years. None of our acquired intangible assets have indefinite lives. Land use rights are related to the land the Company occupies in Heilongjiang Province, PRC.





13





Property and Equipment





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





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





Buildings
20 yearsMachinery and equipment
14 yearsTransportation equipment
12 yearsOffice equipment
10 years




Item 7A.Qualitative and Qualitative Disclosures about Market Risk




As a “smaller reporting company”, we are not required to provide the information required by this Item.




Item 8.   Financial Statements and Supplementary Data




CHINA WIND ENERGY INC. AND SUBSIDIARIES


(A DEVELOPMENT STAGE COMPANY)





INDEX





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-1CONSOLIDATED BALANCE SHEETS
F-2CONSOLIDATED STATEMENTS OF OPERATIONS
F-3CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
F-4CONSOLIDATED STATEMENTS OF CASH FLOWS
F-5NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6


14




REPORT OF INDEPENDENT REGISTER PUBLIC ACCOUNTING FIRM




Board of Directors


China Wind Energy Inc. and Subsidiaries


(A development stage company)





We have audited the accompanying consolidated balance sheets of China Wind Energy Inc. and subsidiaries (a development stage company) as of July 31, 2010 and 2009 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The statements of operations, changes in stockholders’ equity and cash flows from November 27, 2006 (date of inception) to July 31, 2007 were audited by other auditors whose report dated August 31, 2007 expressed an unqualified opinion, with an explanatory paragraph discussing the Company’s ability to continue as a going-concern. In addition, the statements of operations, changes in stockholders’ equity and cash flows from August 1, 2007 to July 31, 2008 were audited by other auditors whose report dated October 9, 2008 expressed an unqualified opinion, with an explanatory paragraph discussing the Company’s ability to continue as a going-concern. Our opinion on the statements of operations, changes in stockholders’ equity and cash flows from inception to July 31, 2010, insofar as it relates to amounts for prior periods through July 31, 2008, is solely based on the reports of other auditors.
  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 financial statements are free of material misstatement. The Company is not required at this time, to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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 financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
  In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Wind Energy Inc. and subsidiaries at July 31, 2010 and 2009 and the consolidated results of its operations and its cash flows for the years then ended, and for the period from November 27, 2006 (date of inception) to July 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
  As discussed in Note 3 of the Notes to the consolidated financial statements, effective August 1, 2009, the Company applied new accounting standards related to noncontrolling interests in subsidiaries.
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the Notes to the consolidated financial statements, the Company has suffered losses from operations and has a working capital deficit. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning this matter are also described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.




/s/ MaloneBailey, LLP


MaloneBailey, LLP




www.malone-bailey.com




Houston, Texas





December 6, 2010




F-1




China Wind Energy Inc. And Subsidiaries


(A Development Stage Company)


Consolidated Balance Sheets




July 31,


July 31,2010


2009ASSETSCurrent AssetsCash and cash equivalents

$
257,620


$
65,233Accounts receivable,  net


1,092



891,776Inventories, net


639,740



648,043Prepaid expenses


58,767



125,899Total current assets


957,219



1,730,951Prepayment and deposit


7,966



10,945Due from related parties


10,691



298,884Property and equipment, net


9,628,603



9,214,594Construction in progress


156,503



797,016Goodwill


-



8,110,960Intangible assets, net


1,792,660



1,839,116Total Assets

$
12,553,642


$
22,002,466Liabilities & Stockholders' EquityCurrent LiabilitiesAccounts payable and accrued liabilities

$
2,386,509


$
2,177,545Short term loans


2,894,160



2,111,505Due to related parties


875,544



76,108Total current liabilities


6,156,213



4,365,158Stockholders' EquityCommon stock; 400,000,000 shares authorized; 0.0001 par value;

51,902,250 shares issued and outstanding, respectively


5,191



5,191Additional paid-in capital


20,335,701



20,335,701Accumulated other comprehensive income


190,715



50,301Accumulated deficit during development stage


(13,853,487
)


(4,478,842
)Total China Wind Energy Inc. stockholders' equity


6,678,120



15,912,351Non-controlling interest


(280,691
)


1,724,957Total Stockholders' Equity


6,397,429



17,637,308Total Liabilities & Stockholders' Equity

$
12,553,642


$
22,002,466





The accompanying notes are an integral part of these financial statements




F-2




China Wind Energy Inc. And Subsidiaries


(A Development Stage Company)


Consolidated Statement of Operations




Nov.27 2006Year Ended


Year Ended


(Inception) toJuly 31,2010


July 31,2009


July 31,2010Revenue

$
194,069


$
82,308


$
424,760Cost of goods sold


(887,682
)


(631,507
)


(1,646,627
)Gross loss


(693,613
)


(549,199
)


(1,221,867
)Operating ExpensesSelling expenses


39,311



101,351



144,447General and administrative


1,992,398



2,581,395



5,016,777Loss on goodwill impairment


8,110,960



-



8,110,960Loss on disposal of assets


-



1,651,934



1,651,934Total operating expenses


10,142,669



4,334,680



14,924,118Loss from operations


(10,836,282
)


(4,883,879
)


(16,145,985
)Other income (expenses)Interest income


255



806



1,255Interest expenses


(648,435
)


(239,141
)


(896,315
)Government subsidy income


71,454



161,205



232,659Total other (expenses)


(576,726
)


(77,130
)


(662,401
)Loss before income taxes


(11,413,008
)


(4,961,009
)


(16,808,386
)Income taxes


-



-



-Net loss


(11,413,008
)


(4,961,009
)


(16,808,386
)Less: net loss attributable to the non-controlling interest


2,038,363



883,791



2,954,899Net loss attributable to China Wind Energy Inc.


