UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, ~~2010~~2011

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~~001-~~51753~~34773

SINO CLEAN ENERGY INC.

(Exact name of Registrant as specified in its charter)

Nevada	75-2882833
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Room 1605, Suite B, Zhengxin Building No. 5 Gaoxin 1st Road, Gaoxin District Xi’an, Shaanxi Province, PRC	N/A
Room 1502, Building D Wangzuo International City Building No. 3 Tangyan Road, Gaoxin District Xi’an, Shaanxi Province, PRC	N/A
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number: +86-29-~~82091099~~88447960

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

Indicate by check mark if 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 the registrant was required to submit and post such files).* Yes o þ No o *The registrant has not yet been phased in to the Interactive Data requirements.

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 herein, 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller 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

As of June 30, ~~2010~~2011, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $7013,~~394~~294,~~843~~362 based on a closing price of $61.20 per share of common stock as reported on the NASDAQ stock exchange on such date.

On March 3126, ~~2011~~2012, we had 23,~~452~~863,~~270~~701 shares of common stock issued and outstanding.

TABLE OF CONTENTS

TO ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED DECEMBER 31, ~~2010~~2011

		Page
PART I		1
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	2524
ITEM 1B.	UNRESOLVED STAFF COMMENTS	4240
ITEM 2.	PROPERTIES	4240
ITEM 3.	LEGAL PROCEEDINGS	4240
ITEM 4.	~~REMOVED~~MINE ~~AND~~SAFETY ~~RESERVED~~DISCLOSURES	2241
PART II		4241
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	4241
ITEM 6.	SELECTED FINANCIAL DATA	4543
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS ORFINANCIAL ~~PLAN~~CONDITION AND RESULTS OF ~~OPERATION~~OPERATIONS	4543
ITEM 8.	FINANCIAL STATEMENTS	52
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	57
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	52
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	57
ITEM 9A.	CONTROLS AND PROCEDURES	52
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	57
ITEM 9B.	OTHER INFORMATION	53
ITEM 9A.	CONTROLS AND PROCEDURES	58
PART III		53
ITEM 9B.	OTHER INFORMATION	59
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	53
PART III		59
ITEM 11.	EXECUTIVE COMPENSATION	59
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	59
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	64
ITEM 11.	EXECUTIVE COMPENSATION	66
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	66
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	71
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	68
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	74
ITEM 15.	EXHIBITS	69
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	75
SIGNATURES		71
ITEM 15.	EXHIBITS	76
SIGNATURES		78

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements usually contain the words “estimate,” “anticipate,” “believe,” “expect,” or similar expressions, and are subject to numerous known and unknown risks and uncertainties. In evaluating such statements, prospective investors should carefully review various risks and uncertainties identified in this Report, including the matters set forth under the captions “Risk Factors” and in the Company’s other SEC filings. These risks and uncertainties could cause the Company’s actual results to differ materially from those indicated in the forward-looking statements.

Although forward-looking statements in this annual report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Relating to Our Business” below, as well as those discussed elsewhere in this annual report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 100 F. Street, NE, Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this annual report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

PART I

ITEM 1. BUSINESS

BUSINESS

Company Overview

We are a leading producer of clean coal heating and energy solutions for residential, commercial and industrial uses in China. We produce and distribute coal water slurry fuel ("CWSF"), which is a liquid fuel that consists of fine coal particles suspended in water, mixed with chemical additives, and is primarily used to fuel boilers and furnaces to generate steam and heat for both residential / commercial heating and industrial applications. CWSF is an economic and environmentally friendly alternative to oil and natural gas and provides many benefits over coal briquettes, including increased burn-off rates, improved thermal efficiency, and reduced emissions. We believe that the combination of China's heavy reliance on coal for heat and energy, its extensive coal reserves, and increased government attention to clean coal technologies, make CWSF an ideal alternative for cleaner heat and energy production in China.

China's economic growth over the last four decades has led to a rapid increase in energy demand. According to Frost & Sullivan, China accounted for 17.7% of global primary energy demand in 2008 and will overtake the United States as the world's largest consumer of energy in 2011. China is the largest producer and consumer of coal in the world, making it much more reliant on coal than other developed nations, as it is used extensively not only for power generation, but also for industrial applications and residential heating. Coal is the most widely used energy source in China for heating and electric power generation due to its abundance, broad geographic distribution, and mature power conversion infrastructure. According to the National Bureau of Statistics of China, coal is expected to be used for approximately 67% of total energy consumption in China in 2010 and represents more than 90% of estimated domestic fossil fuel reserves. Although significant progress has been made by Chinese central and provincial governments to utilize alternative sources of energy such as hydro, nuclear, solar and wind power, significant obstacles remain in establishing alternative energy to satisfy a significant portion of China's energy requirements primarily due to their relatively prohibitive capital costs, especially in light of the well established coal power conversion infrastructure that is already in place in China. According to Frost & Sullivan, overall CWSF demand in China is expected to grow at a compounded annual growth rate ("CAGR") of 24.7% from 2008 to 2014. 1

~~Our~~China's ~~business~~economic ~~was~~growth ~~originally~~over ~~established~~the inlast ~~August~~four decades ~~2002~~has led to ~~focus~~a onrapid ~~the~~increase in energy demand. “BP World Energy Statistics 2011” represents that China's coal production and ~~distribution~~consumption accounted for nearly half of ~~copolymer~~global ~~resin~~proportion, ~~products~~48.3% Inand ~~2004~~48.2% respectively, werising ~~identified~~2.7 anpercent ~~attractive~~and 1.3 ~~opportunity~~percent torespectively ~~enter~~than previous year. China is the ~~CWSF~~largest ~~market~~producer ~~due~~and toconsumer of coal in the ~~strong~~world, ~~government~~making ~~push~~it ~~for~~much ~~clean~~more reliant on coal ~~technologies~~than other developed nations, as it is used extensively not only for power generation, but also for industrial applications and residential heating. Coal is the ~~resulting~~most ~~market~~widely ~~demand~~used ~~for~~energy ~~more~~source ~~efficient~~in China for heating and ~~cleaner~~electric ~~uses~~power ofgeneration due ~~coal.~~to Inits ~~April~~abundance, ~~2006~~broad geographic distribution, weand ~~decided~~mature power conversion infrastructure. According to ~~focus~~the ~~solely~~2011 onstatistics released by the ~~research,~~Coal ~~development~~Industry Association, China's coal production was 3.52 billion tons, ~~marketing~~accounting ~~and~~for ~~sale~~78.6% of ~~CWSF~~the ~~and~~total ~~accordingly~~primary energy ~~phased~~production. ~~out~~For ~~our~~the ~~copolymer~~same ~~resin~~period, ~~business~~the intotal ~~January~~consumption ~~2007.~~of Wecoal ~~obtained~~was ~~our~~about ~~first~~3.57 ~~sales~~billion ~~contracts~~tons, accounting for ~~CWSF~~a in72.8% ~~early~~of ~~2007,~~the total ~~completed~~primary ~~the~~energy ~~installation~~consumption. ofCoal ~~our~~production ~~first~~and ~~100,000~~consumption ~~metric~~increased ~~ton~~by ~~CWSF~~2.1% ~~production~~and ~~line~~1.9% inrespectively ~~June~~than ~~2007,~~last ~~and~~year. ~~commenced~~Although significant ~~mass~~progress ~~production~~has been made by Chinese central and ~~distribution~~provincial governments to utilize alternative sources of ~~CWSF~~energy insuch as ~~July~~hydro, ~~2007.~~nuclear, Wesolar ~~have~~and ~~grown~~wind ~~substantially~~power, significant obstacles remain in ~~recent~~establishing ~~years~~alternative byenergy ~~adding~~to ~~production~~satisfy ~~capacity~~a atsignificant portion ~~existing~~of ~~and~~China's ~~new~~energy ~~locations~~requirements primarily due to their relatively prohibitive capital costs, ~~and~~especially ~~are~~in ~~currently~~light ~~fully~~of ~~utilizing~~the well ~~our~~established coal power conversion infrastructure that is already in- place ~~annual~~in ~~production~~China. ~~capacity~~According ofto ~~850~~Frost & Sullivan,~~000~~ overall ~~metric~~CWSF ~~tons~~demand in China is expected to grow at a compounded annual growth rate ("CAGR") of ~~CWSF~~24.7% from 2008 to 2014.

WeOur ~~primarily~~business ~~use~~was ~~washed~~originally ~~coal~~established toin August ~~produce~~2002 ~~CWSF,~~to ~~which~~focus weon ~~procure~~the ~~from~~production ~~local coal mines. We have established strong relationships with our suppliers~~ and ~~our~~distribution ~~ability~~of tocopolymer ~~purchase~~resin ~~large~~products. ~~quantities~~In of2004, ~~raw~~we ~~materials~~identified ~~has~~an ~~allowed~~attractive us opportunity to ~~achieve~~enter ~~favorable~~the ~~pricing and delivery terms. We sell our~~ CWSF ~~exclusively~~market indue ~~China~~ to ~~residential~~the ~~complex~~strong ~~development management companies, commercial businesses, industrial users, and~~ government ~~organizations~~push ~~that use CWSF predominantly~~ for ~~residential/commercial~~clean ~~heating~~coal technologies and ~~industrial~~the ~~applications.~~resulting ~~Our~~market ~~customers~~demand ~~adopt CWSF as a substitute~~ for ~~oil,~~more efficient ~~natural gas~~ and ~~coal~~cleaner ~~briquettes~~uses inof ~~their furnaces or boilers~~coal. WeIn ~~typically~~April ~~enter~~2006, ~~into~~we ~~three~~decided to ~~five~~focus ~~year~~solely ~~framework~~on ~~agreements~~the ~~with~~research, ~~our~~development, ~~customers~~production, ~~that~~marketing and ~~provide~~sale ~~guidance~~of on CWSF ~~sales~~and ~~volumes~~accordingly ~~and~~phased ~~prices.~~out Weour ~~have~~copolymer ~~framework~~resin ~~agreements~~business in ~~place~~January ~~with approximately 90% of our customers~~2007. ~~Based~~We onobtained our ~~experience,~~first ~~the~~sales contracts for CWSF ~~consumption~~in ~~volume~~early of2007, ~~any~~completed ~~given~~the ~~boiler~~installation ~~does~~of ~~not~~our ~~change~~first ~~materially from year to year. Once established~~100,000 ~~the~~MT ~~customer~~(metric ~~base~~ton) ~~for~~ CWSF isproduction ~~very~~line ~~stable,~~in asJune ~~consumption patterns are highly predictable~~2007, and commenced ~~the~~mass ~~cost~~production toand ~~switch~~distribution of CWSF ~~boilers~~in toJuly ~~other fuels is prohibitively expensive~~2007. ~~Our~~We ~~strong~~have ~~reputation~~grown insubstantially ~~the CWSF industry~~ in ~~China,~~recent ~~together~~years ~~with~~by ~~our~~adding ~~established~~production capacity ~~track~~at ~~record~~existing ~~for~~and ~~consistently~~new ~~delivering high quality products in large quantities~~locations, ~~has~~and ~~enabled~~have ustotal toannual ~~expand~~production ~~our~~capacity ~~customer base over time. As of December 31~~1, ~~2010~~150,000 weMT ~~were servicing a total~~ of 43CWSF ~~customers~~at inDecember ~~Shaanxi~~31, ~~and Liaoning Provinces~~2011.

~~Corporate~~We ~~History~~primarily use washed coal to produce CWSF, which we procure from local coal mines. We have established strong relationships with our suppliers and ~~Structure~~our ability to purchase large quantities of raw materials has allowed us to achieve favorable pricing and delivery terms. We sell our CWSF exclusively in China to residential complex development management companies, commercial businesses, industrial users, and government organizations that use CWSF predominantly for residential/commercial heating and industrial applications. Our customers adopt CWSF as a substitute for oil, natural gas and coal briquettes in their furnaces or boilers. We typically enter into three to five year framework agreements with our customers that provide guidance on CWSF sales volumes and prices. We have framework agreements in place with approximately 90% of our customers. Based on our experience, the CWSF consumption volume of any given boiler does not change materially from year to year. Once established, the customer base for CWSF is very stable, as consumption patterns are highly predictable, and the cost to switch CWSF boilers to other fuels is prohibitively expensive. Our strong reputation in the CWSF industry in China, together with our established track record for consistently delivering high quality products in large quantities, has enabled us to expand our customer base over time. As of December 31, 2011, we were servicing in total 35 customers in Shaanxi, Liaoning and Guangdong Provinces.

~~Our~~Corporate ~~current~~History corporate structure is the result of a number of complex corporate restructurings through which we acquired control of our CWSF business in the PRC. We entered into this series of corporate restructurings in part because certain rules and ~~regulations~~Structure ~~in the PRC restrict the ability of non-PRC companies that are controlled by PRC residents to acquire PRC companies.~~

OnOur ~~October 20,~~current ~~2006,~~corporate westructure ~~acquired~~is ~~control~~the result of ~~Hangson Limited,~~ a ~~British~~number ~~Virgin~~of ~~Islands~~complex ~~company~~corporate ~~("Hangson")~~restructurings ~~pursuant~~through towhich awe ~~Share~~acquired ~~Exchange~~control ~~Agreement,~~of ~~dated~~our ~~October 18,~~CWSF ~~2006~~business (in the ~~"Exchange Agreement")~~PRC. ~~Hangson~~We ~~was~~entered ainto this ~~holding~~series ~~company~~of ~~that~~corporate ~~controlled~~restructurings ~~Shaanxi~~in ~~Suo'ang~~part ~~Biological~~because ~~Science &~~certain ~~Technology Co., Ltd.,~~rules ~~a PRC company ("Suo'ang BST")~~ and ~~Suo'ang~~regulations ~~BST's~~in ~~80%-owned~~the ~~subsidiary~~PRC atrestrict the ~~time,~~ability ~~Suo'ang New Energy, through a series~~ of ~~contractual~~non-PRC companies ~~arrangements.~~that ~~Sou'ang~~are ~~BST,~~controlled ~~through~~by ~~Suo'ang~~PRC ~~New~~residents ~~Energy,~~to ~~commenced~~acquire ~~CWSF~~PRC ~~production in July 2007~~companies.

AsOn ~~part~~October 20, of2006, awe ~~process~~acquired ~~to ultimately directly~~ control ~~100% ownership~~ of ~~Suo'ang~~Hangson ~~New Energy~~Limited, wea ~~began~~British toVirgin ~~reorganize~~Islands ~~our~~company ~~corporate~~("Hangson") ~~structure~~pursuant into ~~June~~a ~~2009.~~Share InExchange ~~June~~Agreement, ~~2009~~dated October 18, 2006 we(the ~~acquired~~"Exchange ~~100%~~Agreement"). ofHangson ~~Wiscon,~~was ~~which~~a ~~established~~holding ~~Suoke~~company ~~Clean~~that ~~Energy,~~controlled ~~the~~Shaanxi ~~Company~~Suo'sang ~~wholly~~Biological ~~foreign owned enterprise~~Science & Technology Co., ~~in Tongchuan~~ Ltd., ~~Shaanxi~~a ~~Province.~~PRC Wecompany ~~subsequently~~("Suo'ang ~~entered~~BST") ~~into~~and aSuo'ang ~~series~~BST's of80%-owned ~~agreements~~subsidiary ~~transferring~~at ~~all of~~ the ~~rights~~time, ~~and~~Suo'ang New ~~obligations~~Energy, ofthrough ~~Hangson~~a ~~under~~series ~~the~~of contractual arrangements. ~~with Suo~~Sou'ang BST, tothrough ~~Suoke~~Suo'ang ~~Clean~~New Energy, commenced CWSF production in July 2007.

2As part of a process to ultimately directly control 100% ownership of Suo'ang New Energy, we began to reorganize our corporate structure in June 2009. In June 2009, we acquired 100% of Wiscon Holdings Limited, a Hong Kong company (“Wiscon”), which established Suoke Clean Energy, the Company's wholly foreign owned enterprise, in Tongchuan, Shaanxi Province. We subsequently entered into a series of agreements transferring all of the rights and obligations of Hangson under the contractual arrangements with Suo'ang BST to Suoke Clean Energy.

On ~~November~~October 12, 2009, Suo'ang New Energy ~~received~~established a new business license from the Tongchuan Administration for Industry and Commerce, which reflected that the acquisition of 100% of the equity of Suo'ang New Energy by Suoke Clean Energy had been completed. As a result, our CWSF business is now conducted primarily through Suo'ang New Energy, which is a 100% wholly -owned subsidiary, ofShenyang ~~Suoke Clean~~ Energy, ~~under applicable PRC laws and we are now able~~ to ~~directly~~conduct ~~control~~business ~~Suo'ang~~in ~~New Energy through our 100% ownership of Suoke Clean Energy. On May 14~~Shenyang, ~~2010,~~Liaoning ~~Suoke Clean Energy's acquisition of Suo'ang New Energy was recorded with the Tongchuan Bureau of Commerce~~Province.

~~On October 12, 2009, Suo'ang New Energy established a wholly-owned subsidiary, Shenyang Energy, to conduct business in Shenyang, Liaoning Province.~~2

On ~~December~~November 3112, 2009, ~~Suoke~~Suo'ang ~~Clean~~New Energy received ~~terminated~~a ~~all~~new ofbusiness ~~its~~license ~~contractual~~from ~~arrangements~~the ~~with~~Tongchuan ~~Suo'ang~~Administration ~~BST.~~for InIndustry ~~connection~~and ~~with~~Commerce, ~~this~~which ~~termination,~~reflected ~~certain~~that ~~assets~~the ~~held~~acquisition of by100% of the equity of Suo'ang ~~BST,~~New ~~such~~Energy asby ~~office~~Suoke ~~equipment,~~Clean ~~vehicles,~~Energy ~~bank~~had ~~deposits~~been ~~and~~completed. ~~accounts~~As ~~receivable~~a result, ~~were~~our ~~transferred~~CWSF tobusiness ~~Suoke~~is ~~Clean~~now ~~Energy.~~conducted primarily ~~Employees~~through of Suo'ang ~~BST~~New ~~signed~~Energy, ~~new~~which ~~employment~~is ~~contracts~~a ~~with~~100% wholly owned subsidiary of Suoke Clean Energy, ~~and~~under ~~rights~~applicable PRC laws and ~~obligations~~we ~~under~~are ~~certain~~now ~~remaining~~able ~~business~~to ~~operation~~directly ~~agreements,~~control ~~and~~Suo'ang ~~research~~New ~~and~~Energy ~~development~~through ~~contracts~~our ~~between~~100% ~~Suo'ang~~ownership ~~BST~~of ~~and~~Suoke ~~third~~Clean ~~parties~~Energy. On May 14, ~~were~~2010, Suoke ~~assigned~~Clean toEnergy's acquisition of Suo'ang New Energy. ~~Hangson~~was ~~transferred~~recorded ~~all~~with ofthe ~~its~~Tongchuan ~~equity~~Bureau ~~interests~~of ~~in Wiscon to us~~Commerce.

~~Although~~On ~~the~~December 31, ~~equity transfers in the PRC described above were approved by local governmental agencies~~2009, ~~they~~Suoke ~~were~~Clean ~~not~~Energy terminated ~~approved~~all ~~by the PRC Ministry~~ of ~~Commerce~~its ~~("MOFCOM")~~contractual orarrangements ~~the~~with ~~China~~Suo'ang ~~Securities and Regulatory Commission (the "CSRC")~~BST. ~~For~~In aconnection ~~discussion~~with ofthis ~~the~~termination, ~~risks~~certain ~~and~~assets ~~uncertainties~~held ~~arising~~by ~~from~~Suo'ang BST, ~~these~~such ~~PRC~~as ~~rules~~office ~~and~~equipment, ~~regulations~~vehicles, ~~see~~bank ~~"Risk~~deposits ~~Factors—The~~and ~~failure~~accounts toreceivable, ~~comply~~were ~~with~~transferred ~~PRC regulations relating~~ to ~~mergers~~Suoke ~~and~~Clean ~~acquisitions~~Energy. Employees of ~~domestic~~Suo'ang ~~enterprises~~BST bysigned ~~offshore~~new ~~special~~employment ~~purpose~~contracts ~~vehicles~~with ~~may~~Suoke ~~subject~~Clean usEnergy toand ~~severe~~rights ~~fines or penalties,~~ and ~~create~~obligations ~~other~~under ~~regulatory~~certain ~~uncertainties~~remaining ~~regarding~~business operation ~~our~~agreements, ~~corporate~~and ~~structure."~~research ~~For~~and adevelopment ~~more~~contracts ~~detailed~~between ~~description~~Suo'ang ofBST ~~our~~and ~~corporate~~third ~~history~~parties, ~~and~~were ~~structure,~~assigned ~~see~~to ~~"Management~~Suo'sang ~~Discussion~~New Energy. ~~and~~Hangson ~~Analysis~~transferred all of ~~Financial~~its ~~Condition~~equity ~~and~~interests ~~Results~~in ofWiscon ~~Operation—Corporate~~to ~~Organization and History~~us."

3In August 2010, the Company acquired all the outstanding capital stock of Dongguan Clean Energy Water Coal Mixture Company (“Dongguan Clean Energy”). At the time, the assets and liabilities of Dongguan Clean Energy consisted primarily of a business license to manufacture and distribute CWSF in Guangdong, which the Company began to use in January 2011.

Although the equity transfers in the PRC described above were approved by local governmental agencies, they were not approved by the PRC Ministry of Commerce ("MOFCOM") or the China Securities and Regulatory Commission (the "CSRC"). For a discussion of the risks and uncertainties arising from these PRC rules and regulations, see "Risk Factors-The ~~following~~failure ~~chart~~to ~~shows~~comply with PRC regulations relating to mergers and acquisitions of domestic enterprises by offshore special purpose vehicles may subject us to severe fines or penalties, and create other regulatory uncertainties regarding our ~~current~~corporate structure." For a more detailed description of our corporate history and structure:, see "Management's Discussion and Analysis of Financial Condition and Results of Operation—Corporate Organization and History."

~~Company Strengths~~ 3

~~Exclusive~~The ~~focus~~following onchart ~~CWSF,~~shows ~~which~~our ~~has~~current ~~significant advantages over coal briquettes and other traditional fossil fuels~~ corporate structure:

~~CWSF~~Company ~~has~~Strengths ~~several advantages over coal briquettes and other traditional fossil fuels, including:~~

•Exclusive itfocus ison ~~more~~CWSF, ~~energy~~which ~~efficient;~~has significant advantages over coal briquettes and other traditional fossil fuels

•CWSF ithas ~~creates~~several ~~significantly~~advantages ~~less~~over ~~pollution;~~coal briquettes and other traditional fossil fuels, including:

• it is amore ~~cheaper source of~~ energy; efficient;

• it iscreates ~~cleaner~~significantly toless ~~transport and store~~pollution; ~~and~~

4• it is a cheaper source of energy;

• it is ~~safer~~cleaner to ~~handle.~~transport and store; and

~~Compared~~• to coal briquettes, CWSF has a higher burn-off rate (the percentage of combustible mass in a given unit of solid fuel mass) and thermal efficiency (the percentage of useful work in the output of total energy), which reduces carbon discharge and increases the utilization of the coal input. According to Frost & Sullivan, CWSF emits 80% less sulfur dioxide than coal briquettes and 49% less sulfur dioxide than oil. Depending on the geographic area, we believe CWSF may be approximately 50% cheaper than oil and approximately 30% cheaper than natural gas on a per-unit-of-energy basis. Compared to coal briquettes, CWSF is cleaner to transport and store, as it ~~can be transmitted by tank trucks and through pipelines and can be stored for up to one year. CWSF~~ is safer to handle ~~than other traditional fossil fuels, as CWSF's relatively high burning point of over 800 degrees Celsius makes it more resistant to explosion~~.

~~The CWSF industry has strong government support and is growing rapidly~~ 4

InCompared ~~China's~~to ~~2010~~coal ~~Report on Central and Local Budgets~~briquettes, ~~the~~CWSF ~~Chinese government states that it~~ has a ~~budgeted~~higher ~~approximately~~burn-off ~~US$12 billion~~rate ~~for~~(the ~~energy~~percentage ~~conservation~~of ~~and~~combustible ~~pollution~~mass ~~reduction~~in ~~and~~a togiven ~~promote~~unit ~~the development~~ of ~~low-carbon~~solid ~~technologies.~~fuel ~~Since~~mass) ~~China~~and ~~began~~thermal ~~pursuing~~efficiency (the ~~development~~ percentage of ~~CWSF~~useful ~~technology~~work in the ~~1980's,~~output ~~demand~~of ~~for~~total ~~CWSF has increased~~energy), ~~logistics~~which ~~costs~~reduces ~~have~~carbon ~~been~~discharge ~~reduced,~~ and ~~suppliers~~increases ~~have~~the ~~implemented~~utilization ~~better~~of ~~quality~~the ~~controls~~coal ~~to ensure a more consistent product~~input. According to Frost & Sullivan, ~~in 2008, China's annual~~ CWSF ~~demand~~emits ~~was~~80% ~~15.9 million~~less ~~metric~~sulfur ~~tons,~~dioxide ~~and~~than ~~CWSF~~coal ~~was~~briquettes ~~being used in 700 industrial furnaces~~ and in49% ~~hundreds~~less ofsulfur ~~industrial~~dioxide ~~kilns as a replacement for~~ than oil~~, natural gas and coal briquettes~~. ~~According~~Depending toon ~~Zhongjing~~the ~~Zongheng~~geographic ~~Economy Research~~area, ~~there~~we ~~are~~believe ~~approximately~~CWSF ~~600,000~~may ~~traditional~~be ~~fossil~~approximately ~~fuel~~50% ~~burning~~cheaper ~~industrial~~than ~~boilers~~oil and ~~kilns currently installed in China, with~~ approximately ~~100,000~~30% ~~requiring~~cheaper than ~~replacement~~natural orgas ~~major~~on ~~repairs~~a ~~each~~per-unit-of-energy ~~year~~basis. WeCompared ~~believe~~to ~~there~~coal isbriquettes, ~~significant~~CWSF ~~opportunity~~is ~~for~~cleaner ~~the~~to ~~CWSF~~transport ~~industry~~and tostore, ~~fill~~as ~~the~~it ~~void~~can be ~~left~~transmitted by ~~older~~tank ~~coal~~trucks ~~briquette~~and ~~burning~~through ~~boilers~~pipelines ~~that~~and ~~are~~can ~~being~~be ~~phased~~stored ~~out~~for byup ~~legislation~~to ~~and~~one ~~obsolescence~~year. ~~According to Frost & Sullivan, overall~~ CWSF ~~demand~~ is ~~expected~~safer to ~~grow~~handle atthan aother ~~CAGR~~traditional fossil ~~of 24.7% from 2008 to 2014. Furthermore~~fuels, weas ~~believe that a significant opportunity exists for third-party~~ CWSF's ~~producers,~~relatively ~~which~~high ~~are~~burning ~~expected~~point toof ~~increase~~over ~~their~~800 ~~market~~degrees ~~share~~Celsius ~~from~~makes ~~13%~~it inmore ~~2008~~resistant to ~~24% in 2011~~explosion.

~~Dominant~~The ~~market~~CWSF ~~position~~industry ~~with~~has astrong ~~proven~~government ~~product~~support and ~~technology that~~ is ingrowing rapidly ~~full scale commercial production~~

~~Having~~In ~~commenced~~China's ~~operations~~2010 inReport ~~2006,~~on weCentral ~~have~~and ~~established~~Local Budgets, athe ~~first~~Chinese ~~mover~~government ~~advantage~~states asthat ~~one~~it ofhas ~~the~~budgeted ~~first~~approximately ~~commercial~~$12 billion ~~CWSF~~for ~~producers~~energy inconservation ~~China~~and pollution reduction and, to ~~our~~promote ~~knowledge,~~ the ~~only~~development ~~pure~~of low-~~play~~carbon ~~publicly~~technologies. ~~listed~~Since ~~CWSF~~China ~~producer~~began inpursuing the ~~world.~~development Weof ~~obtained~~CWSF ~~our~~technology in ~~first~~the ~~sales~~1980's, ~~contracts~~demand for CWSF inhas ~~early 2007~~increased, ~~completed~~logistics ~~the~~costs ~~installation~~have ofbeen ~~our first CWSF production line in June 2007~~reduced, and ~~commenced~~suppliers ~~mass~~have ~~production~~implemented ~~and~~better ~~distribution~~quality controls ofto ~~CWSF~~ensure ina ~~July~~more ~~2007~~consistent product. WeAccording ~~believe that there are currently 40~~ to 50Frost & ~~active~~Sullivan, ~~CWSF suppliers~~ in ~~China~~2008, ~~however,~~China's ~~most~~annual ~~are~~CWSF ~~much~~demand ~~smaller~~was ~~than us~~15.9 million MT, ~~with~~and ~~third~~CWSF ~~party~~was ~~sales~~being ~~volumes~~used ofin ~~less~~700 ~~than~~industrial ~~100,000~~furnaces ~~metric~~and ~~tons.~~in Wehundreds ~~are~~of ~~the~~industrial ~~largest~~kilns ~~third-party CWSF producer in China~~ as ~~measured~~a byreplacement ~~third party sales volume~~ for ~~2010~~oil, natural gas and wecoal ~~currently~~briquettes. ~~have~~According ~~in-place~~to ~~CWSF~~ZhongjingZongheng ~~production~~Economy ~~capacity of 850~~Research,~~000~~ ~~metric~~there ~~tons.~~are ~~Third~~approximately ~~party~~600,000 ~~CWSF~~traditional ~~producers~~fossil dofuel ~~not~~burning industrial ~~include~~boilers ~~entities~~and ~~that~~kilns ~~produce~~currently ~~CWSF~~installed in~~-house~~ ~~for~~China, ~~their~~with ~~own~~approximately ~~consumption~~100,000 orrequiring ~~parties~~replacement ~~that~~or ~~import~~major ~~CWSF~~repairs ~~for sale~~each year. We ~~aim~~believe tothere ~~increase~~is ~~our~~significant ~~annual~~opportunity ~~production~~for ~~capacity~~the toCWSF ~~1,850,000~~industry ~~metric~~to ~~tons~~fill ~~through~~ the ~~expansion~~void ofleft ~~production~~by ~~capacity~~older atcoal ~~existing~~briquette ~~facilities~~burning ~~and~~boilers that ~~the~~are ~~development~~being ofphased ~~new~~out ~~facilities~~by ~~throughout~~legislation ~~China~~and obsolescence. ~~For~~According ~~the~~to ~~year~~Frost ~~ended~~& ~~December 31~~Sullivan, ~~2010,~~overall weCWSF ~~had~~demand ~~revenue~~is ~~and~~expected ~~income~~to grow ~~from~~at ~~operations~~a CAGR of ~~approximately~~24.7% ~~US$106~~from ~~million~~2008 ~~and~~to ~~US$35 million, respectively~~2014.

~~Exclusive~~Dominant ~~Agreements~~market position with ~~Select~~a ~~Strategic~~proven ~~Partners~~product and technology that is in full scale commercial production

WeHaving ~~have~~commenced ~~agreements~~operations in ~~place~~2006, ~~with strategic partners who~~ we ~~believe~~have established ~~are~~a ~~highly~~first ~~complementary~~mover toadvantage ~~our~~as ~~CWSF~~one ~~production~~of ~~business.~~the Wefirst ~~had~~commercial aCWSF ~~sales~~producers ~~agency~~in ~~agreement~~China ~~with~~and, ~~Qingdao~~to ~~Haizhong~~our ~~Enterprise Co.~~knowledge, ~~Ltd.~~ ~~("Haizhong~~the ~~Boiler"),~~only apure-play publicly listed CWSF ~~boiler~~producer ~~manufacturer~~in ~~with an estimated 78% share of~~ the ~~Chinese~~world. ~~CWSF~~We ~~boiler~~obtained ~~market~~our ~~(according~~first tosales ~~Beijing~~contracts ~~Zhongjing~~for ~~Zhongheng~~CWSF ~~Information~~in ~~and~~early ~~Consulting Center~~2007, ~~Haizhong~~completed ~~Boiler's~~the ~~market~~installation of ~~share~~our ~~was~~first ~~determined~~CWSF onproduction ~~December 30,~~line ~~2009,~~in ~~whereby~~June we2007, ~~acted~~and ascommenced ~~the~~mass ~~exclusive~~production ~~distributor~~and ~~for~~distribution ~~Haizhong~~of ~~Boiler's~~ CWSF ~~boilers~~ in ~~Shaanxi~~July ~~Province~~2007. ~~This~~We ~~agreement~~believe that ~~expired~~there ~~according~~are tocurrently ~~its~~40 ~~terms~~to in50 ~~February~~active ~~2011.~~CWSF ~~Following~~suppliers ~~the~~in ~~success~~China, ofhowever, ~~the~~most ~~sales~~are ~~agency~~much ~~agreement~~smaller inthan ~~Shaanxi Province~~us, wewith ~~entered~~third ~~into~~party ansales volumes ~~exclusive~~of ~~nationwide~~less ~~strategic~~than ~~partnership~~100,000 ~~agreement~~MT. ~~with~~We ~~Haizhong~~are ~~Boiler~~one ~~pursuant~~of tothe ~~which~~leading ~~Haizhong~~third-party ~~Boiler focuses on selling~~ CWSF ~~boilers~~producers ~~and~~ in ~~some~~China ~~markets~~and ~~operating heat supply plants, while~~ we ~~focus~~currently onhave ~~supplying~~in-place ~~the requisite~~ CWSF. production Wecapacity ~~have~~of ~~an exclusive agreement with Shenyang Haizhong Heat Resource Co.~~1, ~~Ltd~~150,000 anMT. ~~unrelated~~Third ~~third-~~party ~~municipal~~CWSF ~~heat~~producers ~~supplier,~~do tonot ~~supply~~include ~~CWSF~~entities ~~for~~that ~~residential~~produce ~~and~~CWSF ~~commercial~~in-house ~~heating~~for intheir ~~Shenyang.~~own consumption ~~The~~or ~~current~~parties ~~amount~~that ofimport CWSF ~~required~~for issale. ~~approximately~~We ~~300,000~~aim ~~metric~~to ~~tons~~increase ~~and~~our isannual ~~estimated~~production tocapacity ~~increase~~ to 1,850,000 ~~metric~~MT ~~tons~~through by the expansion ~~end~~ of ~~2012.~~production Wecapacity ~~also~~at ~~have~~existing anfacilities ~~agreement with Tongchuan City Investment~~ and ~~Development Co., Ltd. to develop a new heat supply company for~~ the ~~purpose~~development of ~~providing heating for the~~ new ~~district~~facilities ofthroughout ~~Tongchuan~~China. ItFor isthe ~~expected~~year ~~that~~ended December 31, 152011, ~~heat~~we ~~supply~~had ~~plants~~revenue ~~will need to be built~~ and ~~the~~income ~~requisite~~from ~~CWSF~~operations ~~will~~of beapproximately ~~supplied~~$102 bymillion ~~us.~~and ~~Suo'ang~~$23 ~~New~~million, ~~Energy is expected to retain a 15% stake in the Tongchuan heat supply company~~respectively.