(9,374,645
)


(4,077,218
)


(13,853,487
)Other comprehensive   lossForeign currency translation


( 173,129
)


( 5,932
)


(223,430
)Total omprehensive loss

$
(11,239,879
)


(4,955,077
)

$
(16,584,956
)Comprehensive loss attributable to the non- controlling interest


(2,005,649
)


(883.008
)


(280,691
)Comprehensive loss attributable to China Wind Energy Inc.


(9,234,230
)


(4,072,069
)


(16,304,265
)Net Loss Per Share, Basic and Diluted


(0.18
)


(0.08
)Weighted Average Shares Outstanding, Basic and Diluted


51,902,250



51,902,250





The accompanying notes are an integral part of these financial statements




F-3




China Wind Energy Inc. And Subsidiaries


(A Development Stage Company)


Consolidated Statement of Changes in Stockholders' Equity
 For the period from November 27, 2006 (Date of Inception) to July 31, 2010


Common stock


Additional

Paid-in


Accumulated

Other

Comprehensive


Accumulated

Deficit

During the

Development


Non-

controlling


Total

Stockholders'Shares


Amount


Capital


Income


Stage


Interest


EquityBalance at July 31, 2008


51,902,250



5,191



20,335,701



44,369



(401,624
)


2,607,965



22,591,602Foreign Currency Translation


-



-



-



5,932



-



783



6,715Net loss for the period


-



-



-



-



(4,077,218
)


(883,791
)


(4,961,009
)Balance at July 31, 2009


51,902,250



5,191



20,335,701



50,301



(4,478,842
)


1,724,957



17,637,308Foreign Currency Translation


-



-



-



140,414



-



32,715



173,129Net loss for the period


-



-



-



-



(9,374,645
)


(2,038,363
)


(11,413,008
)Balance at July 31, 2010


51,902,250


$
5,191


$
20,335,701


$
190,715


$
(13,853,487
)

$
(280,691
)

$
6,397,429





The accompanying notes are an integral part of these financial statements





F-4


China Wind Energy Inc. And Subsidiaries


(A Development Stage Company)


Consolidated Statements of Cash Flows




Nov. 27, 2006Year Ended


Year Ended


(Inception)July 31, 2010


July 31, 2009


to July 31, 2010CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(11,413,008
)

$
(4,961,009
)

$
(16,808,386
)Adjustments to reconcile net income to net cashused for operating activities:Depreciation


634,471



475,342



1,124,295Provision for inventory


668,317



-



564,051Amortization


41,419



48,334



141,072Loss on disposal of assets


-



1,651,934



1,651,934Loss(Gain) on physical count of inventories


-



-



26,831Loss on goodwill impairment


8,110,960



-



8,110,960Common stock issued for services


-



-



17,850Changes in operating assets and liabilitiesAccounts receivable


891,908



19,614



911,096Prepaid expenses


(961
)


317,646



265,343Inventories


(526,502
)


(204,767
)


(558,680
)Advance to Suppliers


68,643



-



68,643Prepayment and deposit


3,821



738,204



561,571Accounts payable & accrued liabilities


286,922



272,248



622,649NET CASH USED IN OPERATING ACTIVITIES


(1,234,010
)


(1,642,454
)


(3,300,771
)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment


(319,896
)


(799,738
)


(1,593,670
)Cash paid for construction in progress


-



(398,558
)


(398,558
)Proceeds from sale of land use right


-



73,285



73,285Proceeds from sale of fixed assets


-



99,278



99,278Cash paid to acquire intangibles


-



(1,407
)


(1,407
)Collection of loans made to related parties


288,675



723,541



1,282,176cash acquired on acquisition


-



-



314,713CASH USED FOR INVESTING ACTIVITIES


(31,211
)


(303,599
)


(224,183
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from related party loans


-



19,614



69,319Proceeds from short term loans


4,382,386



2,462,936



6,890,321Repayment of related party loans


-



-



-Repayment of short term loans


(2,926,480
)


(548,441
)


(3,474,921
)Proceeds from issuance of common stock


-



-



100,001CASH PROVIDED BY FINANCING ACTIVITIES


1,455,906



1,934,109



3,584,720Effect of exchange rate changes on cash


1,712



(3,171
)


197,854NET INCREASE (DECREASE) IN CASH


192,387



(15,115
)


257,620Cash and cash equivalents, beginning of period


65,233



80,348



-Cash and cash equivalents, end of period

$
257,620


$
65,233


$
257,620Supplemental disclosure informationInterest expense paid

$
447,657


$
29,065Non-Cash Financing and Investing Activities:Increase of accounts receivable related to the sale of land use right

$
-


$
882,351Increase of accounts payable related to

accrual of PP&E additions

$
-


$
1,549,467




The accompanying notes are an integral part of these financial statements





F-5




China Wind Energy Inc. And Subsidiaries


Notes to Consolidated Financial Statements





1.   ORGANIZATION AND BUSINESS BACKGROUND





The Company was incorporated in Nevada on May 8, 2006, under the name Pooch Pal Beverages Inc., and changed its name to K-Care Nutritional Products Inc. On November 29, 2007, the Company changed its name to China Wind Energy Inc.





On November 20, 2007, the former President of the Company entered into a Stock Purchase Agreement with Jian Ren, a resident and citizen of the Hong Kong SAR of the People’s Republic of China (the “Purchaser”), pursuant to which the Purchaser agreed to purchase 5,950,000 shares of the Company’s common stock, $0.0001 par value, from the former President of the Company for $50,000. These shares represented 81% of the issued and outstanding common stock of the Company. The Stock Purchase Agreement closed on November 27, 2007.





Also, on November 20, 2007, the Company entered into an Acquisition Agreement with the Purchaser, who is the owner of all of the share capital of China Wind Energy Limited, a corporation organized and existing under the laws of the Hong Kong SAR of the People’s Republic of China, pursuant to which the Purchaser agreed to transfer all of his share capital in China Wind Energy Limited to the Company for $1. Upon closing of the Acquisition agreement on November 27, 2007, China Wind Energy Limited became a wholly owned subsidiary of the Company. China Wind Energy Limited has one wholly owned subsidiary, Harbin XingYe Wind Energy Technology Limited (“XingYe”), a company established under the Law of the People’s Republic of China (“PRC”).





The Acquisition was accounted for as a reverse merger, since the Purchaser owned a majority of the outstanding shares of the Company’s common stock immediately following the Acquisition. China Wind Energy Limited is deemed to be the acquirer in the merger. Consequently, the assets and liabilities and the historical operations that are reflected in the financial statements prior to the Acquisition are those of China Wind Energy Limited and are recorded at the historical cost basis of China Wind Energy Limited, whereas, the consolidated financial statements after completion of the Acquisition will include the assets and liabilities of the Company and China Wind Energy Limited, the historical operations of China Wind Energy Limited, and the Company’s operations from the closing date of the Acquisition.





On May 16, 2008, the Company entered into a Share Exchange Agreement with Power Profit Technology Development Limited, a company incorporated under the laws of Hong Kong, People’s Republic of China (“Power Profit”), and Wan Yi Tse, the holder of 100% of the issued and outstanding registered share capital of Power Profit.





Pursuant to the share exchange agreement, on May 26, 2008, the Company completed the acquisition of 100% of the equity interests of Power Profit and 82.14% of the equity interests of its subsidiary, Harbin SQ Wind Power Co., Ltd. (formerly Harbin Sanye Wind Energy Technology Co., Ltd.) (“Harbin SQ”). Harbin SQ is a company incorporated under the laws of the People’s Republic of China, engaged in the business of harvesters and blades for wind generators. Together, Power Profit and Harbin SQ become the subsidiaries of the Company. Power Profit becomes the Company’s wholly owned subsidiary and Harbin SQ becomes the Company’s majority owned subsidiary.





The Company has not yet generated significant revenues from planned principal operations and is considered a development stage company.





F-6




2.   GOING CONCERN





As reflected in the accompanying consolidated financial statements, the Company has accumulated deficits of $13,853,487 and $4,478,842 at July 31, 2010 and 2009, respectively that include losses of $11,413,008 and $4,961,009 for the years ended July 31, 2010 and 2009, respectively.  The Company also had a working capital deficiency of $5,210,101 and $2,634,207 as of July 31, 2010 and 2009.  These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going basis and do not include any adjustments that might result from outcome of this uncertainty.





At July 31, 2010, the Company has suffered losses from development stage activities to date. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful.





3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





a.   Basis of Presentation and Use of Estimates





The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after the elimination of intercompany accounts and transactions. The Company’s fiscal year ends on July 31.





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, 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.  While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. The Company regularly evaluates estimates and assumptions related to obsolete inventory, useful life and recoverability of long lived assets, and goodwill. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.




b.   Principles of Consolidation




The accompanying consolidated financial statements of the Company include the accounts of its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.





c.   Fair values of financial instruments





The carrying amount reported in the balance sheet for cash, accounts receivable, inventory, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.




d.   Cash and Cash Equivalents





Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less. Cash deposits with banks are held in financial institutions in China, which has no federally insured deposit protection. Accordingly, the Company has a concentration of credit risk related to these uninsured deposits.





e.   Accounts Receivable





Accounts receivable are stated at the amount management expects to collect from outstanding balances.  Management provides for probable uncollected amounts through a charge to earnings and a credit to an allowance for bad debts based on its assessment of the current status of individual accounts.  Balances those are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for bad debts and a credit to accounts receivable.





F-7





f.   Inventories





Inventories are stated at the lower of cost, as determined on a weighted average basis, or market.  Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. The management writes down the inventories to market value if market value is below cost. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.





g.   Property and Equipment





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





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





Buildings
20 yearsMachinery and equipment
14 yearsTransportation equipment
12 yearsOffice equipment
10 years





h.   Construction in Progress





Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.




i.   Impairment of Long-Lived Assets





Long-lived assets, including property, plant and equipment, identifiable intangible assets and capitalized software costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value.





j.   Goodwill and Other Intangible Assets




Goodwill is not subject to amortization but is tested for impairment on an annual basis (or more frequently if impairment indicators arise). Impairment losses are calculated at the reporting unit level, and represent the excess of the carrying value of reporting unit goodwill over its implied fair value. The implied fair value of goodwill is determined by a two-step process. The first compares the fair value of the reporting unit (measured as the present value of expected future cash flows) to its carrying amount. If the fair value of the reporting unit is less than its carrying amount, a second step is performed. In this step, the fair value of the reporting unit is allocated to its assets and liabilities to determine the implied fair value of goodwill, which is used to measure the impairment loss.





The Company’s evaluation of goodwill completed during the year ended July 31, 2010 resulted in $8,110,960 impairment loss.




Our intangible assets consist primarily of land use right. intellectual property that has been internally developed or purchased.  Intangible assets are amortized using the straight-line method over estimated useful lives. None of our acquired intangible assets have indefinite lives. Land use rights are related to the land the Company occupies in Heilongjiang Province, PRC.