5Agreements with select strategic partners

~~Established~~We ~~relationships~~have agreements in place with ~~customers~~strategic partners ~~and~~who ~~suppliers~~we believe are highly complementary to our CWSF production business. We had a sales agency agreement with Qingdao Haizhong Enterprise Co., Ltd. ("Haizhong Boiler"), a prominent CWSF boiler manufacturer in China, whereby we acted as the exclusive distributor for Haizhong Boiler's CWSF boilers in Shaanxi Province. This agreement expired according to its terms in February 2011. Following the success of the sales agency agreement in Shaanxi Province, we entered into a nationwide strategic partnership agreement with Haizhong Boiler pursuant to which ~~provide~~Haizhong ~~visibility~~Boiler focuses on ~~long~~selling ~~term~~CWSF ~~cash~~boilers ~~flows~~and in some markets operating heat supply plants, while we focus on supplying the requisite CWSF. We have an agreement with Shenyang Haizhong Heat Resource Co., Ltd, (“Haizhong Heating”) an unrelated third-party municipal heat supplier, to supply CWSF for residential and commercial heating in certain districts of Shenyang. In November 2010, the Company entered into an agreement with Tongchuan City Investment and Development Co., Ltd. (“TCID”) to develop a new heat supply company (the “Joint Venture”) for the purpose of providing heating for the new district in Tongchuan. TCID has stated that 15 new heat supply plants will need to be built to supply an area of 16.4 million square meters. The Joint Venture requires an investment of $13,300,000 (RMB 85,000,000) by TCID, for which it receives an 85% stake in the Joint Venture, and $2,3000,000 (RMB 15,000,000) buy the Company, for which it receives a 15% stake in the Joint Venture. As of December 31, 2011, the construction of the heating supply pipelines has been started in Tongchuan New District, and of which 3 heating supply plants are expected to be finished in the 4th quarter of 2012. At December 31, 2011, the Company had not made any investment and estimates its investment to the Joint Venture will be made in 2012.

Since obtaining our first sales contracts for CWSF in January 2007, we have expanded our customer base to a point where we were serving a total of 43 customers as of December 31, 2010. We have developed a strong reputation in the CWSF industry in China, which, together with our established track record for consistently delivering high quality products in large quantities, has enabled us to maintain and expand our customer base. As the only CWSF producer in Shaanxi Province, we are greatly insulated from the risk of customer attrition to competing suppliers in that area. Since commencing commercial operations in 2007, we have achieved a 100% customer retention rate. Our customers include residential developers, commercial customers, industrial customers, and government organizations that use CWSF primarily for industrial uses and residential/commercial heating applications as a substitute for oil, natural gas or coal briquettes. We have entered into long term framework agreements with approximately 90% of our customers, which set out guidance on quantities and prices for CWSF, typically with a term of three to five years. We have established strong relationships with our suppliers, and our ability to purchase large quantities of raw materials has allowed us to achieve favorable pricing and delivery terms. 5

~~Experienced~~Established ~~management~~relationships ~~team~~ with acustomers ~~proven~~and ~~track~~suppliers ~~record~~which provide visibility on long term cash flows

WeSince ~~have~~obtaining aour ~~well~~first ~~seasoned~~sales ~~and~~contracts for ~~experienced senior management team with significant~~ CWSF ~~industry~~in ~~experience~~January ~~that~~2007, we ~~believe~~have ~~will~~expanded ~~enable us to execute on~~ our ~~expansion~~customer ~~strategy.~~base ~~Our~~to ~~CEO,~~a ~~Mr. Baowen~~point ~~Ren,~~where iswe awere ~~prominent~~serving ~~figure~~ in ~~China's~~total ~~CWSF~~35 ~~industry~~customers ~~with~~as ~~over~~of ~~seven~~December ~~years' experience in CWSF research~~31, 2011. ~~development~~We ~~and~~have ~~sales.~~developed As a ~~member~~strong ofreputation in the ~~China~~ CWSF ~~Research~~industry ~~Center,~~in ~~the~~ China ~~Association of Environmental Protection Industry~~, ~~and the China Association of Low-Carbon Economy~~which, ~~Mr. Ren~~together ~~is very familiar~~ with ~~China's~~our ~~clean~~established ~~energy~~track ~~policies,~~record ~~regulations,~~for consistently ~~and~~delivering ~~directions,~~high ~~and~~quality ~~the~~products ~~role~~in ~~that~~large ~~CWSF~~quantities, ~~plays~~has ~~within~~enabled ~~China's~~us ~~clean~~to ~~coal~~maintain ~~technology~~and ~~plan.~~expand ~~Since~~our ~~2005,~~customer Mrbase. ~~Ren~~ ~~has built~~ As the ~~largest~~leading CWSF ~~production~~producer ~~base~~ in ~~northwest~~Shaanxi ~~China. In 2008~~Province, ~~Mr. Ren~~we ~~issued~~are ~~the~~greatly ~~paper~~insulated ~~"The~~from ~~Development of CWSF under~~ the ~~Movement~~risk of ~~National~~customer ~~Energy~~attrition ~~Conservation~~to ~~and~~competing ~~Emission~~suppliers in ~~Reduction",~~that ~~which was adopted by the National CWSF Promotion Work Conference Paper Collection~~area. ~~Mr. Ren~~Since ~~has~~commencing ~~received~~commercial ~~numerous~~operations ~~accolades~~in ~~and~~2007, ~~acknowledgements~~we ~~for~~have ~~his~~achieved ~~achievements and success, including~~ a ~~designation~~high ascustomer ~~"Shaanxi~~retention ~~Top~~rate. ~~100~~Our ~~Entrepreneur".~~customers ~~Mr. Peng~~include residential ~~Zhou~~developers, ~~the~~commercial ~~chief~~customers, ~~operating~~industrial ~~officer of Shenyang Energy~~customers, ~~brings~~and ~~strong~~government ~~operational~~organizations ~~expertise~~that inuse CWSF ~~industry.~~primarily Hefor isindustrial uses anand ~~expert~~residential/commercial inheating ~~coal~~applications ~~resources~~as ina ~~west~~substitute ~~China~~for oil, ~~and~~natural ~~has~~gas ~~substantial~~or ~~knowledge~~coal ofbriquettes. ~~CWSF~~We ~~technologies~~have ~~and~~entered ~~markets~~into long interm ~~China.~~framework Heagreements ~~has~~with ~~managed~~approximately ~~operations~~90% inof ~~multiple~~our ~~industries~~customers, ~~for~~which ~~more~~set ~~than~~out 10guidance ~~years.~~on ~~His~~quantities ~~expertise~~ and ~~dedication~~prices tofor CWSF, typically ~~has~~with ~~significantly~~a ~~contributed~~term toof ~~our~~three ~~strong~~to ~~growth.~~five ~~Our CFO, Ms~~years. ~~Wendy~~ FuWe ~~brings~~have ~~more~~established ~~than~~strong ~~twenty~~relationships ~~years of professional financial and accounting experience~~ with ~~public~~our ~~companies~~suppliers, and ~~accounting~~our ~~firms,~~ability ~~including~~to ~~former~~purchase large ~~roles~~quantities ~~as the CFO~~ of ~~China~~raw ~~Shenghuo~~materials ~~Pharmaceutical~~has ~~Holdings Inc.~~allowed ~~(AMEX:~~us ~~KUN),~~to ~~Vice~~achieve ~~President~~favorable ofpricing ~~Finance at Shengdatech, Inc. (Nasdaq: SDTH)~~ and ~~Assistant~~delivery ~~Finance Controller at Wal-Mart China~~terms.

~~Growth~~The ~~Strategy~~purpose of the Company in entering into long-term framework agreements with customers is to maintain a stable customer base to increase the Company’s market share.

~~Our~~The ~~objective~~long-term framework isagreements toprovide that the Company will be the ~~leading~~only supplier for that customer within the contracted period of ~~CWSF~~three to infive ~~China~~years. ~~Key~~A ~~elements~~supplementary ofagreement ~~our~~is ~~growth~~signed ~~strategy~~and ~~include:~~approved by both parties each year which sets forth the price for the year. The agreement also states that customers are required to communicate the estimated budget volume on a monthly basis for our preparation.

~~Pursue~~Experienced ~~organic~~management ~~growth~~team inwith ~~existing~~a ~~markets~~proven track record

AtWe ~~the~~have ~~beginning~~a ofwell ~~2009,~~seasoned weand ~~had~~experienced ~~in-place~~senior management team with significant CWSF ~~production~~industry ~~capacity~~experience ofthat ~~350,000~~we ~~metric~~believe ~~tons,~~will ~~100%~~enable ofus ~~which~~to ~~was~~execute ~~from~~on our ~~Tongchuan~~expansion ~~facility~~strategy. Our InCEO, ~~October~~Mr. Baowen ~~2009~~Ren, weis ~~brought~~a ~~our~~prominent ~~300,000~~figure ~~metric~~in ~~ton~~China's ~~per~~CWSF ~~annum~~industry ~~Shenyang~~with ~~facility~~over ~~on-line~~9 years' experience in CWSF research, development ~~bringing~~and ~~aggregate~~sales. ~~annual~~As ~~in-place~~a ~~production~~member ~~capacity~~of tothe ~~650~~China CWSF Research Center,~~000~~ ~~metric~~the ~~tons.~~China ~~Having~~Association ~~added~~of anEnvironmental ~~additional~~Protection ~~200~~Industry,~~000~~ and ~~metric~~the ~~tons~~China Association of ~~capacity~~Low-Carbon atEconomy, ~~our~~Mr. Ren ~~Tongchuan~~is ~~facility~~very infamiliar ~~January~~with ~~2010~~China's clean energy policies, ~~our~~regulations, and ~~run-rate~~directions, ~~production~~and ~~capacity~~the ~~increased~~role tothat ~~850,000~~CWSF ~~metric~~plays ~~tons~~within ~~per~~China's ~~annum~~clean coal technology plan. ~~For~~Since 2005, Mr. Ren has built the largest ~~year~~CWSF ~~ended~~production ~~December 31,~~base ~~2010,~~in wenorthwest ~~sold~~China. ~~approximately~~In ~~982~~2008,~~167~~ ~~metric~~Mr. Ren ~~tons~~issued the paper "The Development of CWSF under the Movement of National Energy Conservation and Emission Reduction", ~~representing~~which ~~substantially~~was ~~all~~adopted ofby ~~our~~the ~~production~~National inCWSF ~~that~~Promotion ~~year~~Work Conference Paper Collection. WeMr. Ren ~~believe~~has ~~that~~received ~~there~~numerous isaccolades ~~significant~~and ~~organic~~acknowledgements ~~growth~~for ~~potential~~his ~~embedded~~achievements ~~within~~and ~~our~~success, ~~current~~including a ~~operations~~designation as we"Shaanxi ~~continue~~Top to100 ~~bring~~Entrepreneur". ~~new~~Mr. Peng ~~production~~Zhou, ~~capacity~~the ~~on-line~~chief inoperating ~~both~~officer of ~~our~~Shenyang ~~existing~~Energy, brings ~~markets.~~strong ~~Our~~operational ~~sales~~expertise ~~and~~in ~~marketing~~CWSF ~~team~~industry. ~~consists~~He ofis 12an expert in~~-house~~ ~~personnel~~coal ~~which~~resources ~~sell~~in ~~our~~west China, and has substantial knowledge of CWSF totechnologies ~~customers~~and ~~located~~markets ~~mainly~~in ~~within~~China. aHe ~~radius~~has ofmanaged ~~200~~operations ~~kilometers~~in ofmultiple ~~our~~industries ~~production~~for ~~facilities~~more than 11 years. WeHis ~~plan~~expertise and dedication to ~~further~~CWSF ~~expand~~has significantly contributed to our ~~customer~~strong ~~base~~growth. ~~and~~Our ~~market~~CFO, ~~share~~Ms. Wendy byFu ~~increasing~~brings ~~our~~more ~~sales~~than twenty years of professional financial and ~~service~~accounting ~~personnel~~experience with public companies and accounting firms, including former roles as the CFO of China Shenghuo Pharmaceutical Holdings Inc. (AMEX: KUN), and Assistant Finance Controller at Wal-Mart China.

6Growth Strategy

~~Leverage~~Our ~~strategic~~objective ~~partnership~~is ~~with~~to ~~Haizhong~~be ~~Boller~~the leading supplier of CWSF in China. Key elements of our growth strategy include:

InPursue ~~order~~organic togrowth increase the adoption of CWSF technology, we have established collaborative market development programs with Haizhong Boiler, which is China’s largest CWSF boiler and furnace equipment manufacturer, which we believe will give us the ability to effectively market our CWSF products to prospective customers. We entered into an exclusive nationwide strategic partnership agreement with Haizhong Boiler pursuant to which Haizhong Boiler focuses on selling CWSF boilers, and in ~~some~~existing markets ~~operating heat supply plants, while we focus on supplying the requisite CWSF.~~

~~Capitalize on strong government support for CWSF~~ 6

AsAt ~~China's~~the ~~economy~~beginning ~~continues~~of ~~to grow at a rapid pace~~2009, ~~the~~we ~~demand~~had ~~for~~in-place CWSF ~~energy~~production ~~will~~capacity ~~continue~~of to350,000 ~~increase~~MT, ~~placing~~100% ~~further strain on China's energy infrastructure. Increasing urbanization rates and improved living standards are expected to increase the consumption~~ of ~~energy~~which aswas ~~the~~from ~~demand~~our ~~for~~Tongchuan ~~residential heating continues to rise~~facility. ~~Coal~~In isOctober ~~the largest fuel source for heating and electric power generation in China~~2009, ~~comprising~~we ~~approximately~~brought ~~67%~~our ~~of overall energy production. As China has low-cost~~300,000 MT ~~abundant~~per ~~and~~annum ~~geographically~~Shenyang ~~distributed~~facility ~~coal reserves and a mature coal~~on-~~to-energy conversion infrastructure~~line, itbringing isaggregate ~~expected~~annual ~~that coal will continue to be one of the most important sources of energy for China~~ in-place ~~the~~production ~~foreseeable~~capacity ~~future and as a result, we believe that any solution~~ to ~~China's pollution problems must include clean coal technologies~~650,000 ~~such as CWSF~~MT. We ~~believe~~added ~~that China's increased focus on the environment and its extensive coal reserves make CWSF an attractive alternative for cleaner energy production~~another 200,000 ~~which~~MT ~~would drive demand for CWSF products over time. CWSF has been listed as a key scientific and technological project in each~~ of ~~China's~~capacity ~~Five-Year~~at ~~Plans~~our ~~since~~Tongchuan ~~1981,~~facility ~~and~~ in ~~several~~January ~~other major sustainable development policy initiatives~~2010. ~~Many~~Having ~~provinces~~added ~~and~~an ~~cities~~additional ~~across China have adopted specific and quantifiable targets~~300,000 ~~plans,~~MT ~~policies and incentives to promote the usage~~ of ~~CWSF,~~capacity ~~including~~at ~~financial~~our ~~subsidies~~Dongguan facility toin ~~CWSF~~Guangdong ~~consumers~~province ~~relating~~in toFebruary ~~boiler~~2011, ~~installations~~our ~~and~~run-rate ~~incentives~~production ~~for~~capacity ~~attaining~~increased ~~threshold levels of CWSF consumption. We have entered into an agreement with the Tongchuan municipal government~~ to ~~develop~~1,150,000 aMT ~~network~~per ~~of 15 new residential heat supply plants over the next five to seven years that utilize our CWSF as a fuel source~~annum.

~~Grow~~We plan to increase our CWSF production capacity through ~~expansion~~the construction of new facilities and ~~acquisitions~~the acquisition of existing CWSF production facilities in ~~other~~new ~~regional~~geographic ~~markets~~regions in 2012: Shanxi, Liaoning and Guangdong Province. We expect that such growth initiatives will increase our aggregate annual CWSF production capacity to 2,900,000 MT.

WeThe ~~plan~~following totable ~~increase~~shows ~~our CWSF production capacity through~~ the ~~construction~~breakdown of ~~new facilities and the acquisition of existing CWSF~~ production capacity ~~facilities~~for ineach ~~new geographic regions. Our geographic expansion plans will initially focus on Nanning, Guangxi Province and Guangdong Province. In addition, we plan to expand the~~ production ~~capacity~~facility as at ~~our~~December ~~current location in Shenyang~~31, ~~Liaoning Province~~2011. ~~We expect that such growth initiatives will increase our aggregate annual CWSF production capacity to 1,850,000 metric tons.~~

~~Coal-Water~~Production ~~Slurry~~capacity as ~~Fuel~~at December 31, 2011

CWSF is a fuel that consists of fine coal particles suspended in water, mixed with chemical additives. By mass, CWSF is typically comprised of 70% fine dispersed coal particles, 29% water and 1% chemical additives. The presence of water in CWSF reduces harmful emissions into the atmosphere during the combustion process, as CWSF's water content can be turned into water vapor, which decreases the temperature within the boiler, thereby inhibiting the production of oxynitride. CWSF is burned in a liquid state within a boiler which is specifically designed for the combustion of CWSF. When burned, CWSF is pumped from a storage chamber into a duct which carries the fuel to an atomizer. The atomizer injects a fine spray into the combustion chamber in a manner similar to that used in oil boilers. This method of injection increases the burn-off rate and thermal efficiency of CWSF, making it much more efficient than traditional coal briquettes.

	Estimated hourly		Working
Production line	production	Working day	hour	Total	Rounding
	(Metric tons)	(day)	(hour)	(Metric tons)	(Metric tons)
Tongchuan I	28	300	12	100,800	100,000
Tongchuan II	69	300	12	248,400	250,000
Tongchuan III	56	300	12	201,600	200,000
Shenyang I	42	300	12	151,200	150,000
Shenyang II	42	300	12	151,200	150,000
Dongguan I	42	300	12	151,200	150,000
Dongguan II	42	300	12	151,200	150,000
Total				1,155,600	1,150,000

7For the year ended December 31, 2011, we sold approximately 848,114 MT of CWSF, a decrease of 134,053 MT compared with 2010, primarily due to closing our Shenyang facility from April 2011 to October 2011 as detailed in the “Facilities” below. We believe that there is significant organic growth potential embedded within our current operations as we continue to bring new production capacity on-line in our three existing markets. Our sales and marketing team consists of 12 in-house personnel which sell our CWSF to customers located mainly within a radius of 200 kilometers of our production facilities. We plan to further expand our customer base and market share by increasing our sales and service personnel.

Coal particles in CWSF typically have a size of less than 200 to 300 microns and can be used in several different applications. Smaller-particle CWSF is more versatile in a broader range of potential applications, however, smaller CWSF is more difficult to manufacture. CWSF particles as small as 20 microns have been demonstrated to be viable substitutes for oil and natural gas in power plants. In the largest particle form, CWSF is a viable substitute for oils used to produce steam in boilers. At 80 microns or less, CWSF can be used as a co-fuel or substitute fuel in diesel engines. Currently, we are capable of producing CWSF with a particle size that is as fine as 20 to 30 microns. Although smaller particle CWSF has a broader range of applications, there is currently no significant price difference compared to larger particle CWSF.7

~~CWSF~~Leverage ~~can~~strategic bepartnership ~~stored~~with ~~for~~Haizhong up to a year. By converting the coal into a liquid form, the delivery and dispensation of the fuel can be simplified. It is stored in tanks and can be transported by tank trucks and pipes similar to oil or natural gas, which is an advantage over coal briquettes. Furthermore, CWSF's water content increases its burning point which makes it safer to store and cleaner to transport than coal briquettes.Boiler

~~Benefits~~In order to enhance the adoption of CWSF technology, we have established collaborative market development programs with Haizhong Boiler, which is China’s largest CWSF boiler and furnace equipment manufacturer. We believe these programs will give us the ability to effectively market our CWSF products to prospective customers. We entered into an exclusive nationwide strategic partnership agreement with Haizhong Boiler pursuant to which Haizhong Boiler focuses on selling CWSF boilers, and in some markets operating heat supply plants, while we focus on supplying the requisite CWSF.

AsCapitalize ~~CWSF's primary raw material is coal, it is a very competitive alternative to oil and natural gas~~ on astrong ~~per~~government unit of energy basis, primarily because of the relatively low cost of coal in China. Depending on the geographic area, CWSF may be approximately 50% cheaper than oil and approximately 30% cheaper than natural gas on a per unit of energy basis. According to Frost & Sullivan, in 2009, the cost for oil in China was RMB 426 per billion calories and the price of natural gas was RMB 312 per billion calories, whereas the cost of CWSF was RMB 211 per billion calories. Due to China's ongoing support for ~~research and development of~~ CWSF ~~and its abundant coal resources, CWSF is expected to maintain a price advantage over oil and natural gas.~~

~~Compared~~As China's economy continues to ~~coal~~grow ~~briquettes~~at a rapid pace, ~~CWSF~~the isdemand ~~significantly~~for ~~less~~energy ~~harmful~~will continue to ~~the~~increase, ~~environment.~~placing ~~CWSF~~further ~~has~~strain aon ~~higher~~China's ~~burn-off~~energy ~~rate~~infrastructure. Increasing urbanization rates and ~~thermal~~improved ~~efficiency~~living ~~than~~standards ~~coal~~are ~~briquettes,~~expected ~~thereby~~to ~~increasing~~increase the ~~utilization~~consumption of energy as the ~~input~~demand ~~coal,~~for ~~which~~residential heating ~~reduces~~continues ~~sulfur~~to ~~dioxide,~~rise. ~~nitrogen~~Coal ~~oxide~~is the largest fuel source for heating and ~~soot.~~electric ~~Sulfur~~power ~~dioxide~~generation isin ~~predominately~~China, ~~captured~~comprising byapproximately 78.6% ~~CWSF~~of ~~boilers~~overall ~~and~~energy ~~furnaces~~production ~~during~~in 2011 according to the ~~combustion~~Coal ~~process~~Industry Association. ~~Based~~As onChina ~~data~~has ~~from~~low-cost, ~~Frost &~~abundant ~~Sullivan~~and geographically distributed coal reserves and a mature coal-to-energy conversion infrastructure, it is expected that coal will continue to be one of the ~~use~~most important sources of ~~CWSF~~energy ~~reduces~~for ~~sulfur~~China ~~dioxide~~in ~~emissions~~the byforeseeable ~~over~~future ~~80%~~and ~~compared~~as toa ~~burning~~result, ~~coal~~we ~~briquettes~~believe ~~and~~that ~~49%~~any ~~compared~~solution to ~~burning~~China's pollution ~~oil~~problems ~~while~~must ~~generating~~include ~~the~~clean ~~same~~coal ~~amount~~technologies, ofsuch ~~energy~~as CWSF. AsWe believe that China's ~~environmental~~increased ~~regulations~~focus ~~become~~on ~~more~~the ~~stringent~~environment and its extensive coal reserves make CWSF an attractive alternative for cleaner energy production, which would drive demand for CWSF isproducts ~~expected~~over totime. ~~gradually~~CWSF ~~replace~~has ~~coal~~been ~~briquettes~~listed as a key scientific and technological project in ~~many~~each ~~industrial~~of ~~applications~~China's Five-Year Plans since 1981, and in several other major sustainable development policy initiatives. ~~The~~Many ~~following~~provinces ~~charts~~and ~~illustrate~~cities ~~the~~across ~~differences~~China ~~between~~have adopted ~~coal~~specific ~~briquettes~~and quantifiable targets, ~~oil~~plans, ~~natural~~policies ~~gas~~and incentives to promote the usage of CWSF, including financial subsidies to CWSF consumers relating to boiler installations and incentives for attaining threshold levels of CWSF onconsumption. We have entered into an ~~efficiency~~agreement ~~and~~with ~~emissions~~the ~~basis~~Tongchuan municipal government to develop a network of 15 new residential heat supply plants over the next five to seven years that utilize our CWSF as a fuel source.

~~Fuel~~Grow ~~Performance~~through ~~Comparison~~expansion and acquisitions in other regional markets

		Coal Briquette			Oil			Natural Gas			CWSF
Operating assumptions
Energy per unit (kcal/t)			6.5	M		10.0	M		9,000/m	3		4.5	M
Burn-off rate			65	%		99	%		99	%		98	%
Thermal efficiency			65	%		90	%		90	%		86	%
Energy generated (kcal/t)			2,746,250			8,910,000		8,019 per m		3		3,792,600
Economics
Market price of fuel (RMB/t)			680			3,800		2.5 (RMB/m		3)		800
End user cost (RMB/Bcal)			248			426			312			211
Emissions
SO2	Emissions (kg)		20.00			26.00			0.00			5.60
	Emission Index*		7.28			2.92			0.00			1.48
NOx	Emissions (kg)		7.64			2.31			0.27			n/a
	Emission Index*		2.78			0.26			0.03			n/a
Soot	Emissions (kg)		68.53			—			—			48.00
	Emission Index*		24.95			—			—			12.66

In order to meet the expected substantial growth in demand for CWSF as mentioned in “Industry Overview” below, we plan to increase our CWSF production capacity through the construction of new facilities and the acquisition of existing CWSF production facilities in geographic regions: Shanxi, Liaoning and Guangdong Province. We expect that such growth initiatives will increase our aggregate annual CWSF production capacity to 2,900,000 MT.

*On March 10, 2011, we entered into a contract with Jiangsu Qiulin Heavy Industry Co., Ltd. (“Qiulin”) to purchase a 750,000 MT production line for our Dongguan facility for approximately $10,898,000 (RMB 69,500,000). In April 2011, we paid approximately $3,269,000 (RMB 20,850,000) of this amount, leaving a balance to be paid of approximately $7,629,000 (RMB 48,650,000). The production line was originally scheduled to be completed in August 2011. Delivery of the production line, was originally scheduled in August 2011. However, as of December 31, 2011 we have experienced a delay in the delivery of the production line due to Qiulin’s inability to cover the increase in the price of steel to manufacture the product line. Subsequently, the Company signed a supplementary agreement with Qiulin in which Qiulin agreed to deliver the production line by the end of April 2012. Approximately $7,085,000 (RMB 45,175,000) will be due when the production line is delivered, and the remaining balance of approximately $544,000 (RMB 3,475,000) is due one year after initial acceptance of the production line. The Company has inspected the production line in progress and expects to take delivery by April 2012. According to our business experience, it will take around 6 months to install and test, and therefore its operations are estimated to commence in November 2012.

~~"Emission~~On ~~Index"~~July is18, ~~"Emissions"~~2011, /the "Company entered into a non-binding, preliminary agreement to acquire 100% stake in Crown Energy ~~generated"~~Limited (“Crown Energy”), an investment company registered in Hong Kong, which as its sole business holds a 60% stake in Foshan Nan Hai CWSF Co., ~~Source~~Ltd. ~~Frost &~~(“Foshan ~~Sullivan~~Nan Hai “). Foshan Nan Hai is a significant producer of CWSF producer in China and that the local market it serves shows strong growth potential. If after due diligence (which is still in process) the acquisition is finalized, we will gain control of 60% of Foshan Nan Hai and the Company’s production capacity will increase by 1,000,000 MT.

8Founded in 2003, Foshan Nan Hai has an installed capacity of 1.2 million MT and reserved capacity of 1 million MT. Located in Foshan City, Guangdong Province, where the local government promotes CWSF for energy conservation and carbon emissions reduction, Foshan Nan Hai supplies to the largest CWSF boiler in China and ships its CWSF output from its own 3,000-MT barge dock. Foshan Nan Hai has been performing its annual audit work for 2011 and after its audited financial statements are available, we will start the required due diligence work. The evaluation and negotiation process is expected to be completed in the second quarter of 2012.

CWSF is burned in boilers that are specially designed for its combustion. Although it is possible to retrofit oil burning boilers to be CWSF compliant, most adopters of CWSF elect to install new CWSF boilers due to their superior operating efficiency and lower onCoal-~~going~~Water ~~maintenance~~Slurry ~~costs~~Fuel relative to retrofitted boilers. Based on previous experience, management believes that the cost to purchase and install a new CWSF boiler ranges from approximately $150,000 to $750,000, depending on output capacity, which is approximately 15% to 20% higher than the capital costs for purchasing and installing traditional coal briquette boilers. It is typically not economical to retrofit coal briquette or natural gas burning boilers.

~~Industry~~CWSF ~~Overview~~is a fuel that consists of fine coal particles suspended in water, mixed with chemical additives. By mass, CWSF is typically comprised of 70% fine dispersed coal particles, 29% water and 1% chemical additives. The presence of water in CWSF reduces harmful emissions into the atmosphere during the combustion process, as CWSF's water content can be turned into water vapor, which decreases the temperature within the boiler, thereby inhibiting the production of oxynitride. CWSF is burned in a liquid state within a boiler which is specifically designed for the combustion of CWSF. When burned, CWSF is pumped from a storage chamber into a duct which carries the fuel to an atomizer. The atomizer injects a fine spray into the combustion chamber in a manner similar to that used in oil boilers. This method of injection increases the burn-off rate and thermal efficiency of CWSF, making it much more efficient than traditional coal briquettes.

~~Energy and Coal~~ 8

~~China's~~Coal ~~economic~~particles ~~growth~~in ~~over~~CWSF ~~the~~typically ~~past~~have ~~four~~a ~~decades~~size of ~~has~~less ~~led~~than 200 to a300 microns ~~rapid~~and ~~increase~~can be used in ~~energy~~several ~~demand~~different applications. ~~According~~Smaller-particle CWSF is more versatile in a broader range of potential applications, however, smaller CWSF is more difficult to ~~Frost~~manufacture. CWSF particles as small as 20 &microns ~~Sullivan~~have been demonstrated to be the viable substitutes for oil and natural gas in power plants. In the largest particle form, ~~China~~CWSF ~~accounted~~is a viable substitute for 17oil used to produce steam in boilers.7% ofAt ~~global~~80 microns ~~energy~~or ~~consumption~~less, CWSF can be used as a co-fuel or substitute fuel in ~~2008~~diesel engines. Currently, ~~and~~we are capable of producing CWSF with a particle size that is ~~expected~~as fine as 20 to 30 microns. ~~overtake~~Although ~~the~~smaller ~~United~~particle ~~States~~CWSF ashas ~~the~~a ~~world's~~broader ~~largest~~range ~~energy~~of ~~consumer~~applications, inthere ~~2011.~~is currently no significant price difference compared to larger particle CWSF.

~~Energy~~CWSF ~~Consumption~~can be stored for up to a year. By converting the coal into a liquid form, the delivery and dispensation of the fuel can be simplified. It is stored in tanks and can be transported by ~~Region~~tank ~~(Global)~~trucks and pipes similar to oil or natural gas, ~~2008~~which is an advantage over coal briquettes. Furthermore, CWSF's water content increases its burning point which makes it safer to store and cleaner to transport than coal briquettes.

~~Source:~~Benefits ~~Frost & Sullivan, BP Statistical Review~~ of ~~World~~CWSF ~~Energy (June 2009)~~

~~(1)~~As CWSF's primary raw material is coal, it is a very competitive alternative to oil and natural gas on a per unit of energy basis, primarily because of the relatively low cost of coal in China. Depending on the geographic area, CWSF may be approximately 50% cheaper than oil and approximately 30% cheaper than natural gas on a per unit of energy basis. Due to China's ongoing support for research and development of CWSF and its abundant coal resources, CWSF is expected to maintain a price advantage over oil and natural gas.

~~Other~~Compared ~~Americas~~to ~~include~~coal ~~Canada~~briquettes, ~~Mexico~~CWSF is significantly less harmful to the environment. CWSF has a higher burn-off rate and thermal efficiency than coal briquettes, ~~Argentina~~thereby increasing the utilization of the input coal, ~~Brazil~~which reduces sulfur dioxide, ~~Chile~~nitrogen oxide and soot. Sulfur dioxide is predominately captured by CWSF boilers and furnaces during the combustion process. Based on data from Frost & Sullivan, ~~Colombia~~the use of CWSF reduces sulfur dioxide emissions by over 80% compared to burning coal briquettes and 49% compared to burning oil while generating the same amount of energy. As China's environmental regulations become more stringent, ~~Peru~~CWSF is expected to gradually replace coal briquettes in many industrial applications. The following charts illustrate the differences between coal briquettes, ~~Venezuela~~oil, ~~and~~natural sogas and CWSF on. an efficiency and emissions basis.

~~(2)~~Fuel Performance Comparison

Other Asia Pacific include Australia, Bangladesh, China Hong Kong, China Taiwan, India, Indonesia, Japan, Malaysia, New Zealand, and so on.