F-8





k.   Comprehensive income





ASC 220, “Reporting Comprehensive Income”, requires disclosure of all components of comprehensive income and loss on an annual and interim basis. Comprehensive income and loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.  The Company’s other comprehensive income arose from the effect of foreign currency translation adjustments.





l.   Revenue recognition





The Company generates revenues from the sales of harvesters.  Sales are recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured.  Sales are presented net of value added tax (VAT). No return allowance is made as products returns are insignificant based on historical experience.





m.   Research and development costs





Research and development costs are expensed to operations as incurred.




n.   Income taxes





The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes."  FASB ASC 740  requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years.  Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.





o.   Foreign exchange and currency translation





The Company’s functional currency is Chinese currency Renminbi (“RMB”) and its reporting currency is the U.S. dollar.  Transactions denominated in foreign currencies are translated into U.S. dollar at exchange rate in effect on the date of the transactions. Exchange gains or losses on transactions are included in earnings.





The financial statements of the Company are translated into United States dollars in accordance with ASC 830, “Foreign Currency Matters”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.





At July 31, 2010 and 2009, the cumulative translation adjustment of $223,430 and $50,301 were classified as an item of accumulated other comprehensive income in the stockholders’ equity section of the balance sheet respectively. For the year ended July 31, 2010 and 2009, other comprehensive loss was $173,129 and $5,932, respectively.





The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the financial statements were as follows:  As of July 31, 2010 and 2009, the Company used the period-end rates of exchange for assets and liabilities of $1 to RMB 6.765 and $1 to RMB 6.823 respectively. For the years ended July 31, 2010 and 2009, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of$1 to RMB 6.81338 and $1 to RMB 6.82361, respectively. The Company used historical rates for equity and goodwill.





F-9





p.   Related parties





A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.  Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.





q.   Net loss per share





Basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period.  Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.  At July 31, 2010 and 2009, respectively, the Company had no common stock equivalents that could potentially dilute future earnings per share; however, if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents would have been anti-dilutive due to the Company’s net loss.




r.   Recent accounting pronouncements





In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements”, an amendment of Accounting Research Bulletin No. 51 (SFAS 160) which was codified into ASC Topic 810 “Consolidation”, (ASC 810). This guidance introduces significant changes in the accounting and reporting for business acquisitions and noncontrolling interest in a subsidiary. It also changes the accounting and reporting for the deconsolidation of a subsidiary. The standard requires retrospective adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of the standard will be applied prospectively. Companies are required to adopt the new standard for fiscal years beginning after January 1, 2009. Effective August 1, 2009, the Company adopted this guidance and changed the accounting and reporting for minority interests, which were recharacterized as noncontrolling interests and classified as a component of equity. There was no impact on our consolidated financial position, results of operations or cash flows.





In January 2010, the FASB issued authoritative guidance which requires additional disclosures about transfers between Levels 1 and 2 of the fair value hierarchy and disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements.  This guidance was effective for the Company January 1, 2010, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010.  The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company’s financial position or results of operations.





In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of VIEs.  This amendment requires an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity for financial reporting purposes. The amendment requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. This amendment is effective for the Company beginning August 1, 2010.  The Company adopted the amendment August 1, 2010 and it did not have any impact on the Company’s financial position or results of operations.





In October 2009, the FASB issued authoritative guidance about the accounting for revenue contracts containing multiple elements, allowing the use of companies’ estimated selling prices as the value for deliverable elements under certain circumstances and to eliminate the use of the residual method for allocation of deliverable elements.  This guidance is effective for the Company beginning January 1, 2011.  The Company is currently evaluating the impact this standard will have on its financial statements




4.   CONCENTRATION OF CREDIT RISK





Financial instruments which potentially expose the Company to concentrations of credit risk, consist of cash and accounts receivable as of July 31, 2010 and 2009. The Company performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.





A portion of the Company’s cash at July 31, 2010 and 2009 is maintained at various financial institutions in the PRC which do not provide insurance for amounts on deposit.  The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk in this area.


.


For the years ended July 31, 2010 and 2009, the Company’s sales were mainly made to customers located in the PRC. In addition, total accounts receivables as of July 31, 2010 and 2009 also arose from customers located in the PRC.





A significant percentage of the Company’s business is generated from a small number of customers.  However, due to the immaterial amount of revenue generated, the Company does not believe they are exposed to significant concentration of credit risk in this area.





F-10





5.   INVENTORIES





Inventories consist of the following:





July 31,2010


2009Raw material

$
521,126


$
499,610Work-in-progress


1,556,799



1,054,871Finished goods


264,419



114,5902,342,344



1,669,071Less: Allowance for obsolescence


(1,702,604
)


(1,021,028
)Inventory, net

$
639,740


$
648,043





6.   DUE FROM RELATED PARTIES




Due from related parties consist of the following:
 
 July 31,Name and Description of Related Parties

2010


2009Sun, Shouquan - CEO; Stockholder and companies under his contol

$
8,890


$
297,097Wang, Guangyu - Stockholder


1,801



1,787Total

$
10,691


$
298,884
 
 "Due from related parties" represents loans that are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore are not considered current assets.
 
 The balance owed by Shouquan Sun, the President and CEO, and the company under his control, totaled $8,890 and $297,097 as of July 31, 2010 and 2009, respectively.   The Company has changed its related policy and procedures in line with the prohibition on personal loans to executives contained in Section 402 of the Sarbanes-Oxley Act of 2002. The Company plans to settle all outstanding balances of the loans in the near future.





F-11





7.   PROPERTY AND EQUIPMENT





Property and equipment consist of the following:




July 31,2010


2009Buildings

$
8,878,375


$
8,665,104Machinery and equipmen


1,350,455



523,771Transportation equipment


437,239



433,600Office equipment


148,926



141,778Total costs


10,814,995



9,764,253Less: accumulated depreciation


(1,186,392
)


(549,659
)Property and equipments, net

$
9,628,603


$
9,214,594Construction in progress

$
156,503


$
797,016




The depreciation expense was $631,471 and $475,342 for the years ended July 31, 2010 and 2009, respectively.




8.   GOODWILL





Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed.  The Company evaluates its goodwill for impairment on an annual basis, or whenever events or changes in circumstances indicate that the carrying value of a reporting unit may exceed its fair value.  Management has elected July 31 as the annual assessment date.  The Company only has one reporting unit whch is Harbin SQ. The Company performed its annual impairment test as of July 31, 2010. In performing goodwill impairment testing, the Company determines the fair value of reporting unit using a discounted cash flow (“DCF”) approach.  In applying the DCF approach, management forecasts cash flows over a five year period using assumptions of current economic conditions and future expectations of earnings. This analysis requires the exercise of significant judgment, including judgments about appropriate discount rates based on the assessment of risks inherent in the amount and timing of projected future cash flows.  The derived discount rate may fluctuate from period to period as it is based on external market conditions. All of these assumptions are highly subjective and based on unobservable level 3 inputs.  Updates to these assumptions in future periods, particularly changes in discount rates and growth rates, could result in different results of goodwill impairment tests and it is possible that such differences could have a material impact on our financial statements. Based on the analysis, the Company detemined that goodwill related to its Harbin SQ reporting unit was fully impaired resulted from an anticipated declines in sales and future operating performance and cash flows. As a result, the Company recorded a non-cash impairment charge of $8,110,960 during the fiscal year ended July 31, 2010.





F-12





9.   LONG-LIVED ASSETS AND OTHER INTANGIBLE ASSETS





Intangible assets consist of the following:





July 31,2010


2009Land Use Rights – Binxi County

$
1,899,423


$
1,898,308Trademarks


1,419



1,407Software


6,355



6,3031,907,197



1,906,018Less: Accumulated amortization


(114,537
)


(66,902
)Intangible assets, net

$
1,792,660


$
1,839,116





Valuation of Long-lived Assets and Other Intangible Assets.  Long-lived assets consist primarily of our property, plant, and equipment.  Our intangible assets consist primarily of land use right. intellectual property that has been internally developed or purchased.  Intangible assets are amortized using the straight-line method over estimated useful lives.  The Company reviews long-lived assets and other intangible assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Our impairment testing consists of determining whether the carrying amount of the long-lived asset (asset group) is recoverable.  That is, whether the sum of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group) exceeds its carrying amount.   In making this determination, the Company uses certain assumptions, including estimates of future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, the length of service that assets will be used in our operations, and estimated salvage values. As of July 31, 2010, due to changes in estimates of future operating performance and cash flows that occurred during the quarter, the Company tested for impairment of its long-lived assets and other intangible assets and based on that analysis, determined that no impairment existed.   Based upon revised operational and cash flow forecasts, total future undiscounted cash flows still exceeded carrying value by over 33%, therefore the Company believes the carrying amount of its long-lived assets and other intangible assets is recoverable.  However, if the Company is unable to achieve its projected cash flows, management may be required to perform additional impairment tests of its remaining long-lived assets and other intangible assets.  The outcome of these additional tests may result in the Company recording additional impairment charges.





Amortization expense related to intangible assets is generally included in SG&A on the statements of operations.


Amortization expense was $41,419 and $48,334 for the years ended July 31, 2010 and 2009, respectively.




12.   Sale of Land Use Rights





On November 6, 2007, the Company signed a contract with Heilongjiang Nongkentaixing Real Estate Development Co. Ltd to sell the Company’s land use rights in Harbin City. The total contract price is approximately $10,308,827. The Company is obligated to clear the original buildings on the land before the transfer of the land use rights can be completed.





In October 2008, the title transfer was approved by the government and by July 31, 2009, the company had received net proceeds of $7,694,925. The remaining proceeds net of sales tax for the amount of $882,351 were included as accounts receivable at July 31, 2009. By January 31, 2010, the Company had received the proceeds. Loss on the disposal of land use rights for the amount of $1.7 million was recognized for the year ended July 31, 2009.





F-13





13.   SHORT TERM LOAN





Short term loans consist of the following:





2010


2009Bank loan 2010

$
2,217,000


$
-Bank loan 2009


-



1,465,700Loans from individuals


677,160



645,805Short term loan


2,894,160



2,111,505





The Company pledged the building and land located in Binxi city as collateral of the bank loan.





Loans from individuals were made by individuals to cover the Company’s temporary cash shortages. The short term loans are unsecured and due upon demand. Not all of the loans are interest-bearing. For interest bearing loans, the interest rate is ranging from 14% to 40% per annum.





In June 2010, the Company entered a 12-month short term loan agreement with a bank. The principal amount is $2,217,000 and the bearing interest in 6.903%  per annum. The loan is guaranteed by the third party guarantor and collateralized by the building and land use right of the Company.





In February of 2010, the Company matured a 12-month short term loan with a bank. The principal amount was $1,465,700 and the interest was 5.841% per annum.





Interest expenses for short term loans are $648,435 and $239,141 for the years ended July 31, 2010 and 2009, respectively.




14.   DUE TO RELATED PARTIES





Due to related parties consist of the following:





July 31,Name and Description of Related Parties

2010


2009Due to shareholders of Power Profit

$
2,447


$
-Due to shareholders of China Wind Energy


49,953



-Ren, Jian – Prior CEO


-



51,980Zhang, Luhui - Stockholder


3,447



3,418Sun, Shouan - Sun, Shouquan's brother; Stockholder


20,167



19,999Sun, Shouquan - CEO; Stockholder


-



711Sun, Yulian


326,113



-Sun, Weizhen


353,321



-Zheng, Liping


120,096



-Total

$
875,544


$
76,108





"Due to related parties" represents loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, and are therefore, deemed payable on demand.