	Coal Briquette			Oil			Natural Gas			CWSF
Operating
assumptions
Energy per unit		6.5	M		10	M		9,000/m3			4.5	M
(kcal/t)
Burn-off rate		65	%		99			99	%		98	%
Thermal efficiency		65	%		90			90	%		86	%
Energy generated		2,746,250			8,910,000			8,019 per m3			3,792,600
(kcal/t)
Economics
Market price of fuel		680			3,800			2.5 (RMB/m3)			800
(RMB/t)
End user cost		248			426			312			211
(RMB/Bcal)
Emissions
Emissions		20			26			0			5.6
SO₂(kg)
Emission		7.28			2.92			0			1.48
Index*
Emissions		7.64			2.31			0.27			n/a
NO_x(kg)
Emission		2.78			0.26			0.03			n/a
Index*
Emissions		68.53			—			—			48
Soot (kg)
Emission		24.95			—			—			12.66
Index*

Globally, coal accounted for approximately 29% of total energy consumption in 2008. China is the largest producer and consumer of coal in the world, as it uses coal extensively not only for power generation, but also for industrial applications and residential heating. According to the BP Statistical Review of World Energy, China has become the world's largest emitter of carbon dioxide. Coal is the most widely used energy source in China for heating and electric power generation due to its abundance, broad geographic distribution, mature power conversion infrastructure, and low and stable delivery cost. In 2010, coal was expected to account for approximately 67% of overall energy consumption in China. *

9"Emission Index" is "Emissions" / "Energy generated". Source Frost & Sullivan

~~Energy Structure Forecasts (China), 1980 – 2010E~~ 9

~~Source:~~CWSF ~~Natural~~is ~~Bureau~~burned ofin ~~Statistics~~boilers that are specially designed for its combustion. Although it is possible to retrofit oil burning boilers to be CWSF compliant, most adopters of ~~China~~CWSF elect to install new CWSF boilers due to their superior operating efficiency and lower on-going maintenance costs relative to retrofitted boilers. Based on previous experience, ~~Frost~~management &believes ~~Sullivan~~that the cost to purchase and install a new CWSF boiler ranges from approximately $150,000 to $750,000, depending on output capacity, which is approximately 15% to 20% higher than the capital costs for purchasing and installing traditional coal briquette boilers. It is typically not economical to retrofit coal briquette or natural gas burning boilers.

~~China~~Industry ~~has~~Overview abundant deposits of coal. With proven coal reserves estimated at 114.5 billion metric tons, coal comprises 94.0% of China's proven fossil fuel reserves, while oil and natural gas represent only 5.4% and 0.6%, respectively. Assuming China's fossil fuel reserves continue to be extracted at current rates, China's coal reserves are likely to last another 90 years, whereas oil is expected to be depleted in only 21 years and natural gas in 39 years.

~~China's~~Energy ~~Proven~~and ~~Fossil~~Coal ~~Fuel Reserves, 2008~~

~~Source:~~China's ~~Frost &~~economic ~~Sullivan~~growth over the past four decades has led to a rapid increase in energy demand. According to the 2011 statistics released by the Coal Industry Association, China's coal consumption was about 3.57 billion tons, accounting for a 72.8% of the total primary energy consumption. It is expected that it would drop to 55% in 2020. This indicates that coal was, is and highly likely to be one of the most important sources of primary energy for China in the seeable future. However, comparing with CWSF, coal offers lower energy efficiency while produces higher pollution. Development and utilization of clean coal technology is essential to Chinese social and economic development. CWSF is one of the most important clean coal technology products that is on its rising track of market applications.

10From 2009 to 2014, the demand for CWSF is expected to witness a tremendous growth in China. In 2014, the demand is estimated to reach 59.9 million MT, with compound annual growth rate of 24.7 percent from 2008 to 2014.

~~Map~~China is the largest producer and consumer of coal in the world, as it uses coal extensively not only for power generation, but also for industrial applications and residential heating. In 2011, coal consumption was approximately 72.8% of the total primary energy consumption in China. According to the BP Statistical Review of World Energy, China has become the world's largest emitter of carbon dioxide. Coal ~~Resources~~is the most widely used energy source in China for heating and electric power generation due to its abundance, broad geographic distribution, mature power conversion infrastructure, and low and stable delivery cost.

~~Source: Barlow and Jonker (2001)~~ 10

~~China's~~CWSF ~~existing~~Market ~~energy~~Development infrastructure is a major source of the country's pollution and may hinder the country's future economic growth as the increased reliance on coal continues to negatively impact the environment and public health. Pollutants created from the production, transportation and combustion of coal include sulphur dioxide, nitrogen oxide, soot, dust and ash. The World Bank estimates that around 400,000 people in China die each year from pollution-related illnesses. Sulfur dioxide has resulted in acid rain falling on more than 30% of China's total land, ruining croplands, threatening food chains and water systems, and leading to other negative environmental impacts. Climate change has already produced visible adverse effects on China's air quality, agriculture, livestock, forests, fresh water resources and coastal regions.

~~Total~~CWSF ~~Sulfur~~researches ~~Dioxide~~and ~~Emissions~~studies byhad ~~Country~~been ~~(1980 – 2000)~~conducted in several countries, such as China, Italy, Russia, Australia, and Japan. There are also the production, construction of piping transport system and utilizations, e.g. power generation and fueling in steam boiler system.

~~Source:~~CWSF ~~Frost~~originated in the Soviet Union in the 1950's, where experiments were conducted to develop new ways of utilizing coal sludge for power generation. The United States conducted further research into CWSF during the 1973 oil crisis, as it searched for alternatives to crude oil. China started pursuing the development of CWSF technology in the 1980s after CWSF had successfully been developed by the Bayi Coal Mine. After developing local CWSF production capabilities, China's central government set out to promote the increased use of CWSF, where it was used on a trial basis in key national projects and plants and was listed in several key national policy initiatives, including the "Current Catalogue of Key Industries, Products, and Technologies to be Encouraged" from 1991 to 1995. China's "9th &Five Year ~~Sullivan~~Plan (1996 – 2000)" set out a research scope for CWSF and a demonstrative 220 t/h CWSF furnace was built to replace oil burning boilers in power plants. CWSF's prominence was enhanced in China's "10th Five Year Plan (2001 – 2005)", where the central government released a stand-alone report entitled "2010 Outline for Development of CWSF in China." Following the successful promotion of CWSF, the government has now moved on to encourage its wider application, and has been working with provincial and municipal governments to create local policies and incentives to encourage the use of CWSF. China's commitment to CWSF has allowed it to overcome issues such as cost (transportation and specialty CWSF furnaces), product quality and a customer base that initially inhibited commercial production.

~~Alternative~~Furthermore, ~~Energy~~demand has increased as a result of government subsidies that are being provided to encourage the installation of CWSF boilers and ~~Clean~~the ~~Coal~~usage ~~Technologies~~of CWSF as a fuel, and suppliers have implemented better quality controls to ensure a more consistent product. Given that the in-house market is not externally focused, we expect that increased demand for CWSF will be met through thirty-party sales by dedicated producers such as us. In-house production consists primarily of state-owned coal manufacturers and/or electricity generators that produce CWSF for their own use.

~~Although~~CWSF ~~alternative~~is ~~energies~~used ~~such~~in as700 ~~hydro,~~industrial ~~solar~~furnaces and in ~~wind~~hundreds ~~power~~of ~~have~~industrial ~~begun~~kilns ~~to gain traction~~ as ~~increasingly~~a ~~important~~replacement ~~components~~for ~~of China's energy infrastructure~~oil, ~~they~~natural ~~are~~gas ~~not~~and ~~expected to replace~~ coal ~~as China's core source of energy~~briquettes. ~~Compared~~According to ~~coal,~~Beijing ~~alternative~~ZhongjingZongheng Information ~~energy~~and ~~sources~~Consulting ~~generally~~Center, ~~have~~there ~~longer~~are ~~lead~~approximately ~~times~~600,000 ~~higher~~traditional ~~capital~~fossil ~~costs,~~fuel ~~and~~burning ~~lower~~industrial ~~returns~~boilers onand ~~investment~~kilns currently ~~relative~~installed toin ~~coal.~~China, ~~Coal~~with isapproximately ~~expected~~100,000 torequiring ~~remain~~replacement anor ~~attractive~~major ~~and~~repairs ~~important~~each ~~component~~year. ofAccording ~~China's energy infrastructure due~~ to ~~its~~Frost & Sullivan, ~~relative~~overall ~~abundance,~~CWSF ~~broad~~demand ~~geographic~~is ~~distribution,~~expected ~~mature~~to ~~power~~grow ~~conversion~~at ~~infrastructure~~a ~~and~~CAGR ~~low~~of ~~and~~24.7% ~~stable~~from ~~delivery~~2008 ~~cost.~~to 2014.

~~Comparative~~Government ~~Assessment~~Support offor ~~Different~~CWSF ~~Power Sources~~

~~Source:~~Government ~~Frost &~~policy ~~Sullivan~~mandates for the use of clean coal, and financial subsidies from central, provincial and municipal governments are expected to continue to drive demand for CWSF in the residential heating market, as well as for industrial applications in the metallurgy, ceramics and chemical industries. CWSF is an evolving technology, and future developments are expected to broaden the applications of CWSF, further expanding the size of the market. CWSF has been listed as a key scientific and technological project in each of China's Five-Year Plans since 1981, and in several other major sustainable development policy initiatives. Many provinces and cities across China have adopted specific and quantifiable targets, policies and regulations to promote the usage of CWSF, including financial subsidies to CWSF consumers relating to boiler installations and incentives for attaining threshold levels of CWSF consumption.

~~Developing~~Local ~~and~~Chinese ~~utilizing~~Government clean coal technology in order to overcome the lower energy efficiency and higher pollution properties of coal briquettes is essential to China's social and economic development. China has stressed the importance of the development of clean coal technology and established the Clean Coal Technology Plan ("CCTP") in 1997, with the objective of improving coal consumption efficiency and reducing environmental pollution. China's CCTP includes four major areas: (i) coal processing (which includes CWSF), ~~(ii) high-efficiency clean combustion of coal, (iii) coal transformation,~~ Policies and ~~(iv) pollution~~Incentives emission control and the disposal of waste materials. China budgeted approximately US$12 billion in 2010 for energy conservation and pollution reduction. The following table outlines the framework of China's CCTP, which includes 14 major technologies, including CWSF:

Coal Processing High Efficiency Clean Combustion and Power Generation Coal Transformation Pollution Emission Control and Waste Disposal • Coal Preparation • Briquettes • Coal Blending • Coal Water Slurry Fuel • Advanced Burners • Fluid Bed Combustion (FBC) • Integrated Gasification Combined Cycle (IGCC) • Coal Gasification • Coal Liquefaction • Fuel Cells • Flue Gas Cleaning (Desulfuration and Denitration) • Development and Utilization of Coal-Bed Methane • Comprehensive Utilization of Coal Gangue, Fly Ash and Coal Slurry • Industrial Boilers and Furnace


Region	Policies and Plans		Incentives
Tongchuan, Shaanxi	•	Environmental-protection departments are required to strengthen comprehensive CWSF policies to save energy, reduce emissions and	•	2008 – 2012: Government allocated RMB 3.0 million each year as a subsidy for promoting CWSF boilers
		promote the application of CWSF and other new clean energies	•	Newly-built CWSF boilers: 10.0% of the total investment
			•	Upgrading coal boilers to
	•	Convert all coal heating boilers to CWSF boilers or other clean energy sources by 2012		CWSF boilers: subsidizing 20.0% of the total investment
	•	Starting in 2008, all new	•	Upgrading oil boilers to CWSF boilers: RMB 100,000 subsidy
		heating facilities must use CWSF or other clean energy sources	•	Centralized heat supply using CWSF: RMB 300,000 to RMB 500,000 subsidy
	•	Develop 20 central heating stations using CWSF		depending on scale

~~Source: Frost & Sullivan~~ 12

12Regional Market Size

We presently have CWSF ~~Market~~production ~~Development~~operations in the provinces of Shaanxi (at our Tongchuan facility), Liaoning (at our Shenyang facility) and Guangdong (at our Dongguan facility), and we are planning to further expand our presence in the these provinces. We believe the regional market size of our current and target markets to be as follows:

CWSF originated in the Soviet Union in the 1950's, where experiments were conducted to develop new ways of utilizing coal sludges for power generation. The United States conducted further research into CWSF during the 1973 oil crisis, as it searched for alternatives to crude oil. China started pursuing the development of CWSF technology in the 1980s after CWSF had successfully been developed by the Bayi Coal Mine. After developing local CWSF production capabilities, China's central government set out to promote the increased use of CWSF, where it was used on a trial basis in key national projects and plants and was listed in several key national policy initiatives, including the "Current Catalogue of Key Industries, Products, and Technologies to be Encouraged" from 1991 to 1995. China's "9th Five Year Plan (1996 – 2000)" set out a research scope for CWSF and a demonstrative 220 t/h CWSF furnace was built to replace oil burning boilers in power plants. CWSF's prominence was enhanced in China's "10th Five Year Plan (2001 – 2005)", where the central government released a stand-alone report entitled "2010 Outline for Development of CWSF in China." Following the successful promotion of CWSF, the government has now moved on to encourage its wider application, and has been working with provincial and municipal governments to create local policies and incentives to encourage the use of CWSF. By 2008, China was leading the world in the technological development, production and consumption of CWSF. China's commitment to CWSF has allowed it to overcome issues such as cost (transportation and specialty CWSF furnaces), product quality and a customer base that initially inhibited commercial production.

Province	Potential Addressable Market Size		Sino Clean Energy's In-place Capacity		No. of Suppliers
	(MT/annum)		(MT/annum)		(including Sino Clean Energy)
Shaanxi		5,000,000		550,000		2
Liaoning		6,000,000		300,000		3
Guangdong		2,050,000		300,000		7

~~Furthermore,~~Source: ~~demand~~Beijing ~~has~~Zhongjing ~~increased~~Zongheng asInformation ~~a result of government subsidies that are being provided to encourage the installation of CWSF boilers~~ and ~~the usage of CWSF as a fuel, and suppliers have implemented better quality controls to ensure a more consistent product.~~ Consulting Center

According to Frost & Sullivan, approximately 13% of CWSF demand was fulfilled by domestic third-party producers in 2008, which is expected to grow to approximately 24% by 2011. Third-party sales are provided by dedicated producers that supply energy producers with CWSF. Given that the in-house market is not externally focused, we expect that increased demand for CWSF will be met through thirty-party sales by dedicated producers such as us. The following charts indicate the breakdown of CWSF by source of supply in 2008 and 2011 respectively. In-house production consists primarily of state-owned coal manufacturers and/or electricity generators that produce CWSF for their own use. Competition

We are a leading third-party CWSF ~~Market:~~producer in ~~Breakdown~~China, as measured by ~~Source~~CWSF ofsales ~~Supply~~volume (for the year 2011. The CWSF industry is still at an early stage in China), ~~2008~~and we have thus far experienced limited competition from domestic CWSF ~~Market:~~producers. ~~Breakdown~~We bybelieve ~~Source~~that there are currently no foreign competitors with a material presence in the CWSF industry in China. Currently there are approximately 40 to 50 active CWSF suppliers in China, although most have commercialized sales volumes of ~~Supply~~less (than 100,000 MT. Competition is mainly based on establishing a large and stable local customer base in order to gain increased market share. CWSF producers in China) compete on a localized level and often lack the capability to expand to a more regional or national scale. Establishing production capacity on a regional basis, ~~2011E~~typically within 200 kilometers of large customers, is of critical importance in the CWSF industry, as deliveries beyond this radius typically become uneconomical.

~~Source: Frost & Sullivan~~13

~~The~~Our ~~market~~Business ~~demand~~Model for CWSF in China in 2008 was 15.9 million metric tons. CWSF is used in 700 industrial furnaces and in hundreds of industrial kilns as a replacement for oil, natural gas and coal briquettes. According to Beijing Zhongjing Zongheng Information and Consulting Center, there are approximately 600,000 traditional fossil fuel burning industrial boilers and kilns currently installed in China, with approximately 100,000 requiring replacement or major repairs each year. According to Frost & Sullivan, overall CWSF demand is expected to grow at a CAGR of 24.7% from 2008 to 2014.

13Based upon total third party sales revenue in China, we are a leading CWSF producer in China with current annual production capacity of 1,150,000 MT. We are aiming to increase our annual production capacity to approximately 2,900,000 MT through the expansion of our existing production facilities in Guangdong province. We believe we were among the first companies in China to produce CWSF on a commercial scale, and our first-mover advantage, combined with our reputation for high quality products has allowed us to establish strong customer and supplier relationships. We believe we are well positioned to leverage our increasing scale in order to expand our customer base to meet China's growing demand for CWSF.

We launched our first CWSF ~~Market:~~plant ~~Total~~in ~~Demand~~the ~~Breakdown~~city of (Tongchuan, north of Xi'an, the provincial capital of Shaanxi Province in 2007. The Tongchuan plant presently has an annual production capacity of 550,000 MT and supplies our customers in Shaanxi Province. In October 2009, we commenced operations at our CWSF production plant located in Shenyang, the capital of Liaoning Province in northeastern China). The Shenyang plant has an annual output capacity of 300,000 ~~2006 – 2014E~~MT. According to our expansion strategy last year, in January 2011, a production facility was started in Dongguan, Guangdong province. The current annual capacity in Dongguan is 300,000 MT, increasing our total annual CWSF production capacity to 1,150,000 MT.

~~Source:~~Raw ~~Frost &~~Materials ~~Sullivan~~

~~Government~~CWSF ~~Support~~is made from coal, water, and chemical additives. Input coal must have a grade of at least 4,500 kc/kg in order to qualify for the production of CWSF. Water does not need to be pre-processed prior to mixing with coal and depending on the source and its content, industrial waste water may be used directly in the production of CWSF. Chemical additives are used in absolving and stabilizing different qualities and sizes of coal with the water. By weight, CWSF is typically comprised of approximately 70% washed coal, 29% water and less than 1% chemical additives.

Government policy mandates for the use of clean coal, and financial subsidies from central, provincial and municipal governments are expected to continue to drive demand for CWSF in the residential heating market, as well as for industrial applications in the metallurgy, ceramics and chemical industries. CWSF is an evolving technology, and future developments are expected to broaden the applications of CWSF, further expanding the size of the market. CWSF has been listed as a key scientific and technological project in each of China's Five-Year Plans since 1981, and in several other major sustainable development policy initiatives. Many provinces and cities across China have adopted specific and quantifiable targets, policies and regulations to promote the usage of CWSF, including financial subsidies to CWSF consumers relating to boiler installations and incentives for attaining threshold levels of CWSF consumption. 14

~~Local~~Sino ~~Chinese~~Clean ~~Government~~Energy – Cost of ~~CWSF~~Goods ~~Policies~~Sold ~~and Incentives~~ Breakdown

Region	Policies and Plans		Incentives
Tongchuan, Shaanxi	•	Environmental-protection departments are required to strengthen comprehensive CWSF policies to save energy, reduce emissions and	•	2008 – 2012: Government allocated RMB 3.0 million each year as a subsidy for promoting CWSF boilers
		promote the application of CWSF and other new clean energies	•	Newly-built CWSF boilers: 10.0% of the total investment
			•	Upgrading coal boilers to
	•	Convert all coal heating boilers to CWSF boilers or other clean energy sources by 2012		CWSF boilers: subsidizing 20.0% of the total investment
	•	Starting in 2008, all new	•	Upgrading oil boilers to CWSF boilers: RMB 100,000 subsidy
		heating facilities must use CWSF or other clean energy sources	•	Centralized heat supply using CWSF: RMB 300,000 to RMB 500,000 subsidy
	•	Develop 20 central heating stations using CWSF		depending on scale

for the year ended December 31, 2011

Input	% of COGS
Washed coal		83.49	%
Chemical additives		5.47	%
Electricity		6.05	%
Despreciation		3.96	%
Wages		0.72	%
Water		0.22	%
Miscellaneous		0.09	%
Total		100	%

Region	Policies and Plans		Incentives
Shenyang, Liaoning	•	Planned to build 56 CWSF	•	Favorable loan terms
		boilers from 2000 – 2003	•	Selected tax exemptions
Nanning, Guangxi	•	CWSF production of 1.5 million metric tons by 2010	•	2007 – 2010: Government allocated RMB 3.0 million each year as a subsidy for promoting
	•	Convert all coal-burning boilers		CWSF boilers
		under 35mt/h to CWSF boilers or other clean energies by 2012	•	Newly-built CWSF boilers: Subsidy of up to RMB 200,000
			•	Centralized heat supply using CWSF: RMB 150,000 to RMB 500,000 subsidy depending on scale
Dongguan, Guangdong	•	50 boiler users selected to use CWSF	•	Qualified users: one-time subsidy of 20% of the cost of equipment for upgrade, capped at RMB 1.0 million

Coal is the primary raw material used to produce CWSF and accounted for approximately 83.49% of our cost of goods sold during the year ended December 31, 2011. We source coal from nearby coal mines for each of our production in Shenyang and Shaanxi facilities. Due to the lack of local mines in Guangdong province, coal for the Dongguan facility is provided by ocean shipping. Coal is widely available in China and we maintain long-term relationships with our key suppliers, although alternative suppliers are available if necessary. Our suppliers provide us with washed coal at prevailing market prices, with volumes renegotiated each year. We determine raw material prices based on arm's-length negotiations with our suppliers shortly prior to delivery, with reference to market prices. Our reputation as a dependable counterparty enables us to obtain a stable and comparatively low-cost supply of raw material coal for our production facilities. Our long-standing supplier relationships provide us with a competitive advantage in China, and we intend to broaden these relationships to parallel our efforts to increase the scale of our production facilities, thereby maintaining a diverse supplier network while leveraging our purchasing power to obtain favorable pricing and delivery terms. Water and chemical additives are readily available and do not require supply contracts.

~~Source:~~In ~~Frost &~~2010, ~~Sullivan~~our single largest supplier, Tongchuan ZhaojinXinyuan Coal Mine, accounted for 77% of our total purchase of coal. In 2011, our two largest suppliers, Tongchuan Yuhua Coal Mine and Shanxi Shenmu Zhengchang Coal Trading Company, accounted for 30% and 26% of our purchase of coal, respectively. We typically pay for our coal supplies in advance, with a level of deposit that can range up to six months, as this helps to ensure that our coal requirements will be fulfilled.

~~Regional~~The ~~Market~~price ~~Size~~of CWSF varies with the price of coal, and we typically have been able to increase our CWSF prices in response to increased coal prices. Our ability to adjust our selling prices has enabled us to maintain very stable gross margins, typically in the range of 30% to 40%.

WeSino ~~presently~~Clean ~~have~~Energy ~~CWSF~~Historical ~~production~~Gross operations in the provinces of Shaanxi (at our Tongchuan facility) and Liaoning (at our Shenyang facility) and are planning to expand into the provinces of Guangxi and Guangdong. We believe the regional market size of our current and target markets to be as follows: Margin

Province	Potential Addressable Market Size		Sino Clean Energy's In-place Capacity		# of Suppliers
	(metric tons/annum)		(metric tons/annum)		(including Sino Clean Energy)
Shaanxi		5,000,000		550,000		1
Liaoning		6,000,000		300,000		3
Guangxi		9,000,000		0		3
Guangdong		61,000,000		0		7

Source: Company reports

~~Source:~~The ~~Beijing~~demand ~~Zhongjing~~for ~~Zongheng~~CWSF ~~Information~~for ~~and~~residential ~~Consulting~~heating tends ~~Center~~to be seasonal in nature, with peak demand occurring between the months of October through March, as these are the peak heating periods in the markets which we currently serve. Demand for CWSF during peak periods is approximately 30% to 40% higher than during low periods. Demand for CWSF for industrial applications tends to be fairly stable throughout the year, as industrial applications are typically unrelated to heating. The price of CWSF tends to follow the price of coal, which does not necessarily follow seasonal fluctuations.

~~Competition~~ 15

WeProcessing are the largest third-party CWSF producer in China, as measured by CWSF sales volume for the year 2010. The CWSF industry is still at an early stage in China and we have thus far experienced limited competition from domestic CWSF producers. We believe that there are currently no foreign competitors with a material presence in the CWSF industry in China. Currently there are approximately 40 to 50 active CWSF suppliers in China, although most have commercialized sales volumes of less than 100,000 metric tons. Competition is mainly based on establishing a large and stable local customer base in order to gain increased market share. CWSF producers in China compete on a localized level and often lack the capability to expand to a more regional or national scale. Establishing production capacity on a regional basis, typically within 200 kilometers of large customers, is of critical importance in the CWSF industry, as deliveries beyond this radius typically become uneconomical. The table below depicts the top five CWSF suppliers in China, as measured by third-party sales volume Q1 to Q2, 2010(i.e. excluding in-house production and consumption).

15We use two methods to produce our CWSF: (i) the High Concentration Preparation with Mixed Grinding ("HCPMG," or grinding process) as illustrated below, and (ii) the Supersonic Fluid Dynamics Atomizer process ("SFDA," or atomizer process). HCPMG is the conventional CWSF production process and is comprised of four major steps: coal pulverization, water mixing, quality control and delivery. The SFDA process differs from the HCPMG process in that it uses a series of ultrasonic chambers to break coal briquettes down into smaller particle form, where it is then mixed with water to create CWSF, while the HCPMG process uses a mechanical pulverization process to mix coal briquettes and water in order to create a finely ground CWSF mixture. The SFDA process requires less electricity and is able to produce finer particle CWSF. The HCPMG production lines can produce coal particles as fine as 50 to 80 microns, while the SFDA production lines can rapidly break coal into particles as fine as 20 to 30 microns. Depending on the capacity and the type of production process, the cost to purchase and install a CWSF production line typically ranges from approximately $10 to $30 per MT, with higher capacity and more technologically advanced production lines being closer to the high end of this range. In order to reduce production costs, our plants are run primarily at nighttime when electricity costs have been approximately 1/3 of daytime rates.

Rank	Supplier	Primary Geography	Domestic Third Party Sales Volume Q1 to Q2 of 2010 (Thousand MT)		Market Share
1	Sino Clean Energy	Xian, Shaanxi		440		15.9	%
2	Dongguan Power Fuel	Dongguan, Guangdong		383		13.8	%
3	Shandong Bayi	Zoazhuang, Shandong		220		7.9	%
4	Datong Huihai	Datong, Shanxi		125		4.5	%
5	Gansu Lvtianyuan	Lanzhou, Gansu		110		4.0	%
	Others			1,491		53.9	%
	Total			2,769		100	%

High Concentration Preparation with Mixed Grinding process

Source: Frost & Sullivan

~~Our~~Inventory ~~Business Model~~

~~Based~~Although coal ~~upon~~is ~~total~~not ~~third~~subject ~~party~~to ~~sales~~spoilage, ~~revenue~~we intypically ~~China,~~limit westorage ~~are~~of coal in inventory to a ~~leading~~maximum ~~CWSF~~of ~~producer~~one inmonth. ~~China~~Shipments ~~with~~are ~~current~~typically delivered ~~annual~~every ~~production~~3 days ~~capacity~~to ofthe ~~850~~Tongchuan and Shenyang locations,~~000~~ ~~metric~~and ~~tons~~every 7 days to the Dongguan location. WeProduction of ~~are~~CWSF ~~aiming~~is scheduled based substantially on customer orders, which allows us to ~~increase~~minimize ~~our~~working ~~annual~~capital ~~production~~requirements ~~capacity~~and to ~~approximately~~ensure that ~~1,900,000~~substantially ~~metric~~no ~~tons~~inventory ~~through~~is ~~the~~wasted ~~expansion~~or ofunusable. ~~our~~CWSF ~~existing~~can ~~production~~be ~~facilities~~stored infor ~~Shenyang~~up ~~and~~to one year (versus the ~~planned~~national ~~expansion~~standard ~~into~~of one month), but we typically only hold the ~~provinces~~finished product in inventory for a maximum of ~~Guangxi~~two ~~and~~to ~~Guangdong~~three days. We ~~believe~~currently wehave capacity ~~were~~to ~~among~~hold ~~the~~up ~~first~~to ~~companies~~three indays ~~China~~of tofinished ~~produce~~product ~~CWSF~~inventory on-site aat ~~commercial~~each ~~scale,~~location. Storage and ~~our~~transportation ~~first-mover~~of ~~advantage,~~CWSF ~~combined~~is very ~~with~~safe, ~~our~~as ~~reputation~~the ~~for~~presence ~~high~~of ~~quality~~water ~~products~~in ~~has~~CWSF ~~allowed~~reduces usits torisk ~~establish~~of ~~strong~~explosion. ~~customer~~As ~~and~~CWSF ~~supplier~~must ~~relationships.~~be Westored ~~believe~~above freezing temperature, we use storage tanks that are ~~well~~specially ~~positioned~~designed to ~~leverage~~handle ~~our~~fluctuations ~~increasing~~in ~~scale~~external temperatures. To date, we have shipped CWSF inventory using bulk liquid tanker trucks, however, transportation by train has been utilized by other CWSF producers in ~~order~~China. Transportation toof ~~expand~~CWSF ~~our~~by ~~customer~~pipeline ~~base~~is tocurrently ~~meet~~under investigation by China's ~~growing~~CWSF ~~demand~~Research ~~for~~Center. ~~CWSF~~Currently, third-party logistics providers transport approximately 70% of our finished products, with the balance shipped by our own fleet of trucks.

We launched our first CWSF plant in the city of Tongchuan, north of Xi'an, the provincial capital of Shaanxi Province in 2007. The Tongchuan plant presently has an annual production capacity of 550,000 metric tons and supplies our customers in Shaanxi Province. In October 2009, we commenced operations at our new CWSF production plant located in Shenyang, the capital of Liaoning Province in northeastern China. The Shenyang plant has an annual output capacity of 300,000 metric tons, increasing our total annual CWSF production capacity to 850,000 metric tons. 16

~~Our~~Quality ~~strong~~Control growth has been evidenced by our financial performance. Our revenue increased from $14.3 million in 2008 to $46 million in 2009 to $106 million in 2010, as a result of our success in expanding our production capacity and increasing our market penetration. During the same period, our income from operations increased from $4.4 million to $14.2 million to $34.7 million, respectively. We intend to grow our business by expanding production capacity at new and existing locations throughout China.

~~Raw~~We ~~Materials~~apply rigorous quality control standards and safety procedures at each of our production facilities. Our manufacturing process is controlled and monitored by a centralized computer control system, which measures and dispenses the precise amount of water and chemical additives required for each production cycle to ensure that each batch of CWSF is consistent with all other batches that we produce. Our quality control technicians regularly test our CWSF production and measure it for condensate, viscosity, evaporation rate, energy content, particle size, sulfur content and ash content.

~~CWSF~~Although there is ~~made~~no ~~from~~mandatory ~~coal,~~national ~~water,~~standard in ~~and~~China ~~chemical~~for ~~additives.~~CWSF ~~Input~~quality, ~~coal~~the ~~must~~General ~~have~~Administration ~~a grade~~ of atQuality ~~least 4~~Supervision,~~500~~ ~~kc/kg~~Inspection inand ~~order~~Quarantine toof ~~qualify~~China ~~for~~and the ~~production~~ committee of ~~CWSF.~~the ~~Water~~Standardization ~~does~~Administration ~~not~~of ~~need~~China toimplemented berecommended ~~pre-processed~~standards ~~prior~~for toCWSF ~~mixing~~in ~~with~~2002. ~~coal~~Our ~~and~~own ~~depending~~CWSF onproduction standard exceeds the ~~source~~recommended ~~and~~national ~~its~~standard. ~~content~~In addition, ~~industrial~~in ~~waste~~2010 ~~water~~we ~~may~~commenced bethe ~~used~~process ~~directly~~of inobtaining ~~the~~ISO9001:2000 ~~production~~international quality ofmanagement ~~CWSF.~~standard ~~Chemical~~certification ~~additives~~for ~~are~~our ~~used~~Tongchuan inplant ~~absolving~~ and ~~stabilizing~~we ~~different~~plan ~~qualities~~to ~~and~~obtain ~~sizes~~a ofsimilar ~~coal~~certification ~~with~~for our Shenyang facility in the ~~water~~future. ByAs ~~weight~~of December 31, ~~CWSF~~2011, it is ~~typically~~still ~~comprised~~in ofprocess ~~approximately~~for ~~70%~~the ~~washed~~Tongchuan ~~coal~~plant, which ~~29%~~we ~~water~~plan ~~and~~to ~~less~~complete ~~than~~by 1%June ~~chemical additives~~2012. We have not yet commenced the certification process for the Shenyang plant.

16Facilities

~~Sino~~We ~~Clean~~have ~~Energy – Cost~~several production lines at each of ~~Good~~our ~~Sold~~facilities, ~~Breakdown~~which are shown in the table below. To minimize technology risk, we have relied primarily on conventional HCPMG technology for CWSF production.

~~for~~Sino ~~the~~Clean ~~year~~Energy ~~ended~~Production ~~December 31, 2010~~ Capacity

Input	% of COGS
					Capacity
Washed coal		82.05	%
Production line	Method		Location	Start date	(metric tons/yr)
Chemical additives		6.27	%
In Place
Electricity		7.36	%
Line 1	Grinder		Tongchuan	07-Jul	100,000
Depreciation		3.26	%
Line 2	Atomizer		Tongchuan	09-Feb	250,000
Wages		0.75	%
Line 3	Grinder		Shenyang	09-Oct	150,000
Water		0.24	%
Line 4	Grinder		Shenyang	09-Oct	150,000
Employee benefits		-	%
Line 5	Grinder		Tongchuan	10-Jan	200,000
Miscellaneous		0.07	%
Line 6	Grinder		Dongguan	11-Feb	150,000
Total		100.00	%
Line 7	Grinder		Dongguan	11-Feb	150,000
Grand total					1,150,000

~~Coal~~Our istotal ~~the primary raw material used to produce~~ CWSF ~~and~~production ~~accounted~~capacity ~~for~~as ~~approximately 82.05%~~ of December ~~our~~31, ~~cost~~2011 ofis ~~goods sold during the year ended December 31~~1,150,000 ~~2010~~MT. We ~~source~~intend ~~coal~~to ~~from~~expand ~~nearby coal mines for each of~~ our CWSF production ~~facilities.~~capacity ~~Coal~~by isup ~~widely~~to ~~available~~an inadditional ~~China~~750,000 ~~and~~MT weat ~~maintain long-term relationships with~~ our ~~key~~Dongguan facility ~~suppliers,~~in ~~although alternative suppliers are available if necessary~~2012. In ~~Our suppliers provide us with washed coal at prevailing market prices~~addition, ~~with~~the ~~volumes~~Company ~~renegotiated~~has ~~each~~entered ~~year.~~into Wea ~~determine raw material prices based on arm's~~non-~~length negotiations with our suppliers shortly prior to delivery~~binding, ~~with~~preliminary ~~reference~~agreement to ~~market~~acquire ~~prices.~~100% ~~Our~~stake ~~reputation~~in Crown asEnergy, awhich ~~dependable~~holds ~~counterparty enables us to obtain~~ a ~~stable~~60% ~~and~~stake ~~low-cost~~in ~~supply~~Foshan ofNan ~~raw material coal for our production facilities~~Hai. ~~Our~~If ~~long-standing~~the ~~supplier~~acquisition ~~relationships~~is ~~provide us with a competitive advantage in China~~completed, ~~and~~the weCompany’s production ~~intend~~capacity towill ~~broaden these relationships to parallel our efforts to~~ increase ~~the~~by ~~scale of our production facilities~~1,000,000 ~~thereby~~MT. ~~maintaining~~Hence ~~a diverse supplier network while leveraging~~ our ~~purchasing~~total ~~power~~expected toproduction ~~obtain~~capacity ~~favorable~~in ~~pricing~~2012 ~~and~~may ~~delivery~~reach ~~terms.~~2,900,000 ~~Water and chemical additives are readily available and do not require supply contracts~~MT.

~~For~~On ~~2008~~April ~~and~~20, ~~2009~~2011, Haizhong Heating, one of our ~~single~~ largest ~~supplier~~customers, ~~Tongchuan~~notified ~~Zhaojin~~us ~~Xinyuan~~that ~~Coal~~due ~~Mine~~to government requirements, ~~accounted~~it ~~for~~had ~~85%~~to ~~and~~change ~~87%~~a ofpipeline ~~our~~in ~~total~~certain ~~purchase~~areas of ~~coal,~~the “Ming ~~respectively~~Fa” real estate development project. The Inmodification ~~2010,~~was ~~our~~originally estimated to take approximately only two ~~largest~~months ~~suppliers~~to complete during the second quarter of 2011, ~~Tiefa~~and ~~Coal~~during ~~Company~~such time Haizhong Heating would suspend operation of its CWSF boilers. Due to the cessation of the Haizhong Heating CWSF boiler operation and ~~Tongchuan~~the ~~Mine~~suspension ~~Business~~of its business during the pipeline modification, ~~accounted~~it became uneconomical for ~~35.9%~~the ~~and~~Shengyang ~~31.6~~facility to continue operations for only a small number of customers, which represented less than 20% of revenues at Shenyang. As a result, our ~~purchase~~Shengyang facility suspended operations in late April 2011. On June 17, 2011, we received an updated notification from Haizhong Heating stating it needed to extend the modification period to the end of ~~coal~~September, ~~respectively~~2011. We ~~typically~~resumed ~~pay~~production ~~for~~at ~~our~~the ~~coal~~end ~~supplies~~of inOctober ~~advance~~2011 and Haizhong Heating resumed operation on November 1, ~~with~~2011. aThe ~~level~~closure of ~~deposit~~Haizhong ~~that~~Heating ~~can~~in ~~range~~second upand tothird quarter ~~two~~of ~~months,~~2011 assignificantly ~~this~~affected ~~helps~~our toproduction ~~ensure~~at ~~that~~Shenyang and as a result, our ~~coal~~overall ~~requirements~~total ~~will~~production bein ~~fulfilled.~~2011 was only 846,189 MT, a reduction of 134,053 MT compared with 2010.

The price of CWSF varies with the price of coal, and we typically have been able to increase our CWSF prices in response to increased coal prices. Our ability to adjust our selling prices has enabled us to maintain very stable gross margins, typically in the range of 30% to 40%. 17

~~Sino~~On ~~Clean~~March ~~Energy~~10, ~~Historical~~2011, ~~Gross~~we ~~Margin~~entered into a contract with Qiulin to purchase a 750,000 MT production line for our Dongguan facility for approximately $10,898,000 (RMB 69,500,000). In April 2011, we paid approximately $3,269,000 (RMB 20,850,000) of this amount, leaving a balance to be paid of approximately $7,629,000 (RMB 48,650,000). The production line was originally scheduled to be completed in August 2011. Delivery of the production line, was originally scheduled in August 2011. However, as of December 31, 2011 we have experienced a delay in the delivery of the production line due to Qiulin’s inability to cover the increase in the price of steel to manufacture the product line. Subsequently, the Company signed a supplementary agreement with Qiulin in which Qiulin agreed to deliver the production line by the end of April 2012. Approximately $7,085,000 (RMB 45,175,000) will be due when the production line is delivered, and the remaining balance of approximately $544,000 (RMB 3,475,000) is due one year after initial acceptance of the production line. The Company has inspected the production line in progress and expects to receive delivery by April 2012. According to our business experience, it will take around 6 months to install and test, and therefore its operation will be commenced in November 2012.

~~Source:~~In addition, the Company has ~~reports~~entered into a non-binding, preliminary agreement to acquire 100% stake in Crown Energy, an investment company registered in Hong Kong, which as its sole business holds a 60% stake in Foshan Nan Hai, a producer and distributor of CWSF in southern China. If after due diligence (which is still in process), the acquisition is completed, we will gain control of 60% of Foshan Nan Hai.

~~The~~Founded ~~demand~~in ~~for~~2003, ~~CWSF~~Foshan ~~for~~Nan ~~residential~~Hai ~~heating~~has ~~tends~~an installed tocapacity beof ~~seasonal~~1.2 inmillion ~~nature,~~MT ~~with~~and ~~peak~~reserved ~~demand~~capacity ~~occurring~~of ~~between~~1 ~~the~~million ~~months~~MT. ofLocated ~~October~~in ~~through~~Foshan ~~March~~City, asGuangdong ~~these~~Province, ~~are~~ where the ~~peak~~local ~~heating~~government ~~periods~~promotes inCWSF ~~the~~for ~~markets~~energy ~~which~~conservation weand ~~currently~~carbon ~~serve.~~emissions ~~Demand~~reduction, ~~for~~Foshan Nan Hai supplies to the largest CWSF ~~during~~boiler ~~peak~~in ~~periods~~China isand ~~approximately~~ships ~~30%~~its toCWSF ~~40%~~output ~~higher~~from ~~than~~its ~~during~~own ~~low~~3,000-MT ~~periods~~barge dock. ~~Demand~~Foshan ~~for~~Nan ~~CWSF~~Hai ~~for~~has ~~industrial~~been ~~applications~~performing the ~~tends~~annual toaudit bework ~~fairly~~for ~~stable~~2011 ~~throughout~~and ~~the~~after ~~year,~~its asaudited ~~industrial~~financial ~~applications~~statements are ~~typically~~available, ~~unrelated~~we towill ~~heating.~~start ~~The~~the ~~price~~required ofdue diligence ~~CWSF~~work. ~~tends~~The toevaluation ~~follow~~and ~~the~~negotiation ~~price~~process ofis ~~coal,~~expected ~~which~~to ~~does~~be ~~not~~completed ~~necessarily~~in ~~follow~~the ~~seasonal~~second ~~fluctuations.~~quarter of 2012.

17We own and lease properties for our operations. We own the land use right to a total of 43,956 square meters of land for our existing site in Tongchuan for a period of 50 years, expiring on December 8, 2057. The buildings and facilities at our Tongchuan location constructed by us are used for the purposes of production, research and development and employee housing. At our Shenyang facility, we have entered into a 10-year lease agreement for the land use right to a total of 7,400 square meters of land, which expires on August 1, 2019. For our Dongguan facility, Dongguan Clean Energy, located in Liu Yong Wei Industrial Park, Wan Jiang District, Dongguan City is 20,234 square meters (5 acres). The property ownership certificate for land has not yet been obtained as the transfer process is not completed. The delay is mainly caused by complex registration procedures to be complied with in finalizing the share structure of Dongguan Clean Energy, as it involves investment by a foreign owned business entity and needs approval of the proper commercial administration department of Guangdong province. Our principal executives and administrative offices are located in Xi'an, Shaanxi Province, in a purchased office space of approximately 233 square meters.

~~Processing~~Customers

WeCurrently ~~use~~all ~~two~~of ~~methods to produce~~ our ~~CWSF:~~customers ~~(i) the~~are ~~High~~based in ~~Concentration~~China ~~Preparation with Mixed Grinding ("HCPMG," or grinding process) as illustrated below,~~ and ~~(ii) the~~use ~~Supersonic~~our ~~Fluid~~CWSF ~~Dynamics~~for ~~Atomizer process ("SFDA~~industrial," residential or ~~atomizer~~commercial ~~process)~~purposes. ~~HCPMG~~As isindustrial ~~the~~users ~~conventional~~use ~~CWSF~~the ~~production~~steam ~~process~~generated ~~and~~by isCWSF boilers ~~comprised~~for ofpower ~~four major steps: coal pulverization, water mixing, quality control~~ and ~~delivery.~~heat ~~The SFDA process differs from the HCPMG process~~ in ~~that~~manufacturing ~~it uses a series of ultrasonic chambers to break coal briquettes down into smaller particle form~~processes, ~~where~~there it is ~~then~~little ~~mixed~~seasonality ~~with water to create CWSF, while the HCPMG process uses a mechanical pulverization process to mix coal briquettes and water~~ in ~~order~~their toconsumption ~~create~~of ~~a finely ground~~ CWSF ~~mixture~~. ~~The~~Currently, ~~SFDA~~our industrial ~~process~~customers ~~requires~~encompass ~~less~~a ~~electricity~~diverse ~~and~~range isof ~~able~~industries tosuch ~~produce finer particle CWSF. The HCPMG production lines can produce coal particles~~ as ~~fine~~wineries, aspaperboard 50manufacturing, tofood ~~80 microns~~processing, ~~while~~and ~~the SFDA production lines can rapidly break coal into particles as fine as 20 to 30 microns~~ceramic manufacturing. ~~Depending~~Residential ~~on the capacity~~ and ~~the~~commercial ~~type~~heating ofcustomers ~~production~~experience ~~process,~~peak ~~the~~heating ~~cost~~demand tofor ~~purchase and install a CWSF production line typically ranges from~~ approximately ~~US$10~~150 days tobetween October ~~US$30~~and ~~per metric ton~~March, ~~with~~and ~~higher~~their ~~capacity~~consumption ~~and~~of ~~more~~CWSF ~~technologically~~fluctuates ~~advanced~~accordingly. ~~production~~The ~~lines~~following ~~being~~table ~~closer~~sets toforth the ~~high~~percentage ~~end~~ of ~~this~~our ~~range.~~revenues by ~~In order to reduce production costs,~~ our ~~plants~~two ~~are~~principal ~~run~~groups ~~primarily~~of atCWSF ~~nighttime~~customers ~~when~~for ~~electricity~~the ~~costs~~periods ~~have been approximately 1/3 of daytime rates.~~ indicated:

~~High~~Sino ~~Concentration~~Clean ~~Preparation~~Energy ~~with~~Customer ~~Mixed Grinding process~~ Breakdown (2009 – 2011)

~~Source:~~As ~~Frost~~of December &31, ~~Sullivan~~2011, we had 35 customers, 29 of which were located within Shaanxi Province (which are being serviced by the Tongchuan facility), 1 of which was located in Liaoning Province (serviced by Shenyang), and 5 of which were located in Guangdong Province (serviced by Dongguan). In order to minimize logistics costs, we typically sell and distribute directly to our CWSF to customers within a 200 kilometer radius of our production facilities. In 2011, our ten largest customers represented 61.1% of total volume sold, while the single largest customer represented 19.9% of total volume sold. During 2011, our ten largest customers by tonnage sold were as follows:

~~Inventory~~ 18

~~Although~~2011 ~~coal~~Top isTen not subject to spoilage, we typically limit storage of coal in inventory to a maximum of two months. On average, we maintain a minimum coal reserve of approximately 5,000 metric tons in Tonghcuan and 3,000 metric tons in Shenyang. Shipments of approximately 3,600 metric tons and approximately 2,000 metric tons are typically delivered every 3 days to the Tongchuan and Shenyang locations, respectively. Production of CWSF is scheduled based substantially on customer orders, which allows us to minimize working capital requirements and to ensure that substantially no inventory is wasted or unusable. CWSF can be stored for up to one year (versus the national standard of one month), but we typically only hold the finished product in inventory for a maximum of two to three days. We currently have capacity to hold up to three days of finished product inventory on-site at each location. Storage and transportation of CWSF is very safe, as the presence of water in CWSF reduces its risk of explosion. As CWSF must be stored above freezing temperature, we use storage tanks that are specially designed to handle fluctuations in external temperatures. To date, we have shipped CWSF inventory using bulk liquid tanker trucks, however, transportation by train has been utilized by other CWSF producers in China. Transportation of CWSF by pipeline is currently under investigation by China's CWSF Research Center. Currently, third-party logistics providers transport approximately 70% of our finished products, with the balance shipped by our own fleet of trucks. Customers

182011 Top Ten Customers

Quality Control

Customer	Type	Sales Volume(MT)	%		Sales Amount(USD)	%
Shenyang Haizhong Heating	Residential Heating	168,680	19.9	%	20,229,541	19.8	%
Xinxing Industry	Industrial Products	118,833	14.0	%	16,790,461	16.4	%
Shaanxi Dade Property	Residential Heating	44,986	5.3	%	6,177,259	6.0	%
Guangzhou Longzheng	Industrial Products	44,552	5.3	%	4,546,294	4.4	%
Shaanxi Tongchuan Yijian	Industrial Products	30,844	3.6	%	3,384,614	3.3	%
Xi'an Institute of Architecture	Industrial Products	23,614	2.8	%	2,719,078	2.7	%
Shaanxi Huayuan Paper Industry	Industrial Products	23,446	2.8	%	2,699,754	2.6	%
Shaanxi Baidu Industries	Industrial Products	22,534	2.7	%	2,472,735	2.4	%
Shaanxi Urban Development	Industrial Products	20,607	2.4	%	2,261,310	2.2	%
Tongchuan Mining Bureau	Industrial Products	19,986	2.4	%	2,193,141	2.1	%
Subtotal		518,082	61.1	%	63,474,187	62.1	%
Other		330,032	38.9	%	38,700,507	37.9	%
Total		848,114	100.00	%	102,174,694	100.0	%

We ~~apply~~are ~~rigorous~~the ~~quality~~dominant ~~control~~CWSF ~~standards~~producer ~~and~~in ~~safety~~Shaanxi, ~~procedures~~Liaoning and atGuangdong ~~each~~provinces. ofWe ~~our~~believe ~~production~~that ~~facilities.~~we ~~Our~~are ~~manufacturing~~able ~~process~~to isdifferentiate ~~controlled~~ourselves ~~and~~from ~~monitored~~our competitors by building a ~~centralized~~track ~~computer~~record ~~control system, which measures~~ and ~~dispenses~~reputation ~~the~~for ~~precise~~high ~~amount~~quality ofproducts ~~water~~ and ~~chemical~~service, ~~additives~~by ~~required~~securing ~~for~~long-term ~~each~~customer ~~production~~contracts ~~cycle~~in ~~to ensure that~~ each ~~batch~~ of ~~CWSF~~the istarget ~~consistent~~markets, ~~with all other batches that we produce. Our quality control technicians regularly test our CWSF production~~ and ~~measure~~by itselectively ~~for~~expanding ~~condensate,~~into ~~viscosity,~~new ~~evaporation~~regional ~~rate, energy content, particle size, sulfur content and ash content~~markets.

~~Although~~The Dongguan ~~there~~facility isprimarily noserves ~~mandatory~~local ~~national~~industrial ~~standard in China for CWSF quality~~businesses, which includes the ~~General~~expected ~~Administration~~prospective ofcustomers ~~Quality~~that ~~Supervision,~~will result ~~Inspection~~from ~~and Quarantine of China and~~ the ~~committee~~additional of750,000 ~~the~~MT ~~Standardization~~capacity. ~~Administration~~The offacility ~~China~~is ~~implemented~~located ~~recommended standards for CWSF~~ in ~~2002.~~Dongguan ~~Our~~city ~~own~~which ~~CWSF~~is ~~production~~an ~~standard~~important concentrated ~~exceeds~~industrial ~~the~~zone ~~recommended~~in ~~national~~Guangdong ~~standard~~province. WeCurrently, ~~are~~only inless ~~the~~than ~~process~~2% of ~~obtaining~~our ~~ISO9001:2000~~customers ~~international~~served ~~quality~~in ~~management~~Guangdong ~~standard~~are residential ~~certification~~buildings, ~~for~~hospitals ~~our~~or ~~Tongchuan~~government ~~plant~~buildings. WeThe ~~plan~~Dongguan tofacility ~~obtain~~primarily aserves ~~similar~~local ~~certification~~industrial ~~for~~business. Currently ~~our~~the ~~Shenyang~~Company ~~facility~~serves five customers in the ~~future.~~following industries:

~~Facilities~~- food and beverage;

We- colored ~~have~~paper several production lines at each of our facilities, which are shown in the table below. To minimize technology risk, we have relied primarily on conventional HCPMG technology for CWSF production. In February 2009, we added a production line at our Tongchuan facility that employs SFDA technology, which consumes 10% less electricity than the conventional grinder method, and is able to produce smaller particle CWSF. products;

~~Sino~~- shoe-making ~~Clean Energy Production Capacity~~ materials;

Production line	Method	Location	Start date	Capacity (metric tons/yr)
In Place
Line 1	Grinder	Tongchuan	Jul-07		100,000
Line 2	Atomizer	Tongchuan	Feb-09		250,000
Line 3	Grinder	Shenyang	Oct-09		150,000
Line 4	Grinder	Shenyang	Oct-09		150,000
Line 5	Grinder	Tongchuan	Jan-10		200,000
Sub total					850,000
Additional development
Line 6	Grinder	Guangdong	Jan-11		300,000
Line 7	Grinder	Guangdong	Aug-11		750,000
Grand total					1,900,000

- garments; and

~~Our~~- rubber ~~total CWSF production capacity as of December 31, 2010 is 850,000 metric tons~~products. ~~We intend to expand our CWSF production capacity by up to an additional 1,050,000 metric tons by expanding the production capacity at our Guangdong facility in 2011.~~

19In the future, other customers may also include those in the chemical industry after the 750,000 MT capacity facility is fully operational.

InWe ~~January~~believe ~~2011,~~that ~~two~~our ~~new~~CWSF ~~production~~products' ~~lines~~high atquality gives ~~the~~us ~~Guangdong facility became operational, with~~ a ~~total~~competitive ~~capacity~~advantage ofin ~~300,00~~attracting ~~metric tons. We plan to add a~~ new ~~production~~customers ~~line~~and ~~with~~retaining ~~capacity~~existing ~~of 750,000 metric tons in August 2011~~customers. The ~~facility~~emerging isgrowth ~~expected~~of tothe ~~have~~CWSF industry anin ~~annual production capacity of 1~~China,~~050,000~~ ~~metric tons~~ and isthe ~~expected~~market toopportunity ~~expand~~require ~~our~~that ~~total~~CWSF ~~annual~~suppliers ~~production~~have ~~capacity~~certain skills to ~~1,900,000~~work ~~metric~~across ~~tons by~~ the ~~end~~value ~~of 2011~~chain. We believe ~~are~~that inour ~~the~~management's ~~process~~vision ofand ~~taking~~expertise ~~the~~enables ~~necessary~~us ~~steps~~ to ~~obtain~~forge athe ~~land~~necessary ~~use~~partnerships ~~right~~with ~~certificate,~~CWSF ~~which~~industry isparticipants, including ~~required~~boiler ~~for~~vendors, uslocal togovernments, ~~obtain~~coal ~~the~~suppliers, ~~rights~~and toCWSF ~~use~~consumers, ~~the~~allowing ~~land~~us ~~and the title~~ to ~~the~~replicate ~~buildings.~~our Wemodel ~~are~~in ~~also~~other geographic regions in ~~the~~order ~~process~~to ~~of registering~~expand ~~a business~~more ~~license~~rapidly ofthan ~~the~~our ~~facility~~competitors.

~~The additional 750,000 metric tons of capacity in Guangdong is expected to require capital expenditures of approximately $13.6~~Customer ~~million~~& ~~for~~Supply ~~the~~Contracts construction of production facilities. In addition, our expansion from 850,000 metric tons to 1,050,000 metric tons is expected to require additional net working capital of approximately $15 million in order to run the production lines at full capacity. We intend to complete the new production lines in August 2010, and reach total capacity of 1,900,000 metric tons in the fourth quarter of 2011.

WeSales occupy both owned and leased properties for our operations. We own the land use right to a total of 43,956 square meters of land for our existing site in Tongchuan for a period of 50 years, expiring on December 8, 2057. The buildings and facilities at our Tongchuan location constructed by us are used for the purposes of production, research and development and employee housing. At our Shenyang facility, we have entered into a 10-year lease agreement for the land use right to a total of 7,400 square meters of land, which expires on August 1, 2019. Our principal executive and administrative offices are located in Xi'an, China in approximately 233 square meters of purchased office space.

~~Customers~~Our sales contracts outline total sales volume, price, product specifications, delivery schedule, and method of delivery. We have entered into three to five year framework agreements with approximately 90% of our customers whereby we provide CWSF at prevailing market prices, and volumes are renegotiated each year. Typically, the CWSF consumption volume of any given boiler does not fluctuate significantly from year to year. Once established, the customer base for CWSF is very stable, as the consumption patterns are highly predictable and the costs to switch CWSF boilers to other fuels are prohibitively expensive. Current CWSF prices (all prices include VAT) for sales contracts with customers in Tongchuan ranges from $121 (RMB770) to $127 (RMB810) per MT. It is $138 (RMB880) per MT in Shenyang and $165 (RMB1,050) to $173 (RMB1105) per MT in Dongguan. CWSF transportation costs and the associated risks are covered by us at both the Tongchuan facility and the Shenyang facility. The prices paid by customers at the Dongguan facility are higher mostly because the coal materials cost is higher in Dongguan for the lack of local mines in Guangdong. If the market price of CWSF differs by more than 10% of the original price quoted in the contract, either above or below, the sales price is re-negotiated. Pursuant to the annual sales agreements, customers generally pay for CWSF on a monthly basis. We occasionally provide our customers with extended credit terms of up to three months, for example to certain government residential heating agencies. We set payment methods depending on our business relationship, customers' credit records and prevailing market conditions.

Currently all of our customers are based in China and use our CWSF for either industrial purposes or for heating in residential and commercial buildings. As industrial users use the steam generated by CWSF boilers for power and heat in manufacturing processes, there is little seasonality in their consumption of CWSF. Currently, our industrial customers encompass a diverse range of industries such as wineries, paperboard manufacturing, food processing, and ceramic manufacturing. Residential and commercial heating customers experience peak heating demand for approximately 150 days between October and March, and their consumption of CWSF fluctuates accordingly. The following table sets forth the percentage of our revenues by our two principal groups of CWSF customers for the periods indicated: 19

~~Sino~~Coal ~~Clean~~supply ~~Energy Customer Breakdown (2007 – 2010)~~

AsIn line with the general market trend of rising ~~December 31,~~coal ~~2010~~prices, we ~~had~~have 43adopted ~~customers,~~a 38prudent hedging policy of ~~which~~entering ~~were~~into ~~located~~long ~~within~~term ~~Shaanxi~~coal ~~Province~~supply ~~(which~~contracts at competitive prices for large amounts of coal. We have entered into long term coal supply contracts with coal mines/coal washing facilities that are near ~~being~~our ~~serviced~~CWSF byproduction ~~the~~facilities. ~~Tongchuan~~We have such agreements with four suppliers located in Shaanxi (one supplier is for Dongguan facility), and ~~five~~two ofsuppliers ~~which~~in ~~were~~Shenyang. ~~located~~The insupply ~~Liaoning~~contracts ~~Province~~define ~~(which~~the ~~are~~supply ~~being~~volume, ~~serviced~~pricing, bypayment ~~the~~term, ~~Shenyang~~product ~~facility)~~specifications, and delivery schedule. InWe ~~order~~set ~~minimize~~the ~~logistics~~maximum ~~costs~~amount of supply volume, wewhich ~~typically~~is ~~sell~~guaranteed ~~our~~by ~~CWSF~~the tocoal ~~customers~~supplier. ~~within~~In aShaanxi, ~~200~~we ~~kilometer~~have historically ~~radius~~drawn most of our ~~production~~coal ~~facilities.~~supplies Wefrom ~~sell~~a single supplier and ~~distribute~~a ~~CWSF~~small ~~directly~~portion tofrom ~~our~~other ~~customers~~suppliers. InWe ~~2010~~are provided coal at prevailing market prices, ~~our~~and ~~ten~~volumes ~~largest~~are ~~customers~~renegotiated ~~represented~~each 58year.5% However, if the market price of ~~total~~coal ~~volume~~exceeds ~~sold,~~the ~~while~~price initially quoted in the ~~single~~supply ~~largest~~contract ~~customer~~by ~~represented~~20%, 33then a new contract can be negotiated.5% Suppliers must deliver the coal to us within two months after we notify the supplier of ~~total~~our ~~volume~~need ~~sold~~for coal. ~~During~~As ~~2010,~~a ~~our~~result ~~ten~~of ~~largest~~this ~~customers~~strategy, bywe ~~tonnage~~have ~~sold~~built ~~were~~up asa ~~follows:~~substantial prepaid coal inventory.

20Coal prices (all quoted price includes VAT) in different location of Shaanxi province can be referenced by logging in National Coal Chemical Industry website:

~~2010 Top Ten Customers~~http://coalchem.cpcia.org.cn/market/html/80020502/80475.html

Customer	Type	Sales Volume (metric tons)		%
Shenyang Haizhong Heating	Residential Heating		329,341		33.5	%
Shaanxi Dade Property	Residential Heating		40,629		4.1	%
Shaanxi Tongchuan Yitong	Industrial Products		31,618		3.2	%
Shaanxi Urban Development	Integrated Industrial		27,124		2.8	%
Northwest Rubber	Industrial Products		27,106		2.8	%
Qinqin Food	Integrated Industrial		25,476		2.6	%
Xi’an Institute of Architecture	Integrated Industrial		23,717		2.4	%
Shaanxi Baidu Industries	Industrial Products		23,329		2.4	%
China Northern Airline	Industrial Products		23,114		2.4	%
Shan’xi Yongxin Paper	Integrated Industrial		23,045		2.4	%
Subtotal			574,499		58.5	%
Other			407,667		41.5	%
Total			982,166		100.0	%

and Shaanxi Shenmu website:

~~We are the dominant CWSF producer in both of our present markets~~http: ~~Shannxi province and Liaoning province~~//www. We believe that we are able to differentiate ourselves from our competitors by building a track record and reputation for high quality products and service, by securing long-term customer contracts in each of the target markets, and by selectively expanding into new regional marketssxsm. ~~We believe that our CWSF products' high quality gives us a competitive advantage in attracting new customers and retaining existing customers~~com. ~~The emerging growth of the CWSF industry in China, and the market opportunity require that CWSF suppliers have certain skills to work across the value chain~~cn/content/jrbj/2011/12-5/1112584035K9C7J7DA0EIK984. We believe that our management's vision and expertise enables us to forge the necessary partnerships with CWSF industry participants, including boiler vendors, local governments, coal suppliers, and CWSF consumers, allowing us to replicate our model in other geographic regions in order to expand more rapidly than our competitorshtml.

~~Customer &~~The ~~Supply~~coal ~~Contracts~~we purchase is over 6500 kcal (defined in purchase contract). According to information listed on the websites, the price of coal is $122 (RMB780) per MT in Tongchuan and $138 (RMB880) per MT in Shenmu. The coal price does not include freight. Our purchase price in Tongchuan is $110 (RMB700) per MT and in Dongguan $125 (RMB800) per MT, which mean significant savings have been achieved under these long term supply contracts.

~~Sales~~Coal prices in Liaoning can be obtained through Liaoning Coal Website: http://www.sxcoal.com/lncoal/index.html.

~~Our~~The ~~sales~~lowest ~~contracts outline total sales volume,~~ price, product specifications, delivery schedule, and method of delivery. We have entered into three to five year framework agreements with the majority of our customers whereby we provide CWSF at prevailing market prices, and volumes are renegotiated each year. We have framework agreements in ~~place with approximately 90% of our customers. Typically,~~ the ~~CWSF~~web ~~consumption volume of any given boiler does not fluctuate significantly from year to year. Once established, the customer base for CWSF~~ is ~~very~~$149 stable, as the consumption patterns are highly predictable and the costs to switch CWSF boilers to other fuels are prohibitively expensive. Current CWSF prices for sales contracts with customers in Tongchuan range from RMB 770 to RMB 810 (RMB950) per ~~metric ton and CWSF prices for sales contracts with customers in Shenyang are RMB 960 per metric ton~~MT. ~~CWSF~~Our ~~transportation~~purchase ~~costs~~price ~~and the associated risks are covered by us~~ at ~~both the Tongchuan facility and the~~ Shenyang facility. ~~The prices paid by customers at the Shenyang facility are higher mostly because the coal materials cost~~ is ~~higher~~$114 in(RMB725) ~~Shenyang,~~per ~~as our customers are relatively farther away from the production facility. If the market price of CWSF differs by more than 10% of the original price quoted in the contract~~MT, ~~either~~which ~~above~~again orshows ~~below,~~significant ~~the~~savings ~~sales~~have ~~price~~been isachieved under ~~re-negotiated.~~these ~~Pursuant~~supply ~~to the annual sales agreements, customers generally pay for CWSF on a monthly basis, with payment collected in cash upon delivery~~contracts. We occasionally provide our customers with extended credit terms of up to three months, for example to certain government residential heating agencies. We set payment methods depending on our business relationship, customers' credit records and prevailing market conditions.

21As of December 31, 2011, we had commitments with five coal suppliers (Tongchuan Mining Department Yu Hua Coal Mine, Tongchuan Huaneng Commerce and Trading Co. Ltd, The Coal Sales Sub-Co of Tie Fa Coal Industry (Group) Company Limited, Fushun Teng Da Wash Coal Company Limited, and Shenmu Zhengchang Coke Transportation and Sale Company) to purchase 581,800 MT of wash clean coal to be delivered in 2012 for a total of $74,923,000 (RMB 478,147,000). At December 31, 2011, $37,057,551 (RMB 236,338,232) of this commitment representing approximately 291,000 MT has been paid and is included in prepaid coal. The Company estimates that the amount of prepaid inventories at December 31, 2011 will be delivered to factories and used in production by the end of the second quarter of 2012, and does not expect to make any more major prepayments of coal until such prepaid balances have been used up.

During 2011, the Company advanced approximately $2,800,000 to one of its suppliers, Tongchuan ZhaoJin Town XinYuan Coal ~~supply~~Mine ("XinYuan"). Xin Yuan supplied our Tongchuan facility and is located in Shaanxi Province, the PRC. On October 14, 2011, there was a mining disaster in the vicinity of Xin Yuan. As a result, operations at coal mines in neighboring districts, including Xin Yuan, were suspended until each coal mine passes certain safety regulations. As of December 31, 2011, Xin Yuan was still undergoing safety rectification and had not resumed operations. As such the Company provided a reserve for the amount due to the uncertainty of realization which has been included in cost of goods sold for the year ended December 31, 2011. However the Company will use every effort and will endeavor to recover the prepaid advance from the supplier should the coal not be delivered in 2012 as specified in the supplementary agreement.

We have entered into coal supply contracts with coal mines/coal washing facilities that are near our CWSF production facilities. We have agreements with three such suppliers in Tongchuan and another two in Shenyang. The supply contracts define supply volume, pricing, term, product specifications, and delivery schedule. We set the maximum amount of supply volume, which is guaranteed by the coal supplier. In Tongchuan, we have historically drawn most of our coal supplies from a single supplier and a small portion from another supplier. We are provided coal at prevailing market prices, and volumes are renegotiated each year. However, if the market price of coal exceeds the price initially quoted in the supply contract by 20~~%, then a new contract can be negotiated. Suppliers must deliver the coal to us within two months after we notify the supplier of our need for coal.~~

~~Guangdong~~Dongguan facility

We are targeting large CWSF customers in Guangdong, as the province is one of the most economically developed in China, and has the largest consumer capacity for CWSF in China, according to Beijing Zhongjing Zongheng Information and Consulting Center. In ~~August~~September 2010, ~~through our subsidiary, Suoke Clean Energy,~~ we entered into an agreement ~~with Dongguan Yongchang Paper Co. (“Dongguan Paper’),~~ to purchase atwo ~~land~~production ~~use~~lines ~~right~~to ~~for~~be ~~approximately~~operated 5within ~~acres~~the ofnew ~~land and a production factory in~~ Dongguan, ~~Guandong~~facility ~~Province~~ for a total purchase price of approximately $5,~~550~~372,000. The Wefactory ~~paid~~was acompleted ~~deposit of $4,141,000~~ and ~~the~~commenced ~~balance~~production ~~will be paid when legal title has been completed. Also,~~ in ~~connection~~January ~~with the acquisition of Dongguan Paper, we entered into an agreement pursuant to which we were transferred 100 % of the equity interest in Dongguan Clean Energy Water Coal Mixture Co~~2011. ~~(“Dongguan Water Coal Mix Co.”) from its shareholders for nominal consideration (RMB2) because this transaction was part of the transaction with Dongguan Paper.~~ We ~~acquired~~are ~~Dongguan Water~~still ~~Coal Mix Co. solely because it has a business license to manufacture and sell CWSF~~ in ~~Guangdong. According to~~ the ~~agreement,~~process weof ~~could~~obtaining ~~receive~~ the ~~economic~~land ~~benefits~~use ~~and debt obligations after January 1~~right certificate, ~~2011.~~which ~~The~~entitled ~~completion~~us ofto ~~the~~use ~~governmental registration of~~ the ~~equity~~land ~~change~~ and ~~the transfer~~gain of the ~~business~~title ~~license depends on Dongguan Water Coal Mix Co. passing its annual registered capital inspection, which is expected~~ to bethe ~~in May 2011~~buildings.

In ~~September~~early ~~2010,~~March weof ~~entered~~2011, ~~into~~the anCity ~~agreement~~Government of toDongguan ~~purchase~~passed ~~two production lines to be operated within~~ the ~~new~~Dongguan ~~Guangdong~~City ~~facility~~Program for aRemoving ~~total~~and ~~purchase~~Upgrading ~~price~~Small- ofand ~~approximately~~Medium-Size $5Coal-Burning Boilers,~~372,000.~~ ~~The~~clearly ~~factory~~prescribing that ~~was~~small- ~~completed~~ and ~~commenced~~medium-size ~~production~~coal-burning inboilers ~~January~~of ~~2011.~~up Weto ~~are~~and inincluding ~~the~~10 ~~process~~steam-tons of(boiler ~~taking~~power ~~the~~scale) ~~necessary~~must ~~steps~~be toremoved. ~~obtain~~ With the ~~land~~implementation ~~use~~of ~~right~~this ~~certificate~~policy, ~~which~~we isbelieve ~~required~~that ~~for us to obtain~~ the ~~rights~~demand tofor ~~use~~CWSF ~~the~~in ~~land~~Dongguan ~~and~~City ~~the~~will ~~title~~increase torapidly ~~the buildings. We are still~~ in the ~~process~~next of18 ~~transferring the business license of the facility~~months.