F-14





15.   CHINA CONTRIBUTION PLAN





Full time employees of the Company participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s subsidiaries to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution.





The Company made the provisions based on the number of qualified employees and the rate and base regulated by the government. However, the Company did not make full monthly contribution to these funds.  In the event that any current or former employee files a complaint with the PRC government, the Company may be subject to administrative fines. As the Company believes that these fines would not be material, no accrual for such fines has been made in this regard.





16.   STATUTORY RESERVES





Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC ("PRC GAAP") at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). The Company did not make any appropriations to the reserve funds mentioned above due to lack of profit after tax since commencement of operations.





17.   INCOME TAX





The Company accounts for income taxes under FASB S, Accounting for Income Taxes, which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.





The Company was rewarded high technology entity in fiscal year 2010 and the tax rate will be 15% when it makes profit.





Due to the Company’s net loss position there was no provision for income taxes. The Company’s effective tax rate for the year ended July 31, 2010 and 2009 was 0% and 0% due to valuation allowance of net operating loss.





The Company’s taxes were subject to a full valuation allowance as follows:





Year Ended


Year EndedJuly 31, 2010


July 31, 2009Computed tax benefit at statutory rate

$
(732,549
)

$
(553,567
)Change in valuation allowance


732,549



553,567Income tax expense (benefit)


-



-





The net deferred tax asset generated by the loss carry-forward has been fully reserved due to the uncertainly of its realizability.





The tax authority of the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises had completed their relevant tax filings, hence the Company’s tax filings may not be finalized.  It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional tax liabilities.





The Company has no United States corporate income tax liability as of July 31, 2010 and 2009.





F-15





18.   CONTINGENCIES, RISKS AND UNCERTAINTIES





Country Risk





The Company has significant investments in the PRC. The operating results of the Company may be adversely affected by changes in the political and social conditions in the PRC and by changes in Chinese government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. The Company can give no assurance that those changes in political and other conditions will not result in have a material adverse effect upon the Company’s business and financial condition.





Source of Supply





The Company purchases components for its products from a number of suppliers.  However, on occasion, a customer’s specifications may require us to purchase components from a specific supplier.  The Company does not have any long term contracts with any of its suppliers, and the Company believes that alternative suppliers are available.  Although the Company has not been subject to shortages for any of its components, since it does not have long-term contracts, the Company may be subject to cutbacks and price increases which it may not be able to pass on to its customers in the event that the demand for components generally exceeds the capacity of its suppliers.





Loan to Officer




Prior to the acquisition by the Company, Harbin SQ forwarded a loan to Shouquan Sun, the Company’s President and CEO.  The balance owed by the President and CEO, and the company under his control, totaled $8,890 and $297,097 as of July 31, 2010 and 2009, respectively.  Section 402 of the Sarbanes-Oxley Act of 2002 prohibits loans or the extension of credit to officers and directors of a publicly traded company or any of its subsidiaries.  The Company is currently in contravention of these provisions and faces possible regulatory action by the SEC.





The Company’s management believes that the following will mitigate against potential action by the SEC:





-
The loan was provided to Mr. Sun prior to its acquisition by the Company;





-
No more fund  have been forwarded to Shouquan Sun  since he became the President and CEOof the Company;


-
The outstanding balance of the loan is immaterial as of July 31, 2010. The Company plans to settle all outstanding balance of this loan in the near future.





F-16




Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure




There were no disagreements or reportable events in connection with any changes in accountants undertaken by us.




Item 9A.Controls and Procedures




Evaluation of Disclosure Controls and Procedures




We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed 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 Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2010. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.




Management Report on Internal Control Over Financial Reporting





Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on the evaluation performed, our management concluded there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.





The material weakness relates to the lack of personnel with the appropriate knowledge of generally accepted accounting principles (GAAP) and the SEC reporting experience, coupled with a lack of segregation of duties and minimal staffing. To remedy this material weakness, management is actively searching for competent candidate and working with outside consultants in the financial reporting process.





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this annual report





15





Changes in Internal Control Over Financial Reporting





During the fourth quarter of 2010, we implemented the following measures to improve our internal control over financial reporting:





(1) Engaged outside consultants to assist in our assessment of the effectiveness of the company’s internal controls over financial reporting; and





(2) Developed and instituted new internal control procedures to strengthen our month-end close and financial reporting processes;





We believe these measures have strengthened our internal control over financial reporting and disclosure controls and procedures.





Our senior executives and our Board of Directors are committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity. This commitment has been and will continue to be communicated to and reinforced with our employees and to external stakeholders.





In addition, under the direction of the Board of Directors, management will continue to review and make changes to the overall design of our internal control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting and our disclosure controls and procedures.





Except for the changes discussed above, there was no change in our internal control over financial reporting that occurred during the fourth quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




Item 9B.Other Information




None.




16




PART III




Item 10.Directors, Executive Officers and Corporate Governance




The following table sets forth the name, age, and position of our executive officers and directors of as of December 7, 2010.




Name
Age
PositionShouquan Sun
52
President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Treasurer, Secretary and Director

President and director of Harbin SQ, our majority owned subsidiary.Xiya Sun
23
Director

Director of XingYe, our wholly owned subsidiaryHuaiwen Zheng
24
Director


The directors will serve as directors until our next annual shareholder meeting or until a successor is elected who accepts the position. Officers hold their positions at the will of the Board of Directors, absent any employment agreement. There are no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of our affairs.