InInitially, ~~early~~we ~~March~~have ofplanned ~~2011~~to increase overall production capacity by expanding in Nanning and Shenyang, with the ~~City~~goal ~~Government~~ of adding additional capacity in Dongguan ~~passed~~by August 2011. However, in an effort to take advantage of the opportunity presented by Dongguan City Program, we determined ~~for~~it ~~Removing~~was ~~and~~in ~~Upgrading~~our ~~Small-~~best ~~and~~interests ~~Medium-Size~~to ~~Coal-Burning~~delay ~~Boilers,~~the ~~clearly~~progress ~~prescribing~~in ~~that~~Nanning ~~small-~~and Shenyang, and ~~medium-size~~instead ~~coal-burning~~immediately ~~boilers~~increase production capacity in Dongguan in anticipation of upthe potential increase in demand. On March 10, 2011, we entered into a contract with Qiulin to ~~and~~purchase ~~including~~a 750,000 MT production line for our Dongguan facility for approximately $10,898,000 ~~steam-tons~~(RMB 69,500,000). In April 2011, we paid approximately $3,269,000 (~~boiler~~RMB ~~power~~20,850,000) ~~scale~~of this amount, leaving a balance to be paid of approximately $7,629,000 (RMB 48,650,000). ~~must~~The production line was originally scheduled to be ~~removed~~completed in August 2011. Delivery ~~With~~of the ~~implementation~~production line, was originally scheduled in August 2011. However, as of ~~this~~December ~~policy~~31, 2011 we ~~believe~~have experienced ~~that~~a delay in the ~~demand~~delivery ~~for~~of ~~coal~~the ~~water~~production ~~slurry~~line indue ~~Dongguan~~to ~~City~~Qiulin’s ~~will~~inability to cover the increase ~~rapidly~~in the price of steel to manufacture the product line. Subsequently, the Company signed a supplementary agreement with Qiulin in which Qiulin agreed to deliver the ~~next~~production line by the end of April 2012. Approximately $7,085,000 (RMB 45,175,000) will be due when the production line is delivered, and the remaining balance of approximately $544,000 (RMB 3,475,000) is due one year after initial acceptance of the production line. The Company has inspected the production line in progress and expects ato ~~half~~receive delivery by April 2012. According to our business experience, it will take around 6 months to install and test, and therefore its operation will be commenced in November 2012.

~~Initially, we had planned to increase overall production capacity by expanding in Nanning and~~ Shenyang, ~~with~~Haizhong ~~the~~Heat ~~goal~~Resource of adding additional capacity in Dongguan by August 2011. However, in an effort to take advantage of the opportunity presented by Dongguan City Program, we determined it was in our best interests to delay the progress in Nanning and Shenyang, and instead immediately increase production capacity in Dongguan in anticipation of the potential increase in demand. As a result, on March 10, 2011, through our new subsidiary, Dongguan Water Coal Mix Co., ~~we entered into an agreement with Jiangsu Qiulin Heavy Industry Holdings. Co.,~~ Ltd. (~~“Jiangsu Qiulin”~~"Haizhong Heating") to purchase a 750,000 metric ton production line for use in Guangdong. Based on the terms of the agreement, installation of this production line is expected to be complete by July 15, 2011. We expect this production line to be operational by August 2011. The total purchase price for this CWSF production line is approximately $10.4 million (RMB 69.5 million). With the addition of this new line, our Guangdong facility is expected to have an annual production capacity of 1,050,000 metric tons and is expected to expand our total annual production capacity to 1,900,000 metric tons by the end of 2011.

~~Nanning~~We ~~facility~~have entered into an agreement with Haizhong Heating, which is an unrelated third-party municipal heat supplier in Shenyang. Haizhong Heating was founded in 2007 when it was partially spun from Haizhong Boiler, which retains a majority equity interest. Haizhong Heating has signed an exclusive agreement with the Shenyang municipal government to provide heat to local businesses, residential buildings and hospitals within an area of 1,200 hectares. We are one of the largest CWSF suppliers to Haizhong Heating. The current area serviced by Haizhong Heating is 4 million meters, which requires approximately 300,000 MT of CWSF on an annual basis. Haizhong Heating expected that the service area will be expanded to 10 million square meters, requiring approximately 850,000 MT of CWSF annually by the end of 2012.

~~The~~Haizhong ~~Nanning~~Heating ~~government~~was isour ~~also~~largest ~~aggressively~~client in ~~promoting~~2011 ~~the~~and ~~usage~~2010 ofaccounting ~~CWSF~~for asapproximately an87% ~~alternative fuel,~~ and ~~has~~85% ~~publicly~~of ~~indicated~~the ~~its intention to establish local CWSF~~ production capacity ofin 3our ~~million~~Shenyang ~~metric~~facility ~~tons~~respectively. ~~Presently,~~We planned ~~there~~to ~~are~~increase ~~only~~our ~~two~~production ~~local CWSF producers in Nanning, each with a~~ capacity ofby ~~approximately 100~~200,000 ~~metric~~MT ~~tons.~~in WeShenyang ~~have~~to ~~entered~~meet ~~into~~the ananticipated ~~agreement~~demand ~~with~~from ~~Guangxi~~Haizhong ~~New~~Heating. ~~Heat~~However, Haizhong ~~Energy~~Heating ~~Company~~delayed ~~("GNHEC")~~its ~~pursuant~~expansion toplans ~~which~~due weto government's ~~act~~delay asin the ~~exclusive~~granting ~~CWSF provider in~~ the ~~Jin~~land ~~Kai~~for ~~Industrial~~Haizhong ~~Park of Nanning Economic and Technological Development Area~~Heating’s expansion.

InAs ~~November 2009, through our subsidiary, Suoke Clean Energy, we entered into~~ a ~~memorandum~~result ofit ~~understanding~~is ~~with the local government of Nanning, Guangxi Province, pursuant to which we planned to establish a 500,000 metric ton per annum CWSF production facility in the city of Nanning. We~~ expected tothat ~~commence construction on the facility~~ in ~~early 2011~~2012, Haizhong ~~with~~Heating amay ~~view~~reduce topurchase ~~commencing~~from ~~commercial production in the first half of 2011. However, at this time, the local government of Development Zones has not yet completed the procedures necessary for~~ us toby ~~acquire~~up ~~the land for our 500,000-ton new project in Nanning. Since our expansion plans would have been delayed in Nanning as a result, we determined~~ to ~~instead~~30% ~~use~~compared our capital to focus on increasing production in Guangdong in response to the new government initiative in Guangdong. Although we have delayed expansion in Nanning, we and GNHEC have continued our discussions with ~~potential customers. We anticipate completing construction in Nanning by the end of~~ 2011.

~~Shenyang~~We are one of the largest CWSF suppliers to Haizhong Heating. ~~Heat~~Haizhong ~~Resource~~Heating Cois a third-party municipal heat supplier that supplies heat both residentially and commercially. Haizhong Heating has signed an exclusive agreement with the Shenyang municipal government to provide heat to a large master planned community consisting primarily of residential buildings within an area of 1,200 ~~Ltd~~hectares. ("Currently we do not maintain or collect data regarding the volume of sales that Haizhong ~~Heat")~~Heating makes residentially and commercially to its customers. As the economic zone develops, we anticipate that its customer base would change, and therefore ,we do not deem it practicable or useful to collect such data.

WeQingdao ~~have entered into an agreement with~~ Haizhong ~~Heat,~~Enterprise ~~which is an unrelated third-party municipal heat supplier in Shenyang~~Co. ~~Haizhong Heat was founded in 2007 when it was partially spun-out of Haizhong Boiler~~, ~~which retains a majority equity interest in Haizhong Heat~~Ltd. ("Haizhong Heat has signed an exclusive agreement with the Shenyang municipal government to provide heat to local businesses, residential buildings and hospitals within an area of 1,200 hectares. We are the exclusive CWSF supplier to Haizhong Heat. The current area serviced by Haizhong Heat is 4 million square meters, which requires approximately 300,000 metric tons of CWSF on an annual basis. Haizhong Heat has stated its intention that the service area will be increased to 10 million square meters, requiring approximately 850,000 metric tons of CWSF annually by the end of 2012.Boiler”)

~~Haizhong~~Since ~~Heat~~2008, ~~was~~through our ~~largest~~subsidiary, ~~client~~Suo'ang New ~~in 2010. In 2010~~Energy, ~~Haizhong~~we ~~Heat~~acted ~~accounted~~as ~~for approximately 85% of~~ the ~~production~~exclusive ~~capacity~~sales inagent ~~our~~for ~~Shenyang~~Haizhong ~~facility.~~Boiler, Wewhich ~~planned~~is toan ~~increase~~unrelated ~~our~~third-party ~~production~~manufacturer ~~capacity~~of byCWSF boilers ~~200~~in China,~~000~~ ~~metric~~and ~~tons~~specifically in ~~Shenyang~~Xi’an and Tongchuan in ~~order~~Shaanxi toProvince. ~~keep~~In upJuly 2009, ~~with~~we ~~the~~entered ~~anticipated~~into ~~demand~~a ~~from~~nationwide ~~Haizhong~~strategic ~~Heat’s~~partnership agreement with ~~the municipal government.~~ Haizhong ~~Heat~~Boiler, ~~delayed~~pursuant ~~its~~to ~~expansion~~which ~~plans~~Haizhong ~~due~~Boiler ~~to government's~~sells CWSF ~~delay~~boilers, and in ~~the~~some ~~procedure~~markets ofoperates ~~providing~~heat ~~the~~supply ~~land~~plants, ~~for~~while ~~Haizhong~~we ~~Heat’s~~act ~~expansion.~~as Asthe aexclusive ~~result,~~supplier weof ~~have~~the ~~been~~requisite ~~evaluating~~CWSF. This ~~whether~~agreement ~~the~~expired ~~demand~~in ~~for~~February ~~CWSF~~2011 ~~locally,~~according ~~other~~to ~~than~~its ~~from~~terms. ~~Haizhong~~Commission ~~Heat,~~revenues isfrom ~~sufficient~~sales atof ~~this~~Haizhong ~~time~~made toboilers ~~support~~represented less ~~the~~than ~~Company’s~~one ~~expansion~~percent ~~plans~~of toour ~~increase production capacity~~revenues.

~~Qingdao Haizhong Enterprise Co., Ltd. ("Haizhong Boiler”)~~21

Since 2008, through our subsidiary, Suo'ang New Energy, we acted as the exclusive sales agent for Haizhong Boiler, which is an unrelated third-party manufacturer of CWSF boilers in China, in Xi’an and Tongchuan ingovernment Shaanxi Province. This agreement expired according to its terms in February 2011. Revenues from sales of Haizhong made boilers represented less than one percent of our revenues. In July 2009, we entered into a nationwide strategic partnership agreement with Haizhong Boiler , pursuant to which Haizhong Boiler sells CWSF boilers, and in some markets operating heat supply plants, while we act as the exclusive supplier of the requisite CWSF.

22In November 2010, the Company entered into an agreement with TCID to develop a new joint venture heat supply company for the purpose of providing heating for the new district in Tongchuan. TCID has stated that 15 new heat supply plants will need to be built to supply an area of 16.4 million square meters. The Joint Venture requires an investment of $13,300,000 (RMB 85,000,000) by TCID, for which it receives an 85% stake in the Joint Venture, and $2,3000,000 (RMB 15,000,000) buy the Company, foe which it receives a 15% stake in the Joint Venture. As of December 31, 2011, the construction of the heating supply pipelines has been started in Tongchuan New District. Three heating supply plants are expected to be finished in the fourth quarter of 2012. At December 31, 2011, the Company had not made any investment and estimates its investment to the Joint Venture will be made in 2012.

~~Tongchuan~~Sales, ~~government~~Marketing and Customer Development

WeAs ~~have~~the ~~entered~~CWSF ~~into~~industry ~~an agreement with Tongchuan City Investment and Development Co.~~develops, ~~Ltd.~~ ~~("TCID")~~we ~~to develop~~ constantly and ~~provide~~actively ~~CWSF~~seek opportunities to aparticipate ~~new heat supply company for the purpose of providing heating for the new district~~ in ~~Tongchuan.~~energy-related ~~TCID~~tradeshows ~~expects~~and ~~that~~government-sponsored 15events ~~new heat supply plants will need~~ to bepromote ~~built~~CWSF ~~to supply~~ as an ~~area~~alternative ofclean ~~approximately~~energy ~~16.4 million~~with ~~square~~our ~~meters.~~Company ~~The~~as ~~plants~~a ~~are~~preferred ~~expected~~supplier. toIn be2008 ~~built~~a ~~and~~CWSF ~~operational~~promotion ~~over~~team ~~five~~was ~~to seven years. The newly~~ formed ~~heat~~in ~~supply~~Tongchuan, ~~company~~jointly with ~~will~~the ~~require~~local ~~an investment of $12.5 million by TCID~~government, for ~~which~~the itpurpose ~~will~~of ~~receive~~demonstrating anand ~~85%~~promoting ~~stake~~CWSF ~~in the new company,~~ and ~~$2.2 million~~to byenhance ~~Suo'ang~~public ~~New~~knowledge ~~Energy,~~and ~~for~~awareness ~~which it will receive a 15% stake in the new company~~of CWSF.

~~Sales,~~We ~~Marketing~~conduct our sales efforts through direct sales by our own in-house sales personnel located in Xi'an Dongguan and ~~Customer~~Shenyang. ~~Development~~We sell our CWSF mainly to customers located within a radius of 200 kilometers of our production facilities. Our sales team places a strong emphasis on building long-term relationships with our customers by proactively seeking customer feedback. Our sales personnel regularly visit customers to obtain feedback on our performance and gather market information.

AsResearch ~~the CWSF industry develops, we constantly seek out opportunities to participate in energy-related tradeshows~~ and ~~government-sponsored~~Development events to promote CWSF as an alternative clean energy with our Company as a preferred supplier. A CWSF promotion center has been established at our Tongchuan plant, jointly with the local government, for the purpose of demonstrating and promoting CWSF and to enhance public knowledge and awareness of CWSF.

WeOur ~~conduct~~CWSF manufacturing technology was developed in-house by our ~~sales~~research ~~efforts~~and ~~through~~development ~~direct~~department. ~~sales~~Our byresearch ~~our~~and ~~own~~development ~~in-house~~team ~~sales~~is ~~personnel~~comprised ~~located~~of in10 professionals, ~~Xi'an~~7 of whom are internal and ~~Shenyang~~3 of whom are external experts and consultants. WeFurthermore, ~~sell~~we ~~our~~have ~~CWSF~~entered ~~mainly~~into agreements with two local universities in 2009 pursuant to ~~customers~~which ~~located~~we ~~within~~will invest a ~~radius~~total of ~~200~~$789,000 ~~kilometers~~(RMB5 million) in research projects conducted by these two universities over a term of ~~our~~30 ~~production~~months ~~facilities~~and 36 months. ~~Our~~$474,000 ~~sales~~(RMB3 ~~team~~million) ~~places~~and $315,000 a(RMB ~~strong~~2million) ~~emphasis~~will onbe ~~building~~granted ~~long-term~~to ~~relationships~~these ~~with~~two ~~our~~universities ~~customers~~at byvarious ~~proactively~~stages ~~seeking~~of ~~customer~~the ~~feedback~~research programs. ~~Our~~The ~~sales~~agreements, as ~~personnel~~amended, ~~regularly~~specify ~~visit~~that ~~customers~~we will own and have exclusive intellectual property rights to ~~obtain~~the ~~feedback~~outcome onof the research and development projects. We believe that our ~~performance~~emphasis on research and ~~gather~~development, ~~market~~innovation, ~~information.~~and continuous product and process improvements will enable us to maintain and expand our leading position in the CWSF industry in China.

~~Research~~The primary focus of our research and ~~Development~~development initiatives has been to decrease our CWSF's particle size, which can result in higher efficiency fuel with a broader range of applications. Furthermore, our research and development efforts have generated technological improvements that have been instrumental in lowering our production costs and increasing operational efficiency. We are currently developing new specialties of CWSF products and we have also conducted research on and implemented new CWSF production methods by adopting new chemical additives.

~~Our~~The ~~CWSF~~company ~~manufacturing~~is ~~technology~~currently ~~was~~implementing ~~developed in-house by our~~ two research and development ~~department.~~projects ~~Our research~~ and ~~development~~one ~~team~~project ~~comprises~~has 10already ~~professionals,~~been 7transferred offrom ~~whom~~the ~~are~~laboratory ~~internal~~stage ~~and~~to 3the ofpractical ~~whom are external experts and consultants~~stage. The ~~Furthermore,~~Tongchuan wefactory ~~have~~has ~~entered~~bought ~~into agreements with two local universities pursuant to which we will invest RMB 5 million in research projects over~~ a ~~term~~small ofmill ~~30 months~~ and 36other ~~months,~~facilities ~~respectively. The agreements, as amended, specify that we will have all intellectual property rights~~ to begin the ~~outcome~~work of ~~the~~experimental ~~research~~alkaline ~~and~~wastewater ~~development.~~experiment pulp ~~We believe that our emphasis on research~~ and ~~development,~~once ~~innovation,~~the ~~and~~experiment ~~continuous~~becomes ~~product~~successful and ~~process~~is ~~improvements~~applied ~~will enable us~~ to ~~maintain~~operation, ~~and~~it ~~expand~~could ~~our~~not ~~leading~~only ~~position~~reduce inproduction ~~the~~costs, ~~CWSF~~but ~~industry~~also substantially inmore ~~China.~~environmental friendly.

~~The~~Personnel ~~primary focus of our research~~ and ~~development~~Staff initiatives has been to decrease our CWSF's particle size, which can result in higher efficiency fuel with a broader range of applications. Furthermore, our research and development efforts have generated technological improvements that have been instrumental in lowering our production costs and increasing operational efficiency. We are currently developing new specialties of CWSF products and we have also conducted research on and implemented new CWSF production methods by adopting new chemical additives.

~~Personnel~~Our senior management team and ~~Staff~~key operating personnel have the management skills, relevant operating experience and industry knowledge that we believe are required to succeed in the CWSF industry. We believe our management team's in-depth knowledge and deep industry relationships within the CWSF market in China will enable us to execute our expansion strategy and to take advantage of market opportunities.

Our senior management team and key operating personnel have the management skills, relevant operating experience and industry knowledge that we believe are required to succeed in the CWSF industry. We believe our management team's in-depth knowledge and deep industry relationships within the CWSF market in China will enable us to execute our expansion strategy and to take advantage of market opportunities. 22

23We had 176 employees as of December 31, 2011. From time to time, we employ third-party research and development consultants. We have never experienced any significant labor disputes and consider our relationship with our employees to be good. We expect that our staffing needs will expand as we continue to expand our production capacity. The following table shows a breakdown of our employees by function and geography as of December 31, 2011:

We had 166 employees as of December 31, 2010. From time to time, we employ third-party research and development consultants. We have never experienced any significant labor disputes and consider our relationship with our employees to be good. We expect that our staffing needs will expand as we continue to expand our production capacity. The following table shows a breakdown of our employees by function and geography as of December 31, 2010:

	Tongchuan facility	Shenyang facility	Xi'an head office	Guangdong facility	Total
Management	3	2	2	1	8
Sales and marketing	9	3	2	3	17
Technical staff	7	4		2	13
General and administrative	11	10	13	9	43
Manufacturing	56	30		9	95
Total	86	49	17	24	176

	Tongchuan facility		Shenyang facility		Xi'an head office		Guangdong facility		Total
Management		3		2		7		2		14
Sales and marketing		9		3						12
Technical staff		7		4				2		13
General and administrative		11		10		13		7		41
Manufacturing		56		30						86
Total		86		49		20		11		166

Insurance

~~Insurance~~We provide social security insurance including pension insurance, unemployment insurance, work related injury insurance and medical insurance for our employees. Although we currently maintain fire, casualty and property insurance covering our two production lines in Shenyang, three production lines in Tongchuan and one production line in Dongguan, we do not maintain any business interruption insurance or any third party liability insurance to cover claims related to personal injury, property or environmental damage arising from accidents on our properties.

WeIntellectual ~~provide~~Property social security insurance including pension insurance, unemployment insurance, work related injury insurance and medical insurance for our employees. Although we currently maintain fire, casualty and property insurance covering our two production lines in Shenyang and three production lines in Tongchuan, we do not maintain any business interruption insurance or any third party liability insurance to cover claims related to personal injury, property or environmental damage arising from accidents on our properties.

~~Intellectual~~Currently, ~~Property~~we have the ownership of a business trademark ,which is registered in the PRC under Suo'ang BST.

~~Currently,~~Environmental ~~the~~Matters only trademark we use for our business is , which is registered in the PRC under Suo'ang BST. We have filed the requisite documentation for the transfer and assignment of the trademark with the appropriate governmental authority and are waiting to receive approval.

The Environmental ~~Matters~~Protection Law of the PRC governs us and our CWSF products. The Environmental Protection Law, promulgated by the National People's Congress on December 26, 1989, is the primary law for environmental protection in China. The law establishes basic principles for coordinated advancement of economic growth, social progress and environmental protection, and defines the rights and duties of governments at all levels. Local environmental protection bureaus may set stricter local standards than the national standards and enterprises are required to comply with the stricter of the two sets of standards. The Environmental Protection Law requires any entity operating a facility that produces pollutants or other hazards to incorporate environmental protection measures into its operations and to establish an environmental protection responsibility system, which must adopt effective measures to control and properly dispose of waste gases, waste water, waste residue, dust or other waste materials. We endeavor to ensure the safe and lawful operation of our facilities in manufacturing and distribution of CWSF and, except as set forth under "Risk Factors—We may be subject to warnings, payment of damages and fines if we violate the Environmental Protection Law," believe we are in compliance in all material respects with applicable PRC laws and regulations. All of our products meet the relevant environmental requirements under PRC laws and we have not been subject to any material fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority.

The Environmental Protection Law of the PRC governs us and our CWSF products. The Environmental Protection Law, promulgated by the National People's Congress on December 26, 1989, is the primary law for environmental protection in China. The law establishes basic principles for coordinated advancement of economic growth, social progress and environmental protection, and defines the rights and duties of governments at all levels. Local environmental protection bureaus may set stricter local standards than the national standards and enterprises are required to comply with the stricter of the two sets of standards. The Environmental Protection Law requires any entity operating a facility that produces pollutants or other hazards to incorporate environmental protection measures into its operations and to establish an environmental protection responsibility system, which must adopt effective measures to control and properly dispose of waste gases, waste water, waste residue, dust or other waste materials. We endeavor to ensure the safe and lawful operation of our facilities in manufacturing and distribution of CWSF and, except as set forth under "Risk Factors—We may be subject to warnings, payment of damages and fines if we violate the Environmental Protection Law," believe we are in compliance in all material respects with applicable PRC laws and regulations. All of our products meet the relevant environmental requirements under PRC laws and we have not been subject to any material fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority. 23

24ITEM 1A. RISK FACTORS

~~ITEM~~Any 1Ainvestment in our common stock involves a high degree of risk. ~~RISK~~ ~~FACTORS~~You should consider carefully the specific risk factors described below in addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes included elsewhere in the report, before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially and adversely affected. This could cause the trading price of our common stock to decline and a loss of all or part of your investment.

~~Any~~Risks ~~investment~~Associated inWith ~~our~~Our ~~common~~Business stock involves a high degree of risk. You should consider carefully the specific risk factors described below in addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes included elsewhere in the report, before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially and adversely affected. This could cause the trading price of our common stock to decline and a loss of all or part of your investment.

~~Risks~~Our ~~Associated~~limited ~~With~~operating ~~Our~~history ~~Business~~makes it difficult to evaluate our future prospects and results of operations.

~~Our~~We have a relatively limited operating history. We ~~makes~~commenced itoperations ~~difficult~~of toour ~~evaluate~~CWSF business in 2007. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving industries such as the coal products and alternative energy industries in China. Our limited history for producing CWSF may not serve as an adequate basis to judge our future prospects and results of operations. Our operations are subject to all of the risks, challenges, complications and delays frequently encountered in connection with the operation of any new business, as well as those risks that are specific to the CWSF industry. Investors should evaluate us in light of the problems and uncertainties frequently encountered by companies attempting to develop markets for new products and technologies. Despite our best efforts, we may never overcome these obstacles.

WeIf ~~have~~we arequire ~~relatively~~additional ~~limited~~financing ~~operating~~to ~~history.~~execute ~~We commenced operations of~~ our ~~CWSF~~ business ~~in 2007. Accordingly~~ plan, ~~you~~we should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving industries such as the coal products and alternative energy industries in China. Our limited history for producing CWSF may not ~~serve~~be asable ~~an adequate basis~~ to ~~judge~~find ~~our~~such ~~future~~financing ~~prospects~~on ~~and~~satisfactory ~~results~~terms ofor ~~operations.~~at ~~Our operations are subject to~~ all ~~of the risks, challenges, complications and delays frequently encountered in connection with the operation of any new business, as well as those risks that are specific to the CWSF industry~~. Investors should evaluate us in light of the problems and uncertainties frequently encountered by companies attempting to develop markets for new products and technologies. Despite our best efforts, we may never overcome these obstacles.

IfIncome wegenerated ~~require~~from ~~additional~~our ~~financing~~business may not be adequate to ~~execute~~support the expansion of our business. ~~plan~~We may still need substantial additional funds to build new production facilities, maintain and expand existing facilities, pursue research and development activities, obtain necessary regulatory approvals and market our business. While we may ~~not~~seek beadditional ~~able~~funds tothrough ~~find~~public ~~such~~or private equity or debt financing, strategic transactions and/or from other sources, there are no assurances that future funding will be available on ~~satisfactory~~favorable terms or at all. If additional funding is not obtained, we may need to reduce, defer or cancel any planned expansion, including overhead expenditures, to the extent necessary. Furthermore, the failure to fund our capital requirements as they arise would have a material adverse effect on our business, financial condition and results of operations.

~~Income~~Our ~~generated from our~~ business ~~may~~and ~~not~~results ~~be adequate to support the expansion~~ of ~~our~~operations business. We may still need substantial additional funds to build new production facilities, maintain and expand existing facilities, pursue research and development activities, obtain necessary regulatory approvals and market our business. While we may seek additional funds through public or private equity or debt financing, strategic transactions and/or from other sources, there are nodependent ~~assurances that future funding will be available~~ on the ~~favorable~~PRC ~~terms~~coal ~~or at all. If additional funding is not obtained~~markets, wewhich may ~~need~~be ~~to reduce, defer or cancel any planned expansion, including overhead expenditures, to the extent necessary~~cyclical. ~~Furthermore, the failure to fund our capital requirements as they arise would have a material adverse effect on our business, financial condition and results of operations.~~

~~Our~~As ~~business~~our ~~and~~revenue ~~results~~is substantially derived from the sale of ~~operations~~CWSF, our business and operating results are substantially dependent on the domestic supply of coal, especially washed coal. The PRC coal ~~markets~~market is cyclical and exhibits fluctuation in supply and demand from year to year and is subject to numerous factors beyond our control, including, but not limited to, economic conditions in the PRC, global economic conditions, and fluctuations in industries with high demand for coal, such as the utilities and steel industries. Fluctuations in supply and demand for coal affects coal prices which, in turn, may have an adverse effect on our operating and financial performance. The demand for coal is primarily affected by overall economic development and the demand for coal from the electricity generation, steel and construction industries. The supply of coal, on the other hand, is primarily affected by the geographic location of the coal supplies, the volume of coal produced by domestic and international coal suppliers, and the quality and price of competing sources of coal. Alternative fuels such as natural gas and oil, alternative energy sources such as hydroelectric power and nuclear power, and international shipping costs also impact the market demand for coal. Excess demand for coal may increase coal prices, which would have an adverse effect on our cost of goods sold which would, in turn, cause a short-term decline in our profitability if we are unable to increase the price of our CWSF to our customers. Local government may regulate residential winter heating price and thus causing our residential heating customers not be ~~cyclical~~able to bear high CWSF price. As a result, we may not be able to increase our CWSF price in response to increased coal price or, we may have to decrease our CWSF price when we renew contracts with such customers. As a result, we may not able to keep our gross margin.

AsThe ~~our~~consumption ~~revenue is substantially derived from the sale~~ of CWSF, ~~our business and operating results are substantially dependent on the domestic supply of coal, especially washed coal. The PRC coal market~~ is ~~cyclical~~seasonal ~~and exhibits fluctuation~~ in ~~supply and demand from year to year and is subject to numerous factors beyond our control~~nature, ~~including, but not limited to, economic conditions in the PRC, global economic conditions,~~ and ~~fluctuations~~we may inexperience ~~industries~~fluctuation ~~with high demand for coal, such as the utilities and steel industries. Fluctuations~~ in ~~supply and demand for coal affects coal prices which, in turn, may have an adverse effect on~~ our ~~operating~~sales and financial performance. The demand for coal is primarily affected by overall economic development and the demand for coal from the electricity generation, steel and construction industries. The supply of ~~coal,~~CWSF onover the ~~other~~course ~~hand, is primarily affected by the geographic location~~ of the ~~coal supplies, the volume of coal produced by domestic and international coal suppliers, and the quality and price of competing sources of coal~~year. Alternative fuels such as natural gas and oil, alternative energy sources such as hydroelectric power and nuclear power, and international shipping costs also impact the market demand for coal. Excess demand for coal may increase coal prices, which would have an adverse effect on our cost of goods sold which would, in turn, cause a short-term decline in our profitability if we are unable to increase the price of our CWSF to our customers. Local government may regulate residential winter heating price and thus causing our residential heating customers not be able to bear high CWSF price. As a result, we may not be able to increase our CWSF price in response to increased coal price or, we may have to decrease our CWSF price when we renew contracts with such customers. As a result, we may not able to keep our gross margin.

The ~~consumption~~demand offor CWSF isfrom residential heating customers tends to be seasonal in nature, ~~and~~with wepeak demand occurring between the months of October through March, which are the peak heating periods in the markets which the Company currently serves. Demand for CWSF during peak periods is approximately 30% to 40% higher than during non-peak periods. Demand for CWSF from industrial customers tends to be fairly stable throughout the year, as their application of CWSF is often unrelated to heating. We may experience ~~fluctuation~~fluctuations in our sales of CWSF over the course of the year. if the demand for CWSF from residential heating customers decreases due to unexpected warmer temperatures during the winter months.

The demand for CWSF from residential heating customers tends to be seasonal in nature, with peak demand occurring between the months of October through March, which are the peak heating periods in the markets which the Company currently serves. Demand for CWSF during peak periods is approximately 30% to 40% higher than during non-peak periods. Demand for CWSF from industrial customers tends to be fairly stable throughout the year, as their application of CWSF is often unrelated to heating. We may experience fluctuations in our sales of CWSF over the course of the year if the demand for CWSF from residential heating customers decreases due to unexpected warmer temperatures during the winter months. 24

25We place significant reliance on few major suppliers and the loss of such supplier could have a material adverse effect on our operations.

We ~~place~~are ~~significant~~dependent ~~reliance~~upon onour ~~one~~relationships with ~~major~~local ~~supplier~~third parties for our supply of coal. Two to six suppliers provided 100% of the coal we used to produce CWSF in 2008, 2009, 2010 and 2011. Tongchuan Mine and Shanxi Shenmu Zhengchang Coal Trading Company Business accounted for 30.16% and 25.68%, respectively, of our total coal supply in 2011. Tie Fa Coal Industry (Group) Co. Ltd. was the ~~loss~~third largest supplier of ~~such~~the Company, supplying approximately 18.05% of total purchase of coal. While the Company is actively looking for more coal suppliers to diversify and avoid concentration risk, if any of these suppliers, and in particular our largest supplier, terminate their supply relationship with us, we may be unable to procure sufficient amounts of coal to fulfill our demand. If we are unable to obtain adequate quantities of coal to meet the demand for our CWSF product, our customers could seek to purchase products from other suppliers, which could have a material adverse effect on our ~~operations~~revenue.

WeIn ~~are dependent upon our relationships with local third parties for our supply of coal. Two to four suppliers provided 100% of~~ the ~~coal we used to produce CWSF in 2008~~past, ~~2009 and 2010 and our two largest suppliers provided 35.9% and 31.65% of coal in 2010, respectively. While~~ we ~~expect~~have toderived ~~increase~~a ~~the~~significant ~~number~~portion of ~~suppliers we use as~~ our ~~business~~sales ~~expands,~~from ifa ~~any~~few oflarge ~~these suppliers, and in particular our largest supplier, terminate their supply relationship with us, we may be unable to procure sufficient amounts of coal to fulfill our demand~~customers. If we ~~are~~were ~~unable~~ to ~~obtain~~lose ~~adequate~~any ~~quantities~~such ofcustomers, ~~coal to meet the demand for~~ our ~~CWSF product~~business, ~~our~~operating ~~customers~~results ~~could~~and ~~seek~~financial ~~to purchase products from other suppliers, which~~ condition could ~~have~~be amaterially ~~material~~and ~~adverse~~adversely ~~effect on our revenue~~affected.

InHistorically, ~~the~~our ~~past~~customer base has been highly concentrated. As of December 31, 2011 we ~~have~~had ~~derived~~ a ~~significant~~total ~~portion~~of 35 customers, 29 of ~~our~~which ~~sales~~were ~~from~~located ain ~~few~~Shaanxi ~~large~~Province, one ~~customers.~~of Ifwhich wewas located in Liaoning Province and 5 of which were tolocated ~~lose~~in ~~any~~Guangdong ~~such~~province. In 2009, 2010 and 2011, our five largest customers contributed 57%, 37% and 50% of our ~~business~~total revenue, ~~operating~~respectively, ~~results~~while our largest customer contributed 14%, 14% and ~~financial~~20% ~~condition~~of ~~could~~our betotal ~~materially~~revenue, respectively. Our customers are still relatively concentrated, and ~~adversely~~any ~~affected.~~adverse developments to any one of their business operations and demand for CWSF could have an adverse impact on our business, operating results and financial condition.

~~Historically,~~Our ~~our~~business ~~customer~~and ~~base~~prospects ~~has~~will ~~been~~be ~~highly~~adversely ~~concentrated.~~affected if ~~As of December 31, 2010~~ we had a total of 43 customers, 38 of which were located in Shaanxi Province, and 5 of which were located in Liaoning Province. In 2008, 2009 and 2010, our five largest customers contributed 57%, 37% and 49.6% of our total revenue, respectively, while our largest customer contributed 14%, 14% and 37.7% of our total revenue, respectively. Our customers are ~~still~~not ~~relatively~~able ~~concentrated, and any adverse developments~~ to ~~any~~compete ~~one of their business operations and demand for CWSF could have an adverse impact on our business, operating results and financial condition~~effectively.

~~Our~~We face competition in all areas of our business. There are other CWSF producers in other areas of China that may look to expand their business into our markets. Additionally, we must compete against producers of other forms of energy such as coal, natural gas and ~~prospects~~oil, ~~will~~which may have broader market acceptance. In 2010, we entered the Dongguan market in Guandong Province and we expect to enter Nanning City in Guangxi Province. We may be required ~~adversely~~to ~~affected~~compete ifwith other CWSF producers operating in these regions who may have greater financial, marketing, distribution and technological resources than we ~~are~~have, ~~not~~and ~~able~~more well-known brand names in the marketplace. If we are unable to compete effectively. against our competitors, it may have a material adverse impact on our expansion plans and on our results of operations.

We ~~face~~depend ~~competition~~on ~~in all areas of~~ our ~~business.~~key ~~While~~executives, weand ~~have no direct competitor for CWSF in~~ our ~~largest market in Shaanxi Province, there are other CWSF producers in other areas of China that may look to expand their~~ business ~~into our markets. Additionally, we must compete against producers of other forms of energy such as coal, natural gas~~ and growth ~~oil, which~~ may ~~have broader market acceptance. We expect to enter the South China market in Guangdong Province and Nanning City located in Guangxi Province. We may~~ be ~~required~~severely todisrupted ~~compete~~if ~~with other CWSF producers operating in these regions who may have greater financial, marketing, distribution and technological resources than~~ we ~~have,~~lose ~~and~~their ~~more well-known brand names in the marketplace~~services. ~~If we are unable to compete effectively against our competitors, it may have a material adverse impact on our expansion plans and on our results of operations.~~

WeOur ~~depend~~future success depends substantially on the continued services of our key executives. In particular, ~~and~~we are highly dependent upon Mr. Baowen Ren, our ~~business~~chairman and chief executive officer, who has established relationships within the CWSF industry, and ~~growth~~Mr. Peng Zhou, a member of our board of directors. If we lose the services of these executives, we may not be able to replace them readily, if at all, with suitable or qualified candidates, and may incur additional expenses to recruit and retain qualified candidates with industry experience similar to our current key executives, which could severely ~~disrupted~~disrupt our business and growth. In addition, if any of our key executives joins a competitor or forms a competing company, we may lose ~~their~~some ~~services~~of our suppliers or customers. Furthermore, as we expect to continue to expand our operations and develop new products, we will need to continue attracting and retaining experienced management and key research and development personnel.

~~Our~~We ~~future~~face ~~success~~competition ~~depends substantially on the continued services~~ of ~~our~~qualified ~~key~~personnel from ~~executives.~~other ~~In particular~~companies, ~~we are highly dependent upon Mr. Baowen Ren~~universities, ~~our~~public ~~chairman~~ and ~~chief~~private ~~executive~~research ~~officer~~institutions, ~~who~~government ~~has~~entities ~~established relationships within the CWSF industry, Mr. Peng Zhou, a member of our board of directors,~~ and ~~Ms. Wen~~other ~~(Wendy) Fu, our chief financial officer~~organizations. IfCompetition for wequalified ~~lose~~candidates ~~the~~for ~~services~~executive ofpositions ~~these~~could ~~executives,~~cause weus ~~may not be able~~ to ~~replace~~offer ~~them~~higher ~~readily,~~compensation ~~if at all, with suitable or qualified candidates,~~ and ~~may~~other ~~incur~~benefits ~~additional~~in ~~expenses~~order to ~~recruit~~ attract and retain ~~qualified candidates with industry experience similar to our current key executives~~them, which could ~~severely~~have ~~disrupt~~a ~~our~~material ~~business~~adverse ~~and~~effect ~~growth.~~on ~~In addition, if any of~~ our ~~key~~financial ~~executives~~condition ~~joins~~and aresults ~~competitor~~of oroperations. ~~forms a~~We ~~competing company, we~~ may ~~lose~~also ~~some~~be unable ofto ~~our~~attract ~~suppliers~~ or ~~customers.~~retain ~~Furthermore,~~the aspersonnel wenecessary ~~expect~~ to ~~continue~~achieve ~~to expand~~ our ~~operations~~business ~~and develop new products~~objectives, weand ~~will~~any ~~need~~failure toin ~~continue~~this ~~attracting~~regard ~~and~~could ~~retaining~~severely disrupt ~~experienced~~our ~~management~~business and ~~key research and development personnel~~growth.

We face competition from other companies, universities, public and private research institutions, government entities and other organizations. Competition for qualified candidates for executive positions could cause us to offer higher compensation and other benefits in order to attract and retain them, which could have a material adverse effect on our financial condition and results of operations. We may also be unable to attract or retain the personnel necessary to achieve our business objectives, and any failure in this regard could severely disrupt our business and growth. 25

26Our business will suffer if we cannot obtain, maintain or renew necessary licenses.

~~Our~~All PRC enterprises in the coal trading industry are required to obtain from various PRC governmental authorities certain licenses, including, without limitation, a Certificate of Coal Business and a business ~~will~~license. ~~suffer~~On ifJuly 5, 2010, we ~~cannot~~received ~~obtain~~the Certificate of Coal Business for Suo'ang New Energy, and ~~maintain~~on orJuly 15, ~~renew~~2010, ~~necessary~~we ~~licenses~~received the Certificate of Coal Business for Shenyang Energy, both of which expire in 2013. Any failure to timely renew the required Certificates of Coal Business prior to expiration may subject us to various penalties, such as fines up to five times the illegal profits, confiscation of profits, or we may be required to cease our business operations.

~~All~~These ~~PRC~~licenses ~~enterprises~~are insubject ~~the~~to ~~coal~~periodic ~~trading~~renewal and/or ~~industry~~reassessment ~~are~~by ~~required~~the torelevant ~~obtain~~PRC ~~from~~government ~~various~~authorities ~~PRC~~and ~~governmental~~the ~~authorities~~standards ~~certain~~of ~~licenses,~~compliance ~~including,~~required ~~without~~in ~~limitation,~~relation athereto ~~Certificate~~may from oftime ~~Coal~~to ~~Business~~time ~~and~~be asubject ~~business~~to ~~license~~change. OnWe ~~July 5~~have such permits and licenses, ~~2010~~however, we ~~received~~cannot ~~the~~be ~~Certificate~~certain ofthat ~~Coal~~we ~~Business~~can ~~for~~obtain, ~~Suo'ang~~maintain or ~~New~~renew ~~Energy,~~the permits and onlicenses ~~July 15,~~or ~~2010,~~in wethe ~~received~~future, accomplish the ~~Certificate~~reassessment of ~~Coal~~such ~~Business~~permits ~~for~~and ~~Shenyang~~licenses ~~Energy,~~in ~~both~~a oftimely ~~which~~manner. Any ~~expire~~changes in ~~2013.~~ ~~Any~~compliance ~~failure~~standards, toor ~~timely~~any ~~renew~~new ~~the~~laws ~~required~~or ~~Certificates~~regulations ofmay ~~Coal~~prohibit ~~Business~~or ~~prior~~render toit ~~expiration~~more ~~may~~restrictive ~~subject~~for us to ~~various~~conduct our ~~penalties~~business or increase our compliance costs, ~~such~~which asmay ~~fines~~adversely upaffect our operations or profitability. Any failure by us to obtain, ~~five~~maintain ~~times~~or renew the ~~illegal~~licenses, ~~profits~~permits and approvals, ~~confiscation~~may have a material adverse effect on the operation of ~~profits,~~our orbusiness. In addition, we may not be ~~required~~able to ~~cease~~carry ~~our~~on business ~~operations.~~without such permits and licenses being obtained, renewed and/or reassessed.

These licenses are subject to periodic renewal and/or reassessment by the relevant PRC government authorities and the standards of compliance required in relation thereto may from time to time be subject to change. We have such permits and licenses, however, we cannot be certain that we can obtain, maintain or renew the permits and licenses or in the future, accomplish the reassessment of such permits and licenses in a timely manner. Any changes in compliance standards, or any new laws or regulations may ~~prohibit~~suffer orlosses ~~render~~resulting itfrom ~~more~~industry-related restrictive for us to conduct our business or increase our compliance costs, which may adversely affect our operations or profitability. Any failure by us to obtain, maintain or renew the licenses, permits accidents and ~~approvals,~~lack ~~may have a material adverse effect on the operation~~ of ~~our business~~insurance. ~~In addition, we may not be able to carry on business without such permits and licenses being obtained, renewed and/or reassessed.~~

WeOur manufacturing facilities may ~~suffer~~be ~~losses~~affected by ~~resulting~~water, ~~from~~gas, ~~industry~~fire or structural problems. As a result, we, like other coal-~~related~~based products companies, may experience accidents that could cause property damage and ~~lack~~personal injuries. Although we have implemented safety measures for our production facilities and provided on-the-job training for our employees, there can be no assurance that accidents will not occur in the future. Additionally, the risk of ~~insurance~~accidental contamination or injury from handling and disposing of our product cannot be completely eliminated. In the event of an accident, we could be held liable for resulting damages.

~~Our~~Although ~~manufacturing~~we ~~facilities~~currently ~~may~~maintain befire, ~~affected~~casualty and byproperty ~~water,~~insurance ~~gas,~~covering ~~fire~~our ortwo ~~structural~~production ~~problems.~~lines Asin ~~a result~~Shenyang, ~~we,~~three ~~like~~production ~~other~~lines ~~coal-based~~in ~~products~~Tongchuan ~~companies,~~and ~~may~~two ~~experience~~production ~~accidents~~lines in ~~that~~Dongguan, ~~could~~we ~~cause~~do ~~property~~not ~~damage~~maintain ~~and~~any ~~personal~~business ~~injuries.~~interruption ~~Although~~insurance weor ~~have~~any ~~implemented~~third ~~safety~~party ~~measures~~liability ~~for~~insurance ~~our~~to ~~production~~cover ~~facilities~~claims ~~and~~related to ~~provided~~personal ~~on-the-job training for our employees~~injury, ~~there~~property ~~can~~or beenvironmental nodamage ~~assurance~~arising ~~that~~from accidents ~~will~~on ~~not~~our ~~occur~~properties, inother ~~the~~than ~~future.~~third ~~Additionally,~~party ~~the~~liability insurance ~~risk~~with ofrespect ~~accidental~~to ~~contamination~~vehicles. orAny ~~injury~~uninsured ~~from~~losses ~~handling~~ and ~~disposing~~liabilities ofincurred ~~our~~by ~~product~~us ~~cannot~~could beexceed ~~completely~~our ~~eliminated.~~resources Inand ~~the~~have ~~event~~a ofmaterial adverse aneffect ~~accident,~~on weour ~~could~~financial becondition ~~held~~and ~~liable~~results ~~for~~of ~~resulting damages~~operations.

~~Although~~We wemay ~~currently~~not ~~maintain~~be ~~fire,~~able ~~casualty~~to ~~and~~ensure ~~property insurance covering~~ our ~~two~~coal ~~production~~supply ~~lines~~for ~~in Shenyang and three~~ normal production ~~lines~~ in ~~Tongchuan,~~the wenear do not maintain any business interruption insurance or any third party liability insurance to cover claims related to personal injury, property or environmental damage arising from accidents on our properties, other than third party liability insurance with respect to vehicles. Any uninsured losses and liabilities incurred by us could exceed our resources and have a material adverse effect on our financial condition and results of operations. future

~~Competitors~~With ~~may~~the ~~develop~~PRC government’s increasing concern on mine safety issues, particularly in light of several recent accidental explosions in coal mines (operated by other companies) due to inadequate safety measures, and ~~market~~the ~~products~~implementation ~~that~~of ~~are~~the ~~less~~State ~~expensive~~Council’s Regulation on Phase-out of Small Coal Mines, ~~more~~industry-wide ~~effective~~coal ormine ~~safer~~safety inspections have been conducted in Shanxi province since 2011. During the course of these inspections, ~~making~~some ~~CWSF~~coal ~~obsolete~~mines in Shanxi have been shut down or ~~uncompetitive.~~temporarily closed for the safety assessment and remediation.

~~Some~~These ofand ~~our~~any ~~competitors~~future ~~and~~interruptions ~~potential~~to ~~competitors~~the coal ~~may~~mining ~~have~~companies ~~greater~~(of ~~product~~which ~~development~~some ~~capabilities~~could ~~and~~be ~~financial,~~the ~~scientific,~~Company’s ~~marketing~~existing and ~~human~~potential ~~resources~~suppliers), ~~than~~even wethough ~~do.~~the ~~Technological~~effect ~~competition~~might be ~~from~~temporary, ~~other~~could ~~alternative~~have ~~energy~~a ~~companies~~material iseffect ~~intense~~on ~~and~~our isfinancial ~~expected~~results toand ~~increase~~operations. ~~Other~~Moreover, ~~companies~~additional ~~have~~new ~~developed~~legislation ~~technologies~~or ~~that~~regulations may ~~could~~ be ~~the~~adopted, ~~basis~~or ~~for~~the ~~competitive~~enforcement ~~products. Some~~ of ~~these~~existing ~~products~~laws ~~may~~could bebecome more ~~effective and less costly than CWSF. Over time~~stringent, ~~CWSF~~either ~~may~~of ~~become obsolete or uncompetitive,~~ which ~~would~~may have a ~~material~~significant ~~adverse effect~~ impact on our ~~business~~coal supply and ~~results~~normal of operations.

~~The~~Competitors ~~revenue of our business~~ may bedevelop ~~adversely~~and ~~effected~~market ifproducts ~~power~~that ~~generators~~are ~~switch~~less expensive, tomore ~~sources~~effective ofor ~~fuel~~safer, ~~with~~making ~~lower~~CWSF ~~carbon~~obsolete ~~dioxide~~or ~~emissions~~uncompetitive.

~~China~~Some isof aour ~~signatory~~competitors toand ~~the~~potential ~~1992~~competitors may ~~United~~have ~~Nations~~greater ~~Framework~~product ~~Convention~~development oncapabilities ~~Climate~~and ~~Change~~financial, scientific, marketing and ~~the~~human ~~1997~~resources ~~Kyoto~~than ~~Protocol,~~we ~~which~~do. ~~are~~Technological competition ~~intended~~from toother ~~limit~~alternative ~~emissions~~energy ofcompanies ~~greenhouse~~is ~~gases.~~intense ~~Efforts~~and is expected to ~~control~~increase. ~~greenhouse~~Other ~~gas~~companies ~~emission~~have indeveloped ~~China~~technologies that could ~~result~~be inthe ~~reduced~~basis ~~use~~for ofcompetitive ~~coal~~products. ifSome ~~power~~of ~~generators~~these ~~switch~~products tomay ~~sources~~be ofmore ~~fuel~~effective ~~with~~and ~~lower~~less ~~carbon~~costly ~~dioxide~~than ~~emissions~~CWSF. Over time, ~~which~~CWSF inmay ~~turn~~become ~~could~~obsolete ~~reduce~~or ~~the~~uncompetitive, ~~revenue~~which ofwould ~~our business and~~ have a material adverse effect on our business and results of operations.

27The revenue of our business may be adversely affected if power generators switch to sources of fuel with lower carbon dioxide emissions.

~~The~~China ~~commercial~~is ~~success~~a ofsignatory ~~CWSF~~to ~~depends~~the 1992 United Nations Framework Convention on Climate Change and the ~~degree~~1997 Kyoto Protocol, which are intended to limit emissions of ~~its~~greenhouse ~~market~~gases. Efforts ~~acceptance~~to ~~among~~control ~~industrial~~greenhouse ~~and~~gas ~~residential~~emission ~~heating~~in ~~customers~~China ~~and~~could result in reduced use of coal if ~~CWSF~~power ~~does~~generators ~~not~~switch ~~attain~~to ~~wide~~sources ~~market~~of fuel ~~acceptance~~with lower carbon dioxide emissions, which in turn could reduce the revenue of our ~~operations~~business and ~~profitability~~have ~~could~~a bematerial ~~adversely~~adverse ~~affected.~~effect on our results of operations.

Despite the central government's push for clean-coal technology and the support for CWSF amongst a number of municipal governments, CWSF ultimately may not gain wide market acceptance in the PRC. The degree of market acceptance of any product depends on a number of factors, including establishment and demonstration of its efficacy and safety, cost-effectiveness, advantages over alternative products, and marketing and distribution support for the product. Currently, there is limited information regarding these factors in connection with CWSF or competitive products. We believe that our customers need to continue to purchase and install CWSF boilers in order to give us the ability to market our CWSF products more broadly. 26

The ~~market~~commercial ~~for~~success of CWSF isdepends ~~emerging~~on ~~and~~the ~~rapidly~~degree ~~evolving, and~~ of its ~~future~~market ~~success~~acceptance ~~remains~~among ~~uncertain.~~industrial Ifand ~~CWSF~~residential isheating ~~not~~customers ~~suitable~~and ~~for~~if ~~widespread adoption or sufficient demand for~~ CWSF does not ~~develop~~attain orwide ~~takes~~market ~~longer to develop than we anticipate~~acceptance, our operations ~~sales would not significantly increase~~ and weprofitability ~~may~~could be ~~unable~~adversely ~~to sustain profitability~~affected. In addition, demand for CWSF in the markets and geographic regions where we operate may not develop or may develop more slowly than we anticipate. Many factors will influence the widespread adoption of CWSF and demand for our products, including:

•Despite ~~cost~~the central government's push for clean-~~effectiveness~~coal technology and the support for CWSF amongst a number of municipal governments, CWSF asultimately ~~compared~~may ~~with~~not ~~conventional~~gain wide market acceptance in the PRC. The degree of market acceptance of any product depends on a number of factors, including establishment and demonstration ~~other~~of its efficacy and safety, cost-effectiveness, advantages over alternative ~~energy~~products, and marketing and distribution support for the product. Currently, there is limited information regarding these factors in connection with CWSF or competitive products. We believe that our customers need to continue to purchase and ~~technologies;~~install CWSF boilers in order to give us the ability to market our CWSF products more broadly.

•The ~~performance~~market for CWSF is emerging and ~~reliability~~rapidly evolving, ofand its future success remains uncertain. If CWSF asis ~~compared~~not ~~with~~suitable ~~conventional~~for widespread adoption or sufficient demand for CWSF does not develop or takes longer to develop than we anticipate, our sales would not significantly increase and ~~other~~we ~~alternative~~may ~~energy~~be ~~products~~unable to sustain profitability. In addition, demand for CWSF in the markets and ~~technologies;~~geographic regions where we operate may not develop or may develop more slowly than we anticipate. Many factors will influence the widespread adoption of CWSF and demand for our products, including:

• ~~fluctuations~~cost-effectiveness inof ~~capital~~CWSF ~~expenditures~~as bycompared ~~customers~~with inconventional ~~the~~and ~~installation~~other ofalternative ~~CWSF~~energy ~~boilers;~~products and technologies;

• ~~availability~~performance and reliability of ~~government~~CWSF ~~subsidies~~as compared with conventional and ~~incentives~~other ~~for~~alternative ~~customers.~~energy products and technologies;

~~Furthermore,~~• tofluctuations ~~establish~~in ~~wide~~capital ~~market~~expenditures ~~acceptance~~by ofcustomers ~~CWSF,~~in ~~we will require a marketing and sales force with appropriate technical expertise and supporting distribution capabilities, as well as continuing governmental support for~~ the ~~use~~installation of CWSF. Weboilers; ~~may not be able to establish sales, marketing~~ and distribution capabilities or enter into arrangements with third parties on acceptable terms, and our ability to influence governmental support is limited. If CWSF does not gain wide market acceptance, our ability to continue to grow may be limited.

If• weavailability ~~were~~of ~~unsuccessful~~government insubsidies ~~defending~~and aincentives ~~product~~for ~~liability claim, we could face substantial liabilities that may exceed our resources~~customers.

WeFurthermore, ~~may~~to beestablish ~~held~~wide ~~liable~~market ifacceptance of ~~our~~CWSF, ~~product~~we ~~causes~~will ~~injury~~require ora ismarketing ~~found~~and ~~unsuitable~~sales ~~during~~force ~~product~~with ~~testing,~~appropriate ~~manufacturing,~~technical ~~marketing,~~expertise ~~sale~~and orsupporting ~~use.~~distribution Wecapabilities, as ~~currently~~well doas ~~not~~continuing ~~have~~governmental ~~product~~support ~~liability~~for ~~insurance.~~the Ifuse weof ~~choose~~CWSF. toWe ~~obtain~~may ~~product~~not ~~liability~~be ~~insurance~~able ~~but~~to ~~cannot~~establish ~~obtain~~sales, ~~sufficient~~marketing ~~coverage~~and atdistribution capabilities anor ~~acceptable~~enter ~~cost~~into orarrangements ~~otherwise~~with ~~protect~~third ~~against~~parties ~~potential~~on ~~product~~acceptable ~~liability claims~~terms, ~~the~~and ~~commercialization of~~ our ~~product~~ability ~~may~~to beinfluence ~~prevented~~governmental orsupport is ~~inhibited~~limited. If weCWSF ~~are~~does ~~sued~~not ~~for~~gain ~~any~~wide ~~injury~~market ~~caused by our product~~acceptance, our ~~liability~~ability ~~could~~to ~~exceed~~continue ~~our~~to ~~total~~grow ~~assets. In addition, successful product liability claims against us~~ may ~~materially~~be ~~disrupt the conduct of our business~~limited.

~~The~~If ~~downturn~~we inwere ~~the~~unsuccessful ~~global~~in ~~economy~~defending ~~may~~possible ~~slow~~product liability ~~domestic~~claim, ~~growth~~we incould ~~China,~~face ~~which,~~substantial inliabilities ~~turn,~~that may ~~affect~~exceed our ~~business~~resources.

~~China~~We may be held liable if our product causes injury or is found unsuitable during product testing, manufacturing, marketing, sale or use. We currently do not behave ~~able~~product liability insurance. If we choose to ~~maintain~~obtain ~~its~~product ~~recent~~liability ~~growth~~insurance ~~rates~~but ~~mainly~~cannot ~~due~~obtain tosufficient ~~the~~coverage ~~decreased~~at ~~demand~~an ~~for~~acceptable ~~China's~~cost ~~exported~~or ~~goods~~otherwise protect inagainst ~~countries~~potential ~~experiencing~~product ~~recessions~~liability claims, the commercialization of our product may be prevented or inhibited. AsIf we doare sued ~~not~~for ~~presently~~any ~~export~~injury ~~any~~caused ofby our ~~products~~product, our ~~earnings~~liability ~~may~~could ~~become~~exceed ~~unstable~~our iftotal ~~China's~~assets. ~~domestic~~In ~~growth~~addition, ~~slows~~successful ~~significantly~~product ~~and~~liability claims ~~the~~against ~~domestic~~us ~~demand~~may ~~for~~materially ~~energy~~disrupt ~~declines.~~the conduct of our business.

28The downturn in the global economy may slow domestic growth in China, which, in turn, may affect our business.

WeChina ~~are~~may ~~exposed~~not be able to ~~various~~maintain ~~types~~its ofrecent growth ~~market~~rates ~~risks,~~mainly ~~including~~due ~~changes~~to the decreased demand for China's exported goods in ~~foreign~~countries ~~exchange~~experiencing ~~rates~~recessions. As we do not presently export any of our products, ~~commodity~~our ~~prices~~earnings ~~and~~may ~~inflation~~become inunstable if China's domestic growth slows significantly and the ~~normal~~domestic ~~course~~demand for ofenergy ~~business~~declines.

We are subject to risks resulting from fluctuations in interest rates on our bank balances. A substantial portion of our cash is held in China in interest bearing bank deposits and is denominated in RMB. To the extent that we may need to raise debt financing in the future, upward fluctuations in interest rates will increase the cost of new debt. We do not currently use any derivative instruments to manage our interest rate risk. 27

Certain raw materials used by us are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. The primary purpose of our commodity price management activities is to manage the volatility associated with purchases of commodities in the normal course of business. We ~~do not speculate on commodity prices. We~~ are ~~primarily~~ exposed to ~~price~~various ~~risk~~types ~~related to our purchase~~ of ~~coal used in manufacturing products. We purchase most of our raw materials at prevailing~~ market ~~prices.~~risks, Weincluding changes doin ~~not~~foreign ~~have~~exchange ~~formal long-term purchase contracts with our suppliers and~~rates, ~~therefore,~~commodity ~~we are exposed to the risk of fluctuating raw material~~ prices. ~~Our~~and ~~raw~~inflation ~~material price risk increases~~ in the ~~short~~normal ~~term~~course ~~if we are unable to increase the price~~ of ~~CWSF~~business. ~~We did not have any commodity price derivatives or hedging arrangements outstanding at December 31, 2010.~~

We ~~carry~~are ~~out~~subject ~~all~~to ofrisks ~~our~~resulting ~~transactions~~from fluctuations in ~~Renminbi.~~interest ~~Therefore,~~rates weon ~~have~~our ~~limited~~bank ~~exposure to foreign exchange fluctuations~~balances. A substantial portion of our cash is held in China in interest bearing bank deposits and is denominated in RMB. ~~The~~To ~~Renminbi~~the isextent ~~not~~that awe ~~freely~~may ~~convertible~~need ~~currency.~~to ~~The~~raise ~~PRC~~debt ~~government~~financing ~~may~~in ~~take~~the ~~actions~~future, ~~that~~upward ~~could~~fluctuations ~~cause~~in ~~future~~interest ~~exchange~~ rates will toincrease ~~vary~~the ~~significantly~~cost ~~from~~of ~~current~~new ~~or historical exchange rates~~debt. ~~Fluctuations~~We indo ~~exchange~~not ~~rates~~currently ~~may~~use ~~adversely~~any ~~affect~~derivative ~~the~~instruments ~~value~~to ofmanage ~~any~~our ~~dividends~~interest werate ~~declare~~risk.

InCertain ~~recent~~raw ~~years,~~materials ~~China~~used ~~has~~by ~~not~~us ~~experienced~~are ~~significant~~subject to ~~inflation~~price orvolatility ~~deflation~~caused ~~and~~by ~~thus~~supply ~~inflation~~conditions, political and ~~deflation~~economic ~~have~~variables ~~not~~and ~~had~~other aunpredictable ~~significant~~factors. ~~effect~~The onprimary purpose of our ~~business~~commodity ~~during~~price management activities is to manage the ~~past~~volatility ~~three~~associated ~~years~~with purchases of commodities in the normal course of business. ~~According~~We do not speculate on commodity prices. We are primarily exposed to ~~the~~price ~~National~~risk ~~Bureau~~related to our purchase of ~~Statistics~~coal used in manufacturing products. We purchase most of ~~China~~our raw materials at prevailing market prices. We do not have formal long-term purchase contracts with our suppliers and, therefore, we are exposed to the ~~inflation~~risk ~~rate~~of asfluctuating ~~measured~~raw bymaterial ~~the~~prices. Our ~~consumer~~raw material price ~~index~~risk increases in ~~China~~the ~~was~~short ~~4.6%~~term ~~and~~if 1we are unable to increase the price of CWSF.9% inWe ~~2010~~did ~~and~~not ~~2009~~have any commodity price derivatives or hedging arrangements outstanding at December 31, ~~respectively~~2011.

We ~~were~~carry ~~late~~out all of our transactions in ~~filing~~Renminbi. Therefore, ~~tax~~we ~~returns~~have limited exposure to foreign exchange fluctuations. A substantial portion of our cash is held in China in interest bearing bank deposits and ~~information~~is ~~reports~~denominated asin ~~required~~RMB. ~~under~~The URenminbi is not a freely convertible currency.S. ~~laws,~~The ~~and~~PRC government may ~~ultimately~~take actions bethat ~~held~~could ~~liable~~cause ~~for~~future ~~significant~~exchange ~~taxes,~~rates ~~interest~~to ~~and~~vary ~~penalties~~significantly from current or historical exchange rates. Fluctuations in exchange rates may adversely affect the value of any dividends we declare.

WeIn ~~were~~recent ~~late in filing our (1) U.S. federal income tax returns for our taxable~~ years ~~ended September 30~~, ~~2007~~China ~~and~~has ~~2008,~~not ~~including,~~experienced significant ~~without~~inflation ~~limitation,~~or ~~information~~deflation ~~returns on Internal Revenue Service ("IRS") Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations,~~ and ~~(2) information~~thus ~~reports~~inflation ~~for the years ended December 31, 2006, 2007~~ and ~~2008~~deflation ~~concerning~~have ~~our~~not ~~interests~~had ina ~~foreign~~significant ~~bank~~effect ~~accounts~~ on TDour ~~F 90-22.1,~~business ~~Report~~during ~~of Foreign Bank and Financial Accounts ("FBARs"). Late filings of~~ the past ~~IRS Forms 5471 subjects us to civil penalties of $10,000 for each of our~~ three ~~foreign subsidiaries with respect to each of the taxable~~ years ~~at issue (for an aggregate of $60,000)~~. InAccording ~~addition, we are subject~~ to ~~civil penalties for~~ the ~~untimely~~National ~~filing~~Bureau of ~~the~~Statistics ~~FBARs~~ of ~~at least $10~~China,~~000~~ ~~for each of our five foreign bank accounts over~~ the ~~three~~inflation ~~year~~rate ~~period~~as atmeasured ~~issue~~by ~~(for an aggregate of $50,000). Although we do not believe that our failure to timely file~~ the ~~FBARs~~consumer ~~was~~price index ~~"willful,"~~in ifChina ~~the IRS were to prove that our failure to file an FBAR~~ was "willful," we ultimately could be held liable for a civil penalty for each such failure equal to the greater of $100,000 or 50% of the balance in the unreported foreign bank account. During the years at issue, our total foreign bank account balances have been as high as about $5.~~8 million.~~4% ~~We have provided an accrual for what we believe would be the potential liabilities for the untimely filing of the IRS Forms 5471~~ and ~~the~~4.6% ~~FBARs~~ in ~~our~~2011 ~~financial~~and ~~statements for our year ended December 31~~2010, ~~2009~~respectively. ~~However, as indicated above, these potential liabilities could be substantially greater than the amounts we have accrued.~~

In addition, because we did not generate any income in the United States or otherwise have any U.S. taxable income, we do not believe that we owe U.S. federal income taxes for the taxable years ended September 30, 2007 and 2008, or in respect to any transactions that we or any of our subsidiaries may have engaged in through our financial year end December 31, 2010. However, there can be no assurance that the IRS will agree with this position, and therefore we ultimately could be held liable for U.S. federal income taxes, interest and penalties. 28

29Risks Related to the Alternative Energy Industry

~~Risks~~A ~~Related~~drop toin the ~~Alternative~~retail ~~Energy~~price ~~Industry~~of conventional energy or other alternative energy may have a negative effect on our business.

A ~~drop~~customer's indecision to purchase CWSF will be primarily driven by the ~~retail~~return ~~price~~on ofinvestment ~~conventional~~resulting from the energy orsavings from CWSF over time. Any fluctuations in economic and market conditions that impact the viability of conventional and other alternative energy ~~may~~sources, such as decreases in the prices of oil and other fossil fuels could cause the demand for CWSF to decline and have a ~~negative~~material adverse effect on our business and results of operations. Although we believe that current levels of retail energy prices support a reasonable return on investment for CWSF, there can be no assurance that future retail pricing of conventional energy and other alternative energies will remain at such levels.

AExisting ~~customer's~~regulations ~~decision~~and changes to ~~purchase~~such ~~CWSF~~regulations ~~will~~may present betechnical, ~~primarily~~regulatory ~~driven~~and byeconomic ~~the~~barriers ~~return~~to ~~on investment resulting from~~ the ~~energy~~purchase ~~savings from CWSF over time. Any fluctuations in economic~~ and ~~market~~use ~~conditions that impact the viability~~ of ~~conventional and other alternative energy sources~~CWSF, ~~such~~which asmay ~~decreases~~significantly inaffect the ~~prices of oil and other fossil fuels could cause the~~ demand for ~~CWSF to decline and have a material adverse effect on~~ our ~~business and results of operations~~products. Although we believe that current levels of retail energy prices support a reasonable return on investment for CWSF, there can be no assurance that future retail pricing of conventional energy and other alternative energies will remain at such levels.

~~Existing~~CWSF is subject to oversight and regulations in accordance with national and ~~changes~~local toordinances ~~such~~and regulations ~~may~~relating ~~present~~to ~~technical~~safety, ~~regulatory~~environmental protection, and ~~economic~~related ~~barriers~~matters. We are responsible for knowing such ordinances and regulations, and must comply with these varying standards. Any new government regulations or utility policies pertaining to ~~the~~our ~~purchase~~product may result in significant additional expenses to us and ~~use~~our ofcustomers and, ~~CWSF~~as a result, ~~which~~could ~~may~~cause ~~significantly~~a ~~affect~~significant ~~the~~reduction in demand for our ~~products~~product.

~~CWSF~~Risks isRelated ~~subject~~ to ~~oversight~~Doing ~~and~~Business ~~regulations~~ in ~~accordance~~China with national and local ordinances and regulations relating to safety, environmental protection, and related matters. We are responsible for knowing such ordinances and regulations, and must comply with these varying standards. Any new government regulations or utility policies pertaining to our product may result in significant additional expenses to us and our customers and, as a result, could cause a significant reduction in demand for our product.

~~Risks~~Our ~~Related~~business tooperations ~~Doing~~are ~~Business~~conducted entirely in the PRC. Because China's economy and its laws, regulations and policies are different from those typically found in western countries and are continually changing, we face risks specific to operating in China, including those summarized below.