Biographies




Shouquan Sun, President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director




Shouquan Sun has been our President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer and director since May 26, 2008. Mr. Sun founded Harbin SQ in 2000 and has been Chairman, Chief Executive Officer and director of Harbin SQ from its inception to the present. Mr. Sun has over 19 years experience in business development and management. Mr. Sun is also the inventor, or co-inventor, of several patents secured by Harbin SQ relating to our wind turbine blades. Mr. Sun was also awarded two national-level scientific technology honors in 1992: the Provincial Technology Leader and National Expert with Outstanding Contribution entitled to Government Special Allowance for life in 1995. Shouquan Sun holds no other directorships in other public companies.




Xiya Sun, Director




Xiya Sun was appointed as our director on November 29, 2007.  In April 2007, Ms. Sun was appointed as a director of XingYe, one of our subsidiaries.  Ms. Sun obtained a bachelor degree from Northeast Agriculture University in Harbin, which she attended from 2002 to 2006.  During her time there, Ms. Sun received a number of scholarships and awards.  She followed up her degree with training in administrative skills, including human resource management and organizational structures, management training, rewarding and performance; and recruitment schedule planning from 2006 to April 2007.




Huaiwen Zheng, Director




We appointed Huaiwen Zheng as our director on November 29, 2007.  Mr. Zheng attended Harbin Industrial University in Harbin from September 1998 to July 2002, where he received a degree in engineering.  Thereafter, from July 2002 to July 2006, he worked at XingYe, one of our subsidiaries, where he played a key role in the quality control of blade designing and three-dimensional sculpting of the blades, as well as supervising the blade shaking analysis, module tire processing and production, and blade production and testing.  From July 2006 to April 2007, he completed an administrative skills training course in human resource management and organization structure, management training, rewarding and performance; and recruitment schedule planning.  In April 2007, he became the assistant head engineer at XingYe, overseeing blade design.




17





Board of Directors and Director Nominees




Our Board of Directors met in person or via telephone occasionally during our fiscal year ended July 31, 2010.




We do not have a nominating committee. The Board of Directors, sitting as a Board, selects individuals to stand for election as members of the Board. Since the Board of Directors does not include a majority of independent directors, the decision of the Board as to director nominees is made by persons who have an interest in the outcome of the determination. The Board will consider candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, not less than 90 days prior to the next annual Board of Directors' meeting at which the slate of Board nominees is adopted, the Board will accept written submissions of proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as a director; and a statement as to why the shareholder submitting the proposed nominee believes that the nomination would be in the best interests of shareholders. If the proposed nominee is not the same person as the shareholder submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the nominee's qualifications to serve on the Board of Directors, as well as a list of references.




The Board identifies director nominees through a combination of referrals from different people, including management, existing Board members and security holders. Once a candidate has been identified, the Board reviews the individual's experience and background and may discuss the proposed nominee with the source of the recommendation. If the Board believes it to be appropriate, Board members may meet with the proposed nominee before making a final determination whether to include the proposed nominee as a member of management's slate of director nominees submitted to shareholders for election to the Board.




Among the factors that the Board considers when evaluating proposed nominees are their knowledge of, and experience in business matters, finance, capital markets and mergers and acquisitions. The Board may request additional information from the candidate prior to reaching a determination. The Board is under no obligation to formally respond to all recommendations, although as a matter of practice, it will endeavor to do so.




Director Independence




Our securities are quoted on the OTC Bulletin Board which does not have any director independence requirements.  Once we engage further directors and officers, we will develop a definition of independence and scrutinize our Board of Directors with regard to this definition.




Audit Committee




The functions of the Audit Committee are currently carried out by our Board of Directors. Our Board of Directors has determined that we do not have an audit committee financial expert on our Board of Directors carrying out the duties of the Audit Committee. The Board of Directors has determined that the cost of hiring a financial expert to act as a director of us and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee.




Significant Employees




Other than the directors and officer described above, we do not expect any other individuals to make a significant contribution to our business.




Family Relationships




There are no family relationships among our officers or directors.




18





Involvement in Certain Legal Proceedings




To the best of our knowledge, none of our directors or executive officers has, during the past ten years:




●
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);




●
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;




●
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;




●
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;




●
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or




●
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.




Except as set forth in our discussion below in “Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.




Section 16(a) Beneficial Ownership Compliance Reporting




Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings.  Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended July 31, 2010, all filing requirements applicable to its officers, directors and greater than 10% percent beneficial owners were complied with.




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Code of Ethics




Effective October 1, 2010, our company's board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company's officers including our president, chief executive officer and chief financial officer, employees, consultants and advisors. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:




1.
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;2.
full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;3.
compliance with applicable governmental laws, rules and regulations;4.
the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and5.
accountability for adherence to the Code of Business Conduct and Ethics.




Our Code of Business Conduct and Ethics requires, among other things, that all of our company's Senior Officers commit to timely, accurate and consistent disclosure of information; that they maintain confidential information; and that they act with honesty and integrity.




In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly Senior Officers, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal and state securities laws. Any Senior Officer who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to our company. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another.




Our Code of Business Conduct and Ethics is being filed with the Securities and Exchange Commission as Exhibit 14.1 to our annual report for the year ended January 31, 2009. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: China Wind Energy Inc., No. 2 Haibin Road, Developing Area, Heilongjian Province, China.




Item 11.Executive Compensation




The particulars of the compensation paid to the following persons:




●
our principal executive officer;


●
each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended July 31, 2010 and 2009; and


●
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended July 31, 2010 and 2009,




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who we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:





Summary Compensation Table (1)Name and Principal Position
Year
Salary ($)
Other
Total ($)Shouquan Sun (2)
2010
5,243
(3)
5,2432009
124,956
(3)
124,956




(1)
Pursuant to Item 402(5) of Regulation S-K tables and columns have been omitted where no compensation has been awarded.