~~Our~~Adverse ~~business~~changes ~~operations~~in ~~are~~political ~~conducted~~and ~~entirely~~economic inpolicies of the PRC. ~~Because~~government ~~China's~~could ~~economy~~have ~~and~~a ~~its~~material ~~laws,~~adverse ~~regulations~~effect ~~and~~on ~~policies~~the ~~are~~overall ~~different~~economic ~~from~~growth ~~those~~of ~~typically~~China, ~~found~~which incould ~~western~~materially ~~countries~~ and ~~are~~adversely affect ~~continually~~our ~~changing, we face risks specific to operating in China, including those summarized below~~business.

~~Adverse~~All ~~changes~~of inour ~~political~~operations ~~and~~are ~~economic~~conducted ~~policies~~in ofChina and ~~the~~all ~~PRC~~of ~~government~~our ~~could~~sales ~~have~~are amade ~~material~~in ~~adverse~~China. ~~effect~~Accordingly, onour ~~the~~business, ~~overall~~financial ~~economic~~condition, ~~growth~~results of ~~China,~~operations ~~which~~and ~~could~~prospects ~~materially~~are affected significantly by economic, political and ~~adversely~~legal ~~affect~~developments ~~our~~in ~~business~~China. The PRC economy differs from the economies of most western countries in many respects, including:

~~All~~• of our operations are conducted in China and all of our sales are made in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the ~~economies~~amount of ~~most~~government ~~western countries in many respects, including:~~ involvement;

• the ~~amount~~level of ~~government involvement~~development;

• the ~~level~~growth ~~of development~~rate;

• the ~~growth~~control ~~rate~~of foreign exchange; and

• the ~~control~~government's ofrole ~~foreign~~in ~~exchange;~~allocating ~~and~~ resources.

•While the PRC economy has grown significantly since the late 1970s, the growth has been uneven, both geographically and among various sectors of the economy. The PRC government's has ~~role~~implemented invarious ~~allocating~~measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

~~While~~The ~~the~~ PRC economy has ~~grown~~been ~~significantly~~transitioning ~~since~~from a ~~the~~planned ~~late~~economy ~~1970s,~~to ~~the~~a ~~growth~~more ~~has~~market-oriented ~~been~~economy ~~uneven,~~and ~~both~~is ~~geographically~~expected ~~and~~to ~~among~~continue ~~various~~to ~~sectors~~reform its economic system. Many of the ~~economy~~reforms are unprecedented or experimental, and are expected to be refined and improved. ~~The~~Although the PRC government has ~~implemented~~in ~~various~~recent years implemented measures toemphasizing ~~encourage~~the utilization of market forces for economic ~~growth~~reform, ~~and~~the ~~guide~~reduction of state ownership of productive assets and the ~~allocation~~establishment of ~~resources~~sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the PRC government. ~~Some~~The continued control of these ~~measures~~assets ~~benefit~~and other aspects of the ~~overall~~national economy by the PRC ~~economy,~~government ~~but~~could ~~may~~materially and adversely affect our business. The PRC government also ~~have~~exercises asignificant ~~negative~~control over ~~effect~~economic ongrowth ~~us.~~in ~~For~~China ~~example~~through the allocation of resources, ~~our~~controlling ~~financial~~payment ~~condition~~of foreign currency-denominated obligations, setting monetary policy and ~~results~~providing ofpreferential ~~operations~~treatment ~~may~~to beparticular ~~adversely~~industries ~~affected~~or companies. Efforts by the PRC government to ~~control~~slow ~~over~~the ~~capital~~pace ~~investments~~of orgrowth ~~changes~~of the PRC economy could result in ~~tax~~decreased ~~regulations~~capital ~~that~~expenditure ~~are~~by ~~applicable~~energy tousers, ~~us.~~which in turn could reduce demand for our products.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy and is expected to continue to reform its economic system. Many of the reforms are unprecedented or experimental, and are expected to be refined and improved. Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the PRC government. The continued control of these assets and other aspects of the national economy by the PRC government could materially and adversely affect our business. The PRC government also exercises significant control over economic growth in China through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the PRC government to slow the pace of growth of the PRC economy could result in decreased capital expenditure by energy users, which in turn could reduce demand for our products. 29

30Other political, economic and social factors can also lead to further readjustment of reform measures, which may not always have a positive effect on our operations. Any adverse change in the economic conditions or government policies in China, such as changes in laws and regulations (or the interpretation thereof), imposition of additional restrictions on currency conversion could have a material adverse effect on the overall economic growth and the level of energy investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our business and prospects.

~~Other~~The ~~political,~~PRC economic ~~and~~cycle ~~social factors can also lead to further readjustment of reform measures, which~~ may ~~not~~negatively ~~always~~impact ~~have a positive effect on~~ our ~~operations~~operating results. Any adverse change in the economic conditions or government policies in China, such as changes in laws and regulations (or the interpretation thereof), imposition of additional restrictions on currency conversion could have a material adverse effect on the overall economic growth and the level of energy investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our business and prospects.

The rapid growth of the PRC ~~economic~~economy ~~cycle~~before 2008 ~~may~~generally ~~negatively~~led to higher levels of inflation. The PRC economy has more recently experienced a slowing of its growth rate. A number of factors have contributed to this slow-down, including appreciation of RMB, the currency of China, which has adversely affected China's exports. In addition, the slow-down has been exacerbated by the recent global crisis in the financial services and credit markets, which has resulted in significant volatility and dislocation in the global capital markets. It is uncertain how long the global crisis in the financial services and credit markets will continue and the significance of the adverse impact it may have on the global economy in general, or the Chinese economy in particular. Slowing economic growth in China could result in slowing growth and demand for our ~~operating~~products ~~results~~which could reduce our revenue. In the event of a recovery in the PRC, renewed high growth levels may again lead to inflation. Government attempts to control inflation may adversely affect the business climate and growth of private enterprise. In addition, our profitability may be adversely affected if prices for our products rise at a rate that is insufficient to compensate for the rise in inflation.

~~The~~As ~~rapid~~stated ~~growth~~in ofShanghai ~~the~~Daily ~~PRC~~on ~~economy~~June ~~before~~23, 2011, ~~2008~~“China ~~generally~~is ~~led~~tightening ~~to higher levels of inflation. The PRC economy has more recently experienced a slowing of~~ its ~~growth~~monetary ~~rate.~~policy ~~A number of factors have contributed~~ to ~~this~~curb ~~slow~~credit-~~down,~~driven ~~including~~inflation. ~~appreciation~~Since ofOctober ~~RMB~~2010, ~~the currency of~~ China, ~~which~~ has ~~adversely~~raised ~~affected~~interest rates ~~China's~~four ~~exports.~~times Inand ~~addition,~~raised the ~~slow-down~~reserve ~~has~~requirement ~~been~~ratio ~~exacerbated~~nine ~~by the recent global crisis in the financial services and credit markets, which has resulted in significant volatility and dislocation in the global capital markets~~times.” ~~It is uncertain how long the global crisis in the financial services~~ and ~~credit markets will continue and the significance of the adverse impact it may have~~ on ~~the~~June ~~global~~14, ~~economy in general~~2011, or“New ~~the~~Yuan ~~Chinese~~loans ~~economy in particular~~totaled 3.6 ~~Slowing~~trillion ~~economic~~Yuan ~~growth~~ in ~~China could result in slowing growth and demand for our products which could reduce our revenue. In~~ the ~~event~~first offive amonths ~~recovery in the PRC, renewed high growth levels may again lead to inflation. Government attempts to control inflation may adversely affect the business climate and growth~~ of ~~private~~this ~~enterprise. In addition~~year, ~~our~~down ~~profitability~~12 ~~may~~percent befrom ~~adversely affected if prices for our products rise at a rate that is insufficient to compensate for~~ the ~~rise~~same inperiod ~~inflation.~~last year.”

~~Uncertainties~~The ~~with~~tightening ~~respect~~of credit controls in China has led to a cool down in the ~~PRC~~large ~~legal~~demand ~~system~~for ~~could~~capital ~~adversely~~by ~~affect~~corporations usin China. We have considered the influence of the economic environment on our operation and development and concluded there is no material effect for our operation in the coming twelve months.

~~Our~~As ~~operations~~at inFebruary ~~China are governed by PRC laws and regulations. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979~~29, ~~many new laws and regulations covering general economic matters have been promulgated in the PRC. However~~2012, ~~China~~our ~~has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover~~ all ~~aspects~~outstanding net ofaccounts ~~economic~~receivables ~~activities~~(as ~~in China. In particular, because these laws and regulations are relatively new, and because~~ of ~~the~~December ~~limited volume of published decisions and their nonbinding nature~~31, ~~the~~2011) ~~interpretation~~had ~~and~~been ~~enforcement of these laws and regulations involve uncertainties~~collected. ~~Even~~So ~~where~~there ~~adequate~~was ~~law~~no ~~exists,~~need ~~enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult~~ to ~~obtain~~accrue ~~swift~~bad ~~and~~debt ~~equitable~~allowance ~~enforcement~~for oraccounts receivable ~~to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of the PRC's judiciary in many cases creates additional uncertainty~~ as to the outcome of any litigation, and interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at ~~all)~~December ~~that may have a retroactive effect. As a result~~31, ~~we may not be aware of our violation of any such policies and rules until some time after the violation~~2011. ~~In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.~~

~~The~~Uncertainties ~~application~~with ofrespect ~~PRC~~to ~~laws regarding~~ the ~~regulation~~PRC oflegal ~~monopolies~~system ~~may~~ could adversely affect us.

WeOur ~~have~~operations ain ~~nationwide~~China ~~strategic~~are ~~partnership~~governed ~~agreement~~by ~~with~~PRC laws ~~Qingdao~~and ~~Haizhong~~regulations. ~~Enterprise Co~~The PRC legal system is based on written statutes.~~, Ltd~~ Prior court decisions may be cited for reference but have limited precedential value. ~~("Haizhong~~Since ~~Boiler")~~1979, amany ~~CWSF~~new ~~boiler~~laws ~~manufacturer~~and ~~with~~regulations ancovering ~~estimated~~general ~~78%~~economic ~~share~~matters ofhave been promulgated in the ~~national~~PRC. ~~CWSF~~However, ~~boiler~~China ~~market.~~has ~~According~~not todeveloped ~~Beijing~~a ~~Zhongjing~~fully ~~Zhongheng~~integrated ~~Information~~legal system and ~~Consulting~~recently ~~Center,~~enacted ~~Haizhong~~laws ~~Boiler's~~and ~~market~~regulations ~~share~~may ~~was~~not ~~determined~~sufficiently cover onall ~~December 30,~~aspects ~~2009.~~of Ineconomic ~~accordance~~activities ~~with~~in ~~this~~China. ~~partnership~~In ~~agreement~~particular, webecause these laws and ~~Haizhong~~regulations ~~Boiler~~are ~~have~~relatively ~~each~~new, ~~agreed~~and tobecause of ~~recommend~~the tolimited ~~our~~volume ~~respective~~of ~~customers~~published ~~the~~decisions ~~other~~and ~~party's~~their ~~products~~nonbinding ~~during~~nature, the ~~course~~interpretation and enforcement of ~~selling~~these ~~our~~laws ~~own~~and regulations ~~products~~involve uncertainties. ~~Under~~Even ~~the~~where ~~PRC~~adequate ~~Anti-monopoly~~law ~~Law~~exists, ~~promulgated~~enforcement onof ~~August 30,~~existing ~~2007~~laws ~~and~~or ~~effective~~contracts asbased ofon ~~August 1,~~existing law ~~2008,~~may ~~business~~be ~~operators~~uncertain ~~with~~and asporadic, ~~dominant~~and ~~market~~it ~~position~~may ~~are~~be ~~prohibited~~difficult ~~from~~to ~~certain~~obtain ~~behavior~~swift ~~that~~and ~~abuses~~equitable ~~their~~enforcement ~~dominant~~or ~~market~~to ~~position,~~obtain ~~including~~enforcement ~~among~~of a ~~other~~judgment ~~things,~~by ~~(i) limiting~~a court of another ~~party~~jurisdiction. toThe relative inexperience of the ~~transaction~~PRC's tojudiciary ~~trade~~in ~~exclusively~~many ~~with~~cases ~~them~~creates oradditional uncertainty ~~with~~as ~~their~~to ~~designated~~the ~~business~~outcome ~~operators~~of ~~without~~any ~~justification~~litigation, and ~~(ii) implementing~~interpretation ~~tie-in~~of ~~sales~~statutes ~~without~~and ~~justification,~~regulations ormay ~~imposing~~be ~~other~~subject ~~supplementary~~to ~~unreasonable~~government ~~trading~~policies reflecting ~~conditions~~domestic inpolitical changes. In addition, the ~~transaction.~~PRC Iflegal ~~our~~system ~~strategic~~is ~~partnership~~based ~~agreement~~in ~~with~~part ~~Haizhong~~on ~~Boiler~~government orpolicies ~~the~~and ~~implementation~~internal rules (some of ~~such~~which ~~agreement~~are isnot ~~deemed~~published on a ~~violation~~timely ofbasis ~~the~~or ~~anti-monopoly~~at ~~law,~~all) ~~the~~that ~~anti-monopoly~~may ~~administration~~have ~~authority~~a ~~may~~retroactive ~~order~~effect. usAs toa ~~cease~~result, ~~the~~we ~~conduct,~~may ~~confiscate~~not be aware of our ~~proceeds~~violation ~~and~~of ~~impose~~any asuch ~~fine~~policies ofand 1%rules tountil ~~10%~~sometime ofafter the ~~sales~~violation. ~~volume~~In ~~for~~addition, ~~the~~any ~~previous~~litigation ~~year.~~in AsChina amay ~~result,~~be protracted ~~our~~and ~~business,~~result ~~results~~in ofsubstantial ~~operation~~costs and ~~financial~~diversion ~~condition~~of ~~could~~resources beand ~~adversely~~management ~~affected~~attention.

31The application of PRC laws regarding the regulation of monopolies may adversely affect us.

~~The~~We ~~failure~~have a nationwide strategic partnership agreement with Qingdao Haizhong Enterprise Co., Ltd. ("Haizhong Boiler"), a CWSF boiler manufacturer with an estimated 78% share of the national CWSF boiler market. According to ~~comply~~Beijing ZhongjingZhongheng Information and Consulting Center, Haizhong Boiler's market share was determined on December 30, 2009. In accordance with ~~PRC~~this ~~regulations~~partnership ~~relating~~agreement, we and Haizhong Boiler have each agreed to ~~mergers~~recommend to our respective customers the other party's products during the course of selling our own products. Under the PRC Anti-monopoly Law promulgated on August 30, 2007 and ~~acquisitions~~effective as of ~~domestic~~August 1, ~~enterprises~~2008, business byoperators ~~offshore~~with ~~special~~a ~~purpose~~dominant ~~vehicles~~market ~~may~~position ~~subject~~are usprohibited from certain behavior that abuses their dominant market position, including among other things, (i) limiting another party to ~~severe~~the ~~fines~~transaction to trade exclusively with them or ~~penalties~~with their designated business operators without justification and ~~create~~(ii) implementing tie-in sales without justification, or imposing other ~~regulatory~~supplementary unreasonable ~~uncertainties~~trading ~~regarding~~conditions in the transaction. If our ~~corporate~~strategic ~~structure~~partnership agreement with Haizhong Boiler or the implementation of such agreement is deemed a violation of the anti-monopoly law, the anti-monopoly administration authority may order us to cease the conduct, confiscate our proceeds and impose a fine of 1% to 10% of the sales volume for the previous year. As a result, our business, results of operation and financial condition could be adversely affected.

On August 8, 2006, the PRC Ministry of Commerce ("MOFCOM"), joined by the China Securities Regulatory Commission (the "CSRC"), the State-owned Assets Supervision and Administration Commission of the State Council (the "SASAC"), the State Administration of Taxation (the "SAT"), the State Administration for Industry and Commerce (the "SAIC"), and the State Administration of Foreign Exchange ("SAFE"), jointly promulgated regulations entitled the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the "M&A Rules"), which took effect as of September 8, 2006. This regulation, among other things, has certain provisions that require offshore special purpose vehicles ("SPVs") formed for the purpose of acquiring PRC domestic companies and controlled by PRC individuals, to obtain the approval of MOFCOM prior to engaging in such acquisitions and to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock market. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval. 30

The ~~application~~failure ~~of the M&A Rules with respect~~ to ~~our~~comply ~~corporate structure and to this offering remains unclear,~~ with ~~no current consensus existing among leading~~ PRC ~~law~~regulations ~~firms~~relating ~~regarding~~to mergers ~~the scope~~ and ~~applicability~~acquisitions of ~~the~~domestic ~~M&A Rules.~~enterprises We believe that the MOFCOM and CSRC approvals under the M&A Rules were not required in the context of our share exchange transaction because at such time the share exchange was a foreign related transaction governed by ~~foreign~~offshore ~~laws,~~special ~~not~~purpose ~~subject~~vehicles to the jurisdiction of PRC laws and regulations. However, we cannot be certain that the relevant PRC government agencies, including the CSRC and MOFCOM, would reach the same conclusion, and we cannot be certain that MOFCOM or the CSRC may ~~deem~~subject that the transactions effected by the share exchange circumvented the M&A Rules, and other rules and notices, and that prior MOFCOM or CSRC approval is required for this offering. Further, we cannot rule out the possibility that the relevant PRC government agencies, including MOFCOM, would deem that the M&A Rules required us ~~or our entities in China~~ to ~~obtain~~severe ~~approval~~fines ~~from~~or ~~MOFCOM~~penalties and orcreate other ~~PRC~~ regulatory ~~agencies~~uncertainties inregarding ~~connection~~our ~~with~~corporate (i) the equity transfer agreements, which were completed by and among Suoke Clean Energy, Peng Zhou and Suo'ang BST in November 2009, pursuant to which Suo'ang New Energy was acquired by Suoke Clean Energy and (ii) Hangson's control of Suo'ang New Energy during the period from June 2006 to September 2009 through contractual arrangements with Suo'ang BST and Peng Zhou's holding of a 20% equity interest in Suo'ang New Energystructure.

IfOn ~~the~~August 8, ~~CSRC~~2006, the PRC Ministry of Commerce ("MOFCOM"), orjoined ~~another~~by ~~PRC~~the ~~regulatory~~China ~~agency~~Securities ~~subsequently~~Regulatory ~~determines~~Commission ~~that~~(the "CSRC"), ~~MOFCOM~~the orState-owned Assets ~~other~~Supervision ~~approval~~and ~~was~~Administration ~~required~~Commission ~~for~~of the ~~share~~State ~~exchange~~Council ~~transaction~~(the ~~and/~~"SASAC"), or the ~~acquisition~~State Administration of ~~Suo'ang~~Taxation (the ~~New Energy~~"SAT"), orthe ifState ~~prior~~Administration ~~CSRC approval~~ for ~~this~~Industry ~~offering is required~~ and ~~not~~Commerce ~~obtained~~(the "SAIC"), weand ~~may~~the ~~face~~State ~~severe~~Administration of ~~regulatory~~Foreign ~~actions~~Exchange or("SAFE"), ~~other~~jointly ~~sanctions~~promulgated ~~from~~regulations ~~MOFCOM,~~entitled the ~~CSRC~~Provisions orRegarding ~~other~~Mergers ~~PRC~~and ~~regulatory~~Acquisitions of ~~agencies.~~Domestic InEnterprises ~~such~~by ~~event,~~Foreign ~~these~~Investors ~~regulatory~~(the ~~agencies~~"M&A ~~may~~Rules"), ~~impose~~which ~~fines~~took oreffect ~~other~~as ~~penalties~~of onSeptember 8, ~~our~~2006. ~~operations~~This regulation, inamong ~~the~~other ~~PRC~~things, ~~limit~~has ~~our~~certain ~~operating~~provisions ~~privileges~~that inrequire ~~the~~offshore ~~PRC,~~special ~~delay~~purpose orvehicles ~~restrict~~("SPVs") formed for the ~~repatriation~~purpose of ~~the~~acquiring ~~proceeds~~PRC ~~from~~domestic ~~this~~companies ~~offering~~and ~~into~~controlled ~~the~~by PRC individuals, ~~restrict~~to orobtain ~~prohibit~~the ~~payment~~approval ~~or remittance~~ of ~~dividends~~MOFCOM prior to engaging usin orsuch ~~take~~acquisitions ~~other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation~~ and ~~prospects,~~to asobtain ~~well as~~ the ~~trading~~approval ~~price~~ of ~~our~~the ~~common~~CSRC ~~stock.~~prior ~~The~~to ~~CSRC~~publicly orlisting ~~other~~their ~~PRC~~securities ~~regulatory~~on ~~agencies~~an ~~may~~overseas stock ~~also~~market. ~~take~~On ~~actions~~September 21, ~~requiring us~~2006, orthe ~~making~~CSRC itpublished ~~advisable~~on ~~for~~its ~~us,~~official towebsite ~~delay~~a ornotice ~~cancel~~specifying ~~this~~the ~~offering,~~documents toand ~~restructure~~materials that ~~our~~are ~~current~~required ~~corporate structure, or~~ to ~~seek regulatory approvals that may~~ be ~~difficult~~submitted orfor ~~costly~~obtaining toCSRC ~~obtain~~approval.

The application of the M&A Rules, ~~along~~with respect to our corporate structure and to this offering remains unclear, with ~~certain~~no ~~foreign~~current consensus existing among leading PRC law firms regarding the scope and applicability of the M&A Rules. We believe that the MOFCOM and CSRC approvals under the M&A Rules were not required in the context of our share exchange ~~regulations~~transaction ~~discussed~~because ~~below,~~at ~~will~~such betime ~~interpreted~~the orshare ~~implemented~~exchange was a foreign related transaction governed by foreign laws, not subject to the jurisdiction of PRC laws and regulations. However, we cannot be certain that the relevant PRC government ~~authorities~~agencies, inincluding ~~connection~~the ~~with~~CSRC ~~our~~and ~~future~~MOFCOM, ~~offshore~~would ~~financings~~reach the same conclusion, and we cannot be certain that MOFCOM or ~~acquisitions~~the CSRC may deem that the transactions effected by the share exchange circumvented the M&A Rules, and other rules and notices, and that prior MOFCOM or CSRC approval is required for this offering. Further, we cannot ~~predict~~rule out ~~how~~the ~~they~~possibility ~~will~~that ~~affect~~the ~~our~~relevant ~~acquisition~~PRC ~~strategy.~~government ~~For~~agencies, ~~example~~including MOFCOM, would deem that the M&A Rules required us or our ~~operating~~entities ~~companies'~~in ~~ability~~China to ~~remit~~obtain ~~dividends~~approval tofrom ~~us,~~MOFCOM or toother ~~engage~~PRC regulatory agencies in ~~foreign-currency-denominated~~connection ~~borrowings~~with (i) the equity transfer agreements, ~~may~~which bewere ~~conditioned~~completed ~~upon~~by ~~compliance~~and ~~with~~among ~~the~~Suoke ~~SAFE~~Clean ~~registration~~Energy, ~~requirements~~Peng byZhou ~~such~~and ~~Chinese~~Suo'ang ~~domestic~~BST ~~residents~~in November 2009, ~~over~~pursuant to ~~whom~~which weSuo'ang ~~may~~New ~~have~~Energy nowas acquired by Suoke Clean Energy and (ii) Hangson's control. of Suo'ang New Energy during the period from June 2006 to September 2009 through contractual arrangements with Suo'ang BST and Peng Zhou's holding of a 20% equity interest in Suo'ang New Energy.

32If the CSRC, MOFCOM, or another PRC regulatory agency subsequently determines that CSRC, MOFCOM or other approval was required for the share exchange transaction and/ or the acquisition of Suo'ang New Energy, or if prior CSRC approval for this offering is required and not obtained, we may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines or other penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common stock. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to delay or cancel this offering, to restructure our current corporate structure, or to seek regulatory approvals that may be difficult or costly to obtain.

~~SAFE~~The M&A Rules, along with certain foreign exchange regulations ~~relating~~discussed tobelow, ~~offshore~~will ~~investment~~be ~~activities~~interpreted or implemented by ~~PRC~~the ~~residents~~relevant ~~may~~government ~~increase~~authorities ~~our~~in ~~administrative~~connection ~~burdens~~with our ~~and~~future ~~restrict~~offshore ~~our~~financings ~~overseas~~or acquisitions, and ~~cross-border~~we ~~investment~~cannot ~~activity.~~predict Ifhow ~~our~~they ~~shareholders~~will ~~and~~affect ~~beneficial~~our ~~owners~~acquisition ~~who~~strategy. ~~are~~For ~~PRC~~example, our ~~residents~~operating ~~fail~~companies' ability to ~~make~~remit ~~any~~dividends ~~required~~to ~~applications~~us, ~~registrations~~or ~~and~~to ~~filings~~engage ~~under~~in ~~such~~foreign-currency-denominated ~~regulations~~borrowings, we may be ~~unable~~conditioned upon tocompliance ~~distribute~~with ~~profits~~the ~~and~~SAFE ~~may~~registration ~~become~~requirements ~~subject~~by tosuch ~~liability~~Chinese ~~under~~domestic ~~PRC~~residents, ~~laws.~~over whom we may have no control.

SAFE has promulgated several regulations, including Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Oversea Special Purpose Vehicles, or "Circular No. 75," issued on October 21, 2005 and effective as of November 1, 2005 and certain implementation rules issued in recent years, requiring registrations with, and approvals from, PRC government authorities in connection with direct or indirect offshore investment activities by PRC residents and PRC corporate entities. These regulations apply to our shareholders and beneficial owners who are PRC residents, and may affect any offshore acquisitions that we make in the future. 31

SAFE ~~Circular~~regulations ~~No. 75~~relating ~~requires PRC residents~~ to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies, referred to in the notice as an "offshore ~~special~~investment ~~purpose~~activities by ~~company." In addition, any~~ PRC ~~resident~~residents ~~who~~may is a direct or indirect shareholder of an offshore company is required to update his registration with the relevant SAFE branches, with respect to that offshore company, in connection with any material change involving an increase orour ~~decrease~~administrative ofburdens ~~capital,~~and ~~transfer~~restrict orour ~~swap~~overseas ofand ~~shares,~~cross-border ~~merger, division, equity or debt~~ investment ~~or creation of any security interest~~activity. ~~Moreover,~~If ~~the~~our shareholders ~~PRC subsidiaries of that offshore company are required to coordinate~~ and ~~supervise~~beneficial ~~the~~owners ~~filing of SAFE registrations by the offshore company's shareholders~~ who are PRC residents infail ~~a timely manner. If a PRC shareholder with a direct or indirect stake in an offshore parent company fails~~ to make ~~the~~any required ~~SAFE registration~~applications, ~~the~~registrations ~~PRC~~and ~~subsidiaries~~filings of under such ~~offshore~~regulations, ~~parent~~we ~~company~~ may be ~~prohibited~~unable ~~from making distributions of profit~~ to ~~the~~distribute ~~offshore~~profits ~~parent~~ and ~~from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries, and the offshore parent company~~ may ~~also~~become besubject ~~prohibited from injecting additional capital into its PRC subsidiaries. Furthermore, failure~~ to ~~comply with the various SAFE registration requirements described above may result in~~ liability ~~for the PRC shareholders and the PRC subsidiaries~~ under PRC ~~law for foreign exchange registration evasion~~laws.

~~Although~~SAFE wehas ~~have~~promulgated ~~requested~~several ~~our~~regulations, including ~~PRC~~Notice ~~shareholders~~on ~~and~~Relevant ~~beneficial~~Issues ~~owners~~Concerning toForeign ~~complete~~Exchange ~~the~~Administration ~~SAFE~~for ~~Circular~~PRC ~~No. 75~~Residents ~~registration,~~to weEngage ~~cannot~~in beFinancing ~~certain~~and ~~that~~Inbound Investment ~~all~~via ofOversea ~~our~~Special ~~PRC~~Purpose ~~resident~~Vehicles, ~~beneficial~~or ~~owners~~"Circular ~~will~~No. 75," ~~comply~~issued ~~with~~on ~~the~~October 21, ~~SAFE~~2005 ~~regulations.~~and ~~The~~effective as ~~failure or inability~~ of ~~our~~November 1, ~~PRC~~2005 ~~shareholders~~ and ~~beneficial~~certain ~~owners~~implementation torules ~~receive~~issued ~~any~~in ~~required~~recent ~~approvals~~years, orrequiring ~~make any required~~ registrations ~~may~~with, ~~subject us to fines~~ and ~~legal sanctions~~approvals from, ~~restrict~~PRC ~~our~~government ~~overseas~~authorities orin ~~cross-border~~connection ~~investment~~with ~~activities,~~direct ~~prevent us from transferring the net proceeds of this offering~~ or ~~making~~indirect ~~other~~offshore ~~capital~~investment ~~injection~~activities ~~into~~by ~~our~~ PRC ~~subsidiaries,~~residents ~~limit~~and ~~our~~ PRC corporate ~~subsidiaries'~~entities. ~~ability~~These toregulations ~~make~~apply ~~distributions~~to ~~or pay dividends or affect~~ our ~~ownership~~shareholders ~~structure,~~and asbeneficial aowners ~~result~~who ofare ~~which~~PRC ~~our~~residents, ~~acquisition strategy~~ and ~~business~~may ~~operations~~affect ~~and~~any offshore ~~our~~acquisitions ~~ability~~that towe ~~distribute~~make ~~profits~~in tothe ~~you could be materially and adversely affected~~future.

~~Under~~SAFE ~~Operating~~Circular ~~Rules~~No. 75 onrequires ~~the~~PRC ~~Foreign~~residents to ~~Exchange~~register ~~Administration~~with of the ~~Involvement~~local ofSAFE ~~Domestic~~branch ~~Individuals~~before inestablishing ~~the~~or ~~Employee~~controlling ~~Stock~~any ~~Ownership~~company ~~Plans~~outside ~~and~~of ~~Share~~China ~~Option~~for ~~Schemes~~the purpose of ~~Overseas~~capital financing ~~Listed~~with ~~Companies,~~assets ~~issued~~or ~~and~~equities ~~effective as~~ of ~~March 28~~PRC companies, ~~2007~~referred byto in the ~~State~~notice ~~Administration~~as ofan ~~Foreign Exchange, or~~ "~~SAFE"~~offshore ~~("Circular~~special Nopurpose company. 78") In addition, any PRC ~~residents~~resident who ~~are~~is ~~granted~~a ~~shares~~direct or ~~share~~indirect ~~options~~shareholder byof an ~~overseas~~offshore ~~listed~~ company ~~according~~is ~~to its employee share option or share incentive plan are~~ required to ~~obtain~~update ~~approval~~his ~~from and register~~ registration with the relevant SAFE orbranches, ~~its~~with ~~local~~respect ~~branches~~to ~~and~~that ~~complete~~offshore ~~certain~~company, ~~other~~in ~~procedures~~connection ~~related~~with toany ~~the~~material ~~share~~change ~~option~~involving an increase or ~~other~~decrease ~~share~~of ~~incentive~~capital, ~~plan~~transfer ~~through~~or ~~the~~swap ~~PRC subsidiary~~ of ~~such~~shares, ~~overseas~~merger, ~~listed~~division, ~~company~~equity or ~~any~~debt ~~other~~investment ~~qualified~~or ~~PRC~~creation ~~agent~~of ~~before~~any ~~such~~security ~~grants are made~~interest. Moreover, Wethe ~~believe~~PRC ~~that~~subsidiaries ~~all~~ of ~~our~~that ~~PRC~~offshore ~~employees~~company ~~who~~ are ~~granted~~required ~~share~~to ~~options~~coordinate ~~are~~and ~~subject~~supervise tothe ~~SAFE~~filing ~~No. 78. As~~ of ~~December 31,~~SAFE ~~2010,~~registrations by wethe ~~had~~offshore ~~granted~~company's ~~options~~shareholders towho ~~purchase~~are upPRC toresidents ~~15,000~~in ~~shares~~a oftimely ~~common stock to two PRC residents~~manner. WeIf ~~have~~a ~~requested our~~ PRC ~~management,~~shareholder ~~personnel,~~with ~~directors,~~a ~~employees~~direct ~~and~~or ~~consultants~~indirect stake ~~who~~in ~~have~~an ~~been~~offshore ~~granted~~parent orcompany ~~are~~fails to bemake ~~granted~~the ~~stock~~required ~~options~~SAFE toregistration, ~~register~~the ~~them~~PRC ~~with~~subsidiaries ~~local~~of ~~SAFE~~such ~~pursuant~~offshore toparent company ~~Circular~~may ~~No. 78.~~be ~~However,~~prohibited wefrom ~~cannot~~making ~~assure~~distributions ~~you~~of ~~that~~profit ~~each~~to ofthe ~~these~~offshore ~~individuals~~parent ~~has~~and ~~carried~~from ~~out~~paying orthe ~~will~~offshore ~~carry~~parent ~~out~~proceeds from ~~all~~any ~~the~~reduction ~~required~~in ~~procedures~~capital, ~~above.~~share Iftransfer we or ~~our~~liquidation ~~PRC~~in ~~option~~respect ~~holders~~of ~~fail~~the toPRC ~~comply~~subsidiaries, ~~with~~and ~~these~~the ~~regulations,~~offshore weparent orcompany may ~~our~~also ~~PRC~~be ~~option~~prohibited ~~holders~~from ~~may~~injecting beadditional ~~subject~~capital tointo ~~fines~~its ~~and~~PRC ~~legal sanctions~~subsidiaries. ~~Further~~Furthermore, failure to comply with the various SAFE registration requirements described above ~~could~~may result in liability ~~under PRC law~~ for ~~foreign~~the ~~exchange~~PRC ~~evasion~~shareholders and wethe ~~may~~PRC ~~become~~subsidiaries ~~subject~~under PRC tolaw afor ~~more stringent review and approval process with respect to our~~ foreign exchange ~~activities.~~registration evasion.

33Although we have requested our PRC shareholders and beneficial owners to complete the SAFE Circular No. 75 registration, we cannot be certain that all of our PRC resident beneficial owners will comply with the SAFE regulations. The failure or inability of our PRC shareholders and beneficial owners to receive any required approvals or make any required registrations may subject us to fines and legal sanctions, restrict our overseas or cross-border investment activities, prevent us from transferring the net proceeds of this offering or making other capital injection into our PRC subsidiaries, limit our PRC subsidiaries' ability to make distributions or pay dividends or affect our ownership structure, as a result of which our acquisition strategy and business operations and our ability to distribute profits to you could be materially and adversely affected.