(2)
Shouquan Sun was appointed as our director, President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer on May 26, 2008. We did not enter into any management or consulting agreements with Shouquan Sun, but Harbin SQ, our subsidiary, agreed to pay Shouquan Sun $10,413 per month as consideration for his management services.




(3)
Shouquan Sun, our director and sole officer, as well as a real estate company under his control, were provided the benefit of a loan by our majority owned subsidiary, Harbin SQ before our acquisition of Harbin SQ.




We made no grants of stock options or stock appreciation rights since our inception to July 31, 2010.




Pension, Retirement or Similar Benefit Plans




There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.




Compensation Committee




We currently do not have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.




Compensation of Directors




We reimburse our directors for expenses incurred in connection with attending board meetings but did not pay director's fees or other cash compensation for services rendered as a director in the year ended July 31, 2010.




We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. The Board of Directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. No director received and/or accrued any compensation for his services as a director, including committee participation and/or special assignments.




Compensation Committee




We do not currently have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.




Change of Control




As of December 7, 2010 we had no pension plans or compensatory plans or other arrangements which provide compensation on the event of termination of employment or change in control of us.




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Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters




The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of December 7, 2010 by: (i) each of our directors, (ii) each of our named executive officers and (iii) owners of 5% or more of our common shares. There was no other person or group known by us to beneficially own more than 5% of our outstanding shares of common stock.  Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own. All persons named have sole voting and investment power with respect to the shares, except as otherwise noted.  The number of shares described below includes shares which the beneficial owner described has the right to acquire within 60 days of the date of this Annual Report on Form 10-K.




Title of Class
Name & address of beneficial owner
Number of Shares of Common Stock(1)
Percentage of Common Stock(2)Common Stock
Shouquan Sun (3)



No2, Haibin Road

Binxi Economy Development

Harbin, China
5,000,000
9.6%Common Stock
Xiya Sun (4)



No2, Haibin Road

Binxi Economy Development

Harbin, China
100,440
*(5)Common Stock
Huaiwen Zheng (6)



No2, Haibin Road

Binxi Economy Development

Harbin, China
Nil
0%All Officers and Directors as a Group
5,100,440
9.6%Common Stock
Luming Zhang



No. 4 4ZU, 8WEI

Luobei County, Heilongjiang Province, Fengxiang Town, China
3,513,276
6.8Common Stock
Shitian Wu



Team 39 Suibin Farm Suibin County, Heilongjiang Province, China
2,900,000
5.6




(1)
The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose.  Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.


(2)
Based on 51,902,250issued and outstanding shares of common stock as of December 7, 2010.


(3)
Shouquan Sun is our director, President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer.


(4)
Xiya Sun is our director.


(5)
Less than 1%


(6)
Huaiwen Zheng is our director.




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Item 13.Certain Relationships and Related Transactions, and Director Independence




We owed the following amounts to the following related parties as at July 31, 2009 and 2010:





July 31,Name and Description of Related Parties

2010


2009Due to shareholders of Power Profit

$
2,447


$
-Due to shareholders of China Wind Energy


49,953



-Ren, Jian – Prior CEO


-



51,980Zhang, Luhui - Stockholder


3,447



3,418Sun, Shouan - Sun, Shouquan's brother; Stockholder


20,167



19,999Sun, Shouquan - CEO; Stockholder


-



711Sun, Yulian


326,113



-Sun, Weizhen


353,321



-Zheng, Liping


120,096



-Total

$
875,544


$
76,108





These loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, and are therefore, deemed payable on demand.





Additionally, we had the following amounts owing to us by related parties as at July 31, 2009 and 2010:





July 31,Name and Description of Related Parties

2010


2009Sun, Shouquan - CEO; Stockholder and companies under his contol

$
8,890


$
297,097Wang, Guangyu - Stockholder


1,801



1,787Total

$
10,691


$
298,884




These loans are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore are not considered current assets.





We have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last three fiscal years.




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Item 14.Principal Accountant Fees and Services.




Audit and Non-Audit Fees




The aggregate fees billed for the most recently completed fiscal year ended July 31, 2010 and for fiscal year ended July 31, 2009 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:





Year Ended

July 312010

($)


2009

($)Audit Fees


65,000



40,000Audit Related Fees

Nil


NilTax Fees

Nil


NilAll Other Fees

Nil


NilTotal


65,000



40,000




Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.




Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.




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PART IV




Item 15.Exhibits, Financial Statement Schedules




(a) (1) Financial Statements




See “Index to Consolidated Financial Statements” set forth on page F-1.




(a) (2) Financial Statement Schedules




None. The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.




Exhibits




ExhibitNumber
ExhibitDescription10.1
Cooperation Agreement with Xu Ji Wind Energy Technology Company21.1
List of SubsidiariesChina Wind Energy Ltd. (HK), incorporated in Hong KongHarbin XingYe Wind Energy Technology Limited, incorporated in ChinaPower Profit Technology Development Limited, incorporated in Hong KongHarbin SQ Wind Energy Technology Co., Ltd., incorporated in China31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.




CHINA WIND ENERGY INC.Date: December 8, 2010
By:
/s/ Shouquan SunShouquan SunDirector, President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer




Pursuant to the requirements of 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.




SIGNATURES

TITLE

DATE/s/ Shouquan Sun



December 8, 2010Shouquan Sun

Director, President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer/s/ Xiya Sun



December 8, 2010Xiya Sun

Director/s/ Huaiwen Zheng



December 8, 2010Huaiwen Zheng

Director





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