Under Operating Rules on the Foreign Exchange Administration of the Involvement of Domestic Individuals in the Employee Stock Ownership Plans and Share Option Schemes of Overseas Listed Companies, issued and effective as of March 28, 2007 by the State Administration of Foreign Exchange, or "SAFE" ("Circular No. 78"), PRC residents who are granted shares or share options by an overseas listed company according to its employee share option or share incentive plan are required to obtain approval from and register with the SAFE or its local branches and complete certain other procedures related to the share option or other share incentive plan through the PRC subsidiary of such overseas listed company or any other qualified PRC agent before such grants are made. We ~~must~~believe ~~comply~~that all of our PRC employees who are granted share options are subject to SAFE No. 78. As of December 31, 2010, we had granted options to purchase up to 15,000 shares of common stock to two PRC residents. We have requested our PRC management, personnel, directors, employees and consultants who have been granted or are to be granted stock options to register them with local SAFE pursuant to Circular No. 78. However, we cannot assure you that each of these individuals has carried out or will carry out all the ~~Foreign~~required ~~Corrupt~~procedures above. ~~Practices~~If ~~Act~~we or our PRC option holders fail to comply with these regulations, we or our PRC option holders may be subject to fines and legal sanctions. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion and we may become subject to a more stringent review and approval process with respect to our foreign exchange activities.

We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. Certain of our customers are PRC government entities and our dealings with them are likely to be considered to be with government officials for these purposes. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. We could suffer severe penalties if our employees or other agents were found to have engaged in such practices. 32

~~Under~~We ~~the~~must ~~PRC~~comply ~~EIT~~with ~~Law, we and/or Wiscon may be classified as a "resident enterprise" of~~ the ~~PRC.~~Foreign ~~Such~~Corrupt ~~classification~~Practices ~~could result in tax consequences to us, our non-PRC resident investors and/or Wiscon~~Act.

OnWe ~~March 16,~~are ~~2007,~~required ~~the~~to ~~National~~comply ~~People's~~with ~~Congress~~the ~~approved~~United States ~~and~~Foreign ~~promulgated~~Corrupt aPractices ~~new tax law~~Act, ~~the~~which ~~PRC~~prohibits ~~Enterprise~~U.S. ~~Income~~companies ~~Tax~~from ~~Law~~engaging ~~(the~~in ~~"EIT~~bribery ~~Law")~~or ~~which~~other ~~took~~prohibited ~~effect~~payments onto ~~January 1,~~foreign officials ~~2008.~~for ~~Under~~ the ~~EIT~~purpose ~~Law,~~of ~~enterprises~~obtaining ~~are~~or ~~classified~~retaining ~~as resident enterprises and non-resident enterprises~~business. AnForeign ~~enterprise~~companies, ~~established~~including ~~outside~~some of ~~China~~our ~~with~~competitors, ~~"de~~are ~~facto~~not ~~management~~subject to ~~bodies"~~these ~~within~~prohibitions. ~~China~~Certain isof ~~considered~~our acustomers ~~"resident~~are ~~enterprise,"~~PRC ~~meaning~~government ~~that~~entities itand ~~can~~our bedealings ~~treated~~with inthem aare ~~manner~~likely ~~similar~~ to abe ~~Chinese~~considered to ~~enterprise~~be ~~for~~with ~~enterprise~~government ~~income~~officials ~~tax~~for these purposes. ~~The~~Corruption, ~~implementing~~extortion, ~~rules~~bribery, ofpay-offs, ~~the~~theft ~~EIT~~and ~~Law~~other ~~define~~fraudulent ~~"de~~practices occur ~~facto~~from ~~management~~time-to-time ~~bodies" as a managing body that~~ in ~~practice~~the ~~exercises~~PRC. ~~"substantial~~If ~~and~~our ~~overall~~competitors ~~management~~engage ~~and~~in ~~control~~these ~~over~~practices, ~~the~~they ~~production~~may ~~and~~receive ~~operations,~~preferential treatment from personnel, ~~accounting, and properties"~~ of ~~the~~some ~~enterprise; however~~companies, itgiving ~~remains unclear whether the PRC tax authorities would deem~~ our decompetitors ~~facto~~an ~~managing~~advantage ~~body~~in assecuring ~~being~~business ~~located~~or ~~within~~from ~~China.~~government ~~Due~~officials towho ~~the~~might ~~short~~give them ~~history~~priority ofin ~~the~~obtaining ~~EIT~~new ~~Law~~licenses, ~~and~~which ~~lack~~would ofput ~~applicable~~us ~~legal~~at ~~precedents,~~a ~~the~~disadvantage. ~~PRC~~We ~~tax~~could ~~authorities~~suffer ~~determine~~severe ~~the~~penalties ~~PRC~~if ~~tax~~our ~~resident~~employees or ~~treatment~~other ofagents awere ~~foreign~~found ~~(non-PRC)~~to ~~company~~have onengaged ain ~~case-by-case~~such ~~basis~~practices.

IfUnder the PRC ~~tax~~EIT ~~authorities~~Law, ~~determine that~~ we and/or Wiscon ~~are~~may be classified as a "resident enterprise" ~~for~~of the PRC. ~~enterprise~~Such ~~income~~classification ~~tax~~could ~~purposes,~~result ain ~~number of PRC~~ tax consequences ~~could follow. First, we and/or Wiscon may be subject~~ to ~~the enterprise income tax at a rate of 25% on our and/or Wiscon's worldwide taxable income~~us, ~~in addition to~~ our non-PRC ~~enterprise income tax reporting obligations. Second, under the EIT Law and its implementing rules, dividends paid between "qualified~~ resident investors ~~enterprises" are exempt from enterprise income tax. As a result, if we~~ and/or Wiscon ~~are treated as PRC "qualified resident enterprises," all dividends from Suoke Clean Energy to us (through Wiscon) should be exempt from PRC tax~~.

IfOn ~~Wiscon~~March 16, ~~were~~2007, ~~treated~~the asNational aPeople's Congress ~~PRC~~approved ~~"non-resident~~and ~~enterprise"~~promulgated ~~under~~a ~~the~~new ~~EIT~~tax ~~Law~~law, ~~then~~the ~~dividends~~PRC ~~that~~Enterprise ~~Wiscon~~Income ~~receives~~Tax ~~from~~Law ~~Suoke~~(the ~~Clean~~"EIT ~~Energy~~Law") ~~(assuming~~which ~~such~~took ~~dividends~~effect on ~~were~~January 1, ~~considered~~2008. ~~sourced~~Under ~~within~~ the ~~PRC)~~EIT ~~(i) may~~Law, beenterprises ~~subject~~are toclassified aas 5%resident ~~PRC~~enterprises ~~withholding~~and ~~tax,~~non-resident ~~provided~~enterprises. ~~that~~An enterprise ~~Wiscon~~established ~~owns~~outside ~~more than 25%~~ of ~~the~~China ~~registered~~with ~~capital~~"de offacto ~~Suoke~~management ~~Clean~~bodies" ~~Energy continuously~~ within ~~12 months~~China ~~immediately~~is ~~prior~~considered toa ~~obtaining such dividend from Suoke Clean Energy~~"resident enterprise," ~~and~~meaning ~~the~~that ~~Arrangement~~it ~~between~~can ~~the~~be ~~Mainland~~treated ofin ~~China~~a ~~and~~manner ~~the~~similar ~~Hong~~to ~~Kong~~a ~~Special~~Chinese ~~Administrative~~enterprise ~~Region~~ for ~~the~~enterprise ~~Avoidance~~income oftax ~~Double~~purposes. The ~~Taxation~~implementing ~~and~~rules ~~the Prevention~~ of ~~Fiscal~~the ~~Evasion~~EIT ~~with~~Law ~~Respect~~define to"de ~~Taxes~~facto onmanagement ~~Income (the~~ bodies"~~PRC-Hong~~ ~~Kong~~as ~~Tax~~a ~~Treaty")~~managing ~~were~~body ~~otherwise~~that ~~applicable,~~in orpractice ~~(ii) if~~exercises "substantial ~~such~~and ~~treaty~~overall ~~does~~management ~~not~~and ~~apply~~control ~~(i.e. because~~over the ~~PRC~~production ~~tax~~and ~~authorities~~operations, ~~may~~personnel, ~~deem~~accounting, ~~Wiscon~~and toproperties" of bethe aenterprise; ~~conduit not entitled to treaty benefits)~~however, ~~may~~it beremains ~~subject~~unclear towhether athe ~~10%~~ PRC ~~withholding~~ tax. ~~Similarly,~~authorities ifwould wedeem ~~were~~our ~~treated~~de asfacto amanaging ~~PRC~~body ~~"non-resident~~as ~~enterprise"~~being ~~under~~located within ~~the~~China. ~~EIT~~Due ~~Law~~to ~~and~~the ~~Wiscon~~short ~~were~~history ~~treated~~of ~~as a PRC "resident enterprise" under~~ the EIT Law, ~~then~~and ~~dividends~~lack ~~that~~of weapplicable ~~receive~~legal ~~from~~precedents, ~~Wiscon~~the ~~(assuming~~PRC ~~such~~tax ~~dividends~~authorities ~~were considered sourced within~~ determine the PRC) ~~may~~tax beresident ~~subject~~treatment toof a ~~10%~~foreign (non-PRC) ~~withholding~~company ~~tax. Any such taxes~~ on ~~dividends~~a ~~could~~case-by-case ~~materially reduce the amount of dividends, if any, we could pay to our shareholders~~basis.

~~Finally,~~If ifthe wePRC ~~are~~tax ~~determined~~authorities todetermine bethat we and/or Wiscon are a "resident enterprise" ~~under~~for ~~the EIT law, this could result in a situation in which (i) a 10%~~ PRC enterprise income tax ispurposes, ~~imposed~~a onnumber ~~dividends we pay to our investors that are not tax residents~~ of ~~the~~ PRC ~~("non-resident~~tax ~~investors")~~consequences could ~~and~~follow. ~~that~~First, ~~are~~we ~~enterprises (but not individuals)~~ and/or ~~gains~~Wiscon ~~derived~~may bybe ~~them~~subject ~~from transferring our common stock, or (ii) up~~ to athe ~~20%~~enterprise ~~PRC individual~~ income tax isat ~~imposed~~a onrate ~~dividends~~of ~~that~~25% weon ~~pay to~~ our ~~non-resident investors who are individuals~~ and/or ~~gains~~Wiscon's ~~derived~~worldwide taxable ~~by them from transferring our common stock~~income, in ~~each~~addition ~~case~~to ifour ~~such income or gain is considered~~ PRC~~-sourced~~ enterprise income bytax ~~the~~reporting ~~relevant PRC authorities~~obligations. ~~In such event~~Second, weunder ~~may be required to withhold~~ the ~~applicable~~EIT ~~PRC~~Law ~~tax~~and onits ~~any~~implementing rules, dividends paid tobetween ~~our~~"qualified ~~non-~~resident ~~investors.~~enterprises" ~~Our~~are ~~non-resident~~exempt ~~investors~~from ~~also~~enterprise ~~may~~income ~~be responsible for paying the applicable PRC~~ tax. onAs ~~any~~a ~~gains~~result, ~~realized~~if we ~~from~~and ~~the~~Wiscon ~~sale~~are ortreated ~~transfer~~as ofPRC ~~our~~"qualified ~~common~~resident ~~stock~~enterprises," inall ~~certain~~dividends ~~circumstances.~~from WeSuoke ~~would~~Clean ~~not,~~Energy ~~however, have an obligation~~ to ~~withhold~~us ~~PRC~~(through Wiscon) ~~tax~~should ~~with~~be ~~respect~~exempt tofrom ~~such gain under the~~ PRC tax ~~laws~~.

34If Wiscon were treated as a PRC "non-resident enterprise" under the EIT Law, then dividends that Wiscon receives from Suoke Clean Energy (assuming such dividends were considered sourced within the PRC) (i) may be subject to a 5% PRC withholding tax, provided that Wiscon owns more than 25% of the registered capital of Suoke Clean Energy continuously within 12 months immediately prior to obtaining such dividend from Suoke Clean Energy, and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the "PRC-Hong Kong Tax Treaty") were otherwise applicable, or (ii) if such treaty does not apply (i.e. because the PRC tax authorities may deem Wiscon to be a conduit not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Similarly, if we were treated as a PRC "non-resident enterprise" under the EIT Law and Wiscon were treated as a PRC "resident enterprise" under the EIT Law, then dividends that we receive from Wiscon (assuming such dividends were considered sourced within the PRC) may be subject to a 10% PRC withholding tax. Any such taxes on dividends could materially reduce the amount of dividends, if any, we could pay to our shareholders.

~~The SAT released Circular Guoshuihan No. 698 ("Circular 698") on December 10~~Finally, ~~2009,~~if ~~which~~we ~~reinforces~~are ~~the~~determined ~~taxation~~to ofbe ~~certain~~a ~~equity transfers by non-~~"resident enterprise" ~~investors~~under ~~through~~the ~~overseas holding vehicles. Circular 698 addresses indirect equity transfers as well as other issues. Circular 698 is retroactively effective from January~~EIT 1law, ~~2008.~~this ~~According~~could toresult ~~Circular~~in ~~698, where~~ a ~~non-resident~~situation ~~investor who indirectly holds an equity interest~~ in awhich ~~PRC resident enterprise through~~ (i) a ~~non-PRC~~10% ~~offshore holding company indirectly transfers an equity interest in a~~ PRC ~~resident~~ enterprise byincome ~~selling~~tax ~~the equity interest in the offshore holding company, and the latter~~ is imposed ~~located~~on individends awe ~~country~~pay orto ~~jurisdiction~~our ~~where~~investors ~~the~~that ~~actual~~are not tax ~~burden~~residents ~~is less than 12.5 percent or where the offshore income~~ of ~~its residents is not taxable,~~ the PRC ("non-resident ~~investor~~investors") isand ~~required to provide the PRC tax authority in charge of~~ that are ~~PRC~~enterprises ~~resident~~(but ~~enterprise~~not ~~with~~individuals) ~~certain~~and ~~relevant~~gains ~~information~~derived ~~within~~by ~~30 days~~them from ~~the~~transferring ~~date~~our ofcommon ~~execution~~stock, ofor ~~the~~(ii) up ~~transfer~~to ~~agreements.~~a ~~The~~20% ~~responsible~~PRC individual ~~tax~~income ~~authorities will evaluate the offshore transaction for~~ tax ~~purposes.~~is Inimposed ~~the~~on ~~event~~dividends that ~~the~~we ~~PRC~~pay ~~tax~~to ~~authorities~~our ~~determine~~non-resident ~~that~~investors ~~such~~who ~~transfer~~are isindividuals ~~an abuse of forms of business organization~~ and agains ~~reasonable~~derived ~~commercial~~by them ~~purpose~~from ~~for~~transferring ~~the~~our ~~offshore~~common ~~holding~~stock, ~~company~~in ~~other~~each ~~than~~case ~~the~~if ~~avoidance~~such ~~of PRC~~ income ~~tax~~or ~~liability~~gain is ~~lacking,~~considered ~~the~~ PRC ~~tax authorities will have the power to re~~-~~assess~~sourced ~~the~~income ~~nature~~by of the ~~equity~~relevant ~~transfer under the doctrine of substance over form~~PRC authorities. IfIn ~~the~~such ~~SAT's challenge of a transfer is successful~~event, itwe may ~~deny~~be ~~the~~required ~~existence~~to ofwithhold the ~~offshore~~applicable ~~holding~~PRC ~~company that is used for~~ tax ~~planning~~on ~~purposes~~any ~~and~~dividends ~~subject~~paid ~~the~~to our non-resident ~~investor to PRC tax on the capital gain from such transfer~~investors. Our ~~Since Circular 698 has a short history, there is uncertainty as to its application. We (or a~~ non-resident ~~investor)~~investors ~~may~~also ~~become at risk of being taxed under Circular 698 and~~ may be ~~required~~responsible tofor ~~expend~~paying ~~valuable~~the ~~resources~~applicable toPRC ~~comply~~tax ~~with~~on ~~Circular~~any ~~698~~gains orrealized tofrom ~~establish~~the ~~that~~sale ~~we (~~or ~~such~~transfer of ~~non-resident~~our ~~investor)~~common ~~should~~stock ~~not~~in becertain ~~taxed~~circumstances. ~~under~~We ~~Circular~~would ~~698~~not, ~~which~~however, ~~could~~ have aan ~~material~~obligation ~~adverse~~to ~~effect~~withhold onPRC ~~our~~tax ~~financial~~with ~~condition~~respect ~~and~~to ~~results of operations (or~~ such gain ~~non-resident~~under ~~investor's~~the ~~investment~~PRC intax ~~us)~~laws.

If any such PRC income tax applies to a non-resident investor, the non-resident investor may be entitled to a reduced rate of PRC tax under an applicable income tax treaty and/or a deduction for such PRC tax against such investor's domestic taxable income or a foreign tax credit in respect of such PRC tax against such investor's domestic income tax liability (subject to applicable conditions and limitations). Prospective investors should consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available deductions or foreign tax credits. 33

~~For~~The aSAT ~~further~~released ~~discussion~~Circular Guoshuihan No. 698 ("Circular 698") on December 10, 2009, which reinforces the taxation of ~~these~~certain equity transfers by non-resident investors through overseas holding vehicles. Circular 698 addresses indirect equity transfers as well as other issues. Circular 698 is retroactively effective from January 1, ~~see~~2008. According to Circular 698, where a non-resident investor who indirectly holds an equity interest in a PRC resident enterprise through a non-PRC offshore holding company indirectly transfers an equity interest in a PRC resident enterprise by selling the ~~section~~equity ~~captioned~~interest "in the offshore holding company, and the latter is located in a country or jurisdiction where the actual tax burden is less than 12.5 percent or where the offshore income of its residents is not taxable, the non-resident investor is required to provide the PRC ~~Income~~tax ~~Tax~~authority ~~Considerations~~in charge of that PRC resident enterprise with certain relevant information within 30 days from the date of execution of the transfer agreements." The responsible tax authorities will evaluate the offshore transaction for tax purposes. In the event that the PRC tax authorities determine that such transfer is an abuse of forms of business organization and a reasonable commercial purpose for the offshore holding company other than the avoidance of PRC income tax liability is lacking, the PRC tax authorities will have the power to re-assess the nature of the equity transfer under the doctrine of substance over form. If the SAT's challenge of a transfer is successful, it may deny the existence of the offshore holding company that is used for tax planning purposes and subject the non-resident investor to PRC tax on the capital gain from such transfer. Since Circular 698 has a short history, there is uncertainty as to its application. We (or a non-resident investor) may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we (or such non-resident investor) should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations (or such non-resident investor's investment in us).

~~The~~If ~~payment~~any such PRC income tax applies to a non-resident investor, the non-resident investor may be entitled to a reduced rate of ~~dividends~~PRC tax under an applicable income tax treaty and/or a deduction for such PRC tax against such investor's domestic taxable income or a foreign tax credit in ~~the~~respect of such PRC istax against such investor's domestic income tax liability (subject to applicable conditions and limitations). WeProspective ~~may~~investors ~~not~~should consult bewith ~~able~~their toown ~~pay~~tax ~~dividends~~advisors toregarding ~~our~~the ~~stockholders.~~applicability of any such taxes, the effects of any applicable income tax treaties, and any available deductions or foreign tax credits.

WeFor ~~conduct~~a ~~all~~further discussion of ~~our business through our subsidiaries incorporated in the PRC. We rely on dividends paid by~~ these ~~consolidated subsidiaries for our cash needs~~issues, see ~~including~~ the ~~funds~~section ~~necessary~~captioned ~~to pay any dividends and other cash distributions to our stockholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities established in the~~ "PRC isIncome ~~subject~~Tax ~~to limitations~~Considerations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC, subject to certain statutory procedural requirements. Each of our PRC subsidiaries, including wholly foreign owned enterprises, is also required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to their general reserves or statutory reserve fund until the aggregate amount of such reserves reaches 50% of their respective registered capital. Our statutory reserves are not distributable as loans, advances or cash dividends. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business. "

35The payment of dividends in the PRC is subject to limitations. We may not be able to pay dividends to our stockholders.

~~You~~We ~~may~~conduct ~~experience~~all ~~difficulties~~of our business through our subsidiaries incorporated in ~~effecting~~the PRC. We rely on dividends paid by these consolidated subsidiaries for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our stockholders, to service any debt we may incur and to pay our operating expenses. The payment of ~~legal~~dividends ~~process~~by entities established in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC, ~~enforcing~~subject to certain statutory procedural requirements. Each of our PRC subsidiaries, including wholly foreign ~~judgments~~owned orenterprises, ~~bringing~~is ~~original~~also ~~actions~~required into ~~China~~set aside at least 10% of their after-tax profit based on ~~United~~PRC ~~States~~accounting standards each year to their general reserves or statutory reserve fund until the aggregate amount of such reserves reaches 50% of their respective registered capital. Our statutory reserves are not distributable as loans, advances or cash dividends. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other ~~foreign~~distributions ~~laws~~to ~~against~~us. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ~~management.~~ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

All of the assets of Suoke Clean Energy, Suo'ang New Energy and Shenyang Energy are located in, and all of our executive officers and our directors reside within, China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon our senior executive officers and directors who do not reside in the United States, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our Chinese counsel has advised us that China does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts. As a result, our public stockholders may have substantial difficulty in protecting their interests through actions against our management or directors that stockholders of a corporation with assets and management members located in the United States would not experience. 34

~~Governmental~~You ~~control~~may experience difficulties in effecting service of legal ~~currency~~process, ~~conversion~~enforcing ~~may~~foreign ~~affect~~judgments ~~the~~or ~~value~~bringing oforiginal ~~your~~actions ~~investment~~in China based on United States or other foreign laws against us and our management.

~~The~~All ~~PRC~~of ~~government imposes controls on~~ the ~~convertibility~~assets of ~~RMB~~Suoke ~~into~~Clean ~~foreign~~Energy, Suo'ang ~~currencies~~New Energy and, inShenyang ~~certain~~Energy ~~cases~~are located in, ~~the~~and ~~remittance~~all of ~~currency~~our ~~out~~executive ofofficers and our directors reside within, China. As Wea ~~receive~~result, ~~all~~it ofmay ~~our~~not ~~revenue~~be inpossible ~~RMB.~~to ~~Shortages~~effect inservice ~~the~~of ~~availability~~process ofwithin ~~foreign~~the ~~currency~~United ~~may~~States ~~restrict~~or ~~the~~elsewhere ~~ability~~outside ofChina upon our ~~PRC~~senior executive ~~subsidiaries~~officers and ~~our~~directors ~~affiliated~~who ~~entities~~do tonot ~~remit~~reside ~~sufficient~~in ~~foreign~~the ~~currency~~United toStates, ~~pay~~including ~~dividends~~with orrespect ~~other~~to ~~payments~~matters toarising usunder U.S. ~~Under~~federal securities ~~existing~~laws ~~PRC~~or ~~foreign~~applicable ~~exchange~~state ~~regulations,~~securities ~~payments~~laws. ofMoreover, ~~current~~our ~~account~~Chinese ~~items,~~counsel ~~including~~has ~~profit~~advised ~~distributions,~~us ~~dividend~~that ~~payments~~China ~~and~~does ~~expenditures~~not ~~from~~have ~~trade-related~~treaties with ~~transactions,~~the ~~can~~United beStates ~~made~~or inmany ~~foreign~~other ~~currencies~~countries ~~without~~providing ~~prior~~for ~~approval~~the ~~from~~reciprocal ~~SAFE~~recognition byand ~~complying~~enforcement ~~with~~of ~~certain~~judgment ~~procedural~~of ~~requirements~~courts. As ~~However~~a result, ~~approval~~our ~~from~~public ~~appropriate~~stockholders ~~government~~may ~~authorities~~have issubstantial ~~required~~difficulty ~~where~~in ~~RMB~~protecting istheir tointerests bethrough ~~converted~~actions ~~into~~against ~~foreign~~our management ~~currency~~or ~~and~~directors ~~remitted~~that ~~out~~stockholders of ~~China~~a tocorporation ~~pay~~with ~~capital~~assets ~~expenses~~and ~~such~~management asmembers ~~the~~located ~~repayment~~in ofthe ~~bank~~United ~~loans~~States ~~denominated~~would not ~~in foreign currencies~~experience.

~~Fluctuation~~Governmental incontrol ~~the value~~ of ~~RMB~~currency conversion may ~~have~~affect the avalue ~~material~~of ~~adverse effect on~~ your investment.

~~Since~~The ~~1994,~~PRC ~~the~~government ~~conversion~~imposes controls on the convertibility of RMB into foreign currencies and, ~~including~~in ~~Hong~~certain ~~Kong~~cases, ~~and~~the ~~U.S.~~remittance ~~dollars,~~of ~~has~~currency ~~been~~out ~~based~~of onChina. ~~rates~~We ~~set~~receive byall ~~the~~of our ~~People's~~revenue ~~Bank~~in ofRMB. ~~China~~Shortages ~~("PBOC"),~~in ~~which~~the ~~are~~availability ~~set~~of ~~daily~~foreign ~~based~~currency onmay restrict the ~~previous~~ability ~~day's~~of our PRC ~~interbank~~subsidiaries ~~foreign~~and ~~exchange~~our affiliated ~~market~~entities ~~rate~~to ~~and~~remit ~~current~~sufficient ~~exchange~~foreign ~~rates~~currency onto ~~the~~pay ~~world~~dividends ~~financial~~or ~~markets.~~other ~~Since~~payments ~~1994,~~to ~~the~~us. ~~official~~Under ~~exchange~~existing ~~rate~~PRC ~~for~~foreign ~~the~~exchange regulations, ~~conversion~~payments of ~~RMB~~current toaccount ~~U.S.~~items, ~~dollars~~including ~~has~~profit ~~generally~~distributions, ~~been~~dividend ~~stable.~~payments Onand ~~July 21,~~expenditures ~~2005,~~from ~~however~~trade-related transactions, ~~PBOC~~can ~~announced~~be amade ~~reform~~in offoreign ~~its~~currencies ~~exchange~~without ~~rate~~prior ~~system.~~approval ~~Under~~from ~~the~~SAFE ~~reform~~by complying with certain procedural requirements. However, ~~RMB~~approval from appropriate government authorities is norequired ~~longer~~where ~~effectively~~RMB ~~linked~~is to ~~U.S.~~be ~~dollars~~converted ~~but~~into ~~instead~~foreign iscurrency ~~allowed~~and toremitted out ~~trade~~of inChina ato ~~tight~~pay ~~0.3%~~capital ~~band~~expenses ~~against~~such aas ~~basket~~the repayment of bank loans denominated in foreign currencies.

~~The~~Fluctuation ~~value~~in ~~of RMB against~~ the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Our revenues and costs are mostly denominated in RMB. Any significant fluctuation in value of RMB may ~~materially~~have ~~and~~a ~~adversely~~material ~~affect~~adverse effect ~~our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable~~ on, ~~our~~your ~~stock in U~~investment.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes.

WeSince ~~have~~1994, ~~not~~the ~~made~~conversion ~~statutory~~of ~~contributions~~RMB tointo foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the ~~public~~People's ~~housing~~Bank ~~fund~~of China ("PBOC"), which are set daily based on the previous day's PRC interbank foreign exchange market rate and current exchange rates on the world financial markets. Since 1994, the official exchange rate for ~~our~~the ~~employees~~conversion inof ~~accordance~~RMB ~~with~~to ~~applicable~~U.S. ~~regulations~~dollars has generally been stable. On July 21, ~~and~~2005, ~~this~~however, ~~could~~PBOC ~~subject~~announced usa reform of its exchange rate system. Under the reform, RMB is no longer effectively linked to ~~fines~~U.S. ~~and~~dollars ~~other~~but ~~penalties~~instead is allowed to trade in a tight 0.3% band against a basket of foreign currencies.

~~Although~~The ~~the~~value ~~PRC~~of ~~State~~RMB ~~Council~~against ~~has regulations governing a company's contribution to~~ the ~~public~~U.S. ~~housing~~dollar and ~~fund~~other ~~for~~currencies ~~its~~may ~~employees,~~fluctuate weand ~~had~~is ~~not~~affected ~~been expressly required~~ by, ~~our~~among ~~local~~other ~~government~~things, ~~authority~~changes in ~~charge~~political ofand ~~this~~economic ~~matter~~conditions. toOur ~~make~~revenues and ~~such~~costs ~~contribution~~are ~~due~~mostly todenominated ~~lack~~in ~~of implementing rules~~RMB. InAny ~~2009,~~significant ~~the~~fluctuation ~~Tongchuan Public Housing Fund Management Center, the local government department~~ in ~~charge~~value of ~~public~~RMB ~~housing~~may ~~fund~~materially ~~matters,~~and ~~issued~~adversely aaffect ~~notification which requires companies like us to make contributions to the local public housing fund for~~ our ~~employees.~~cash flows, Werevenues, ~~are~~earnings inand ~~the~~financial ~~process~~position, ofand ~~establishing a public housing fund account with~~ the ~~Tongchuan~~value ~~Public Housing Fund Management Center~~of, and ~~will~~any ~~begin~~dividends topayable ~~make~~on, ~~statutory contributions for~~ our ~~employees~~stock toin ~~such~~U.S. ~~account once it is open~~dollars. ~~However~~For example, wean ~~cannot~~appreciation ~~assure~~of ~~you~~RMB ~~that~~against the ~~Tongchuan Public Housing Fund Management Center will not penalize us for non-compliance with the regulation promulgated by the State Council prior to 2010~~U.S. Ifdollar ~~the~~would ~~relevant~~make ~~local public housing fund administrative centre takes~~ any ~~legal~~new ~~action~~RMB ~~against~~denominated usinvestments ~~for~~or ~~our~~expenditures ~~non-compliance~~more ~~with~~costly to ~~such regulation~~us, ~~such~~to ~~as fines, or~~ the ~~requirement~~extent ofthat ~~making~~we upneed ~~contributions~~ to ~~the~~convert ~~public~~U.S. ~~housing~~dollars ~~fund~~into RMB for ~~our~~such ~~employees, our financial conditions and results of operations may be adversely affected~~purposes.

36We have not made statutory contributions to the public housing fund for our employees in accordance with applicable regulations, and this could subject us to fines and other penalties.

WeAlthough ~~currently~~the ~~operate~~PRC State Council has regulations governing a company's contribution to the public housing fund for its employees, we had not been expressly required by our ~~business~~local government authority in ~~buildings~~charge weof ~~have~~this ~~constructed~~matter onto ~~land~~make ~~where~~such wecontribution ~~own~~due orto ~~lease~~lack of implementing rules. In 2009, the ~~land~~Tongchuan Public ~~use~~Housing ~~right~~Fund Management Center, the local government department in charge of public housing fund matters, issued a notification which requires companies like us to make contributions to the local public housing fund for our employees. ~~Failure~~In August 2011, we registered to ~~have~~apply for the ~~legitimate~~local ~~and~~public ~~sustainable~~housing ~~right~~fund account but it still has not been approved by the local Public Housing Fund Management Center as of December 31, 2011. We will begin to ~~own~~make orstatutory ~~lease~~contributions for our employees to such account once it is open. However, we cannot assure that the ~~buildings~~Tongchuan Public Housing Fund Management Center will not penalize us for non-compliance with the regulation promulgated by the State Council prior to 2010. If the relevant local public housing fund administrative centre takes any legal action against us for our non-compliance with such regulation, such as fines, or the ~~land~~requirement ~~use~~of ~~right~~making ~~could~~up ~~have~~contributions to athe ~~material~~public ~~adverse~~housing ~~effect~~fund onfor our employees, our financial conditions and results of operations. may be adversely affected.

We own the land use right to a total of 43,956 square meters of land for our existing site in Tongchuan for a period of 50 years, expiring on December 8, 2057. However, we have not yet paid the required land grant fees and other taxes and fees. If we fail to pay the land grant fees and other requisite taxes and fees, the applicable land administration authority may rescind our land grant contract, ask for compensation for the violation of the contract, or revoke our Land Use Right Certificate. Any penalty or revocation of the Land Use Right Certificate could have a material adverse effect on our business, results of operation and financial condition.35

~~For~~We ~~the~~currently ~~operation~~operate ofour ~~Suo'ang~~business ~~New~~in ~~Energy,~~buildings ~~on the land for which~~ we ~~lease the Land Use Right Certificate, we~~ have constructed aon ~~building according to our construction~~ land ~~use~~where ~~planning permit; however,~~ we ~~did~~own ~~not~~or ~~obtain~~lease other required construction project permits and other documents, including construction project planning permits, construction commencement permits and fire prevention design and inspection related documents. Upon completion of construction, we did not apply for the ~~required~~land ~~inspection~~use ~~and acceptance examination of the building, and consequently, we did not obtain the Property Ownership Certificate~~right. IfFailure ~~we fail~~ to ~~obtain~~have the ~~required~~legitimate ~~construction related permits~~ and ~~other~~sustainable ~~documents,~~right ~~complete the inspection and acceptance examination of the building and obtain the Property Ownership Certificate, the applicable construction authority may impose a fine of up~~ to ~~10%~~own ofor lease the ~~construction~~buildings ~~costs,~~ or ~~in limited circumstances, order~~ the ~~demolition~~land ofuse ~~the~~right ~~building. Any penalty or request to demolish the building~~ could have a material adverse effect on our ~~business, results of operation and financial condition~~operations.

~~For the operation of the Shenyang Energy operation, we constructed our buildings on land on which we leased the land use right from a third party.~~ We ~~cannot~~own ~~be certain that~~ the ~~lessor has full power and authorization to lease the~~ land use right to ~~us.~~a Iftotal ~~our~~of ~~lessor has no legitimate power and authorization to lease the land use right to us~~43,956 square ~~our~~meters ~~lease~~ of ~~the~~ land ~~use~~for ~~right may be void. As a result,~~ our ~~business,~~existing ~~results~~site ofin ~~operations~~Tongchuan ~~and~~for ~~financial condition could be materially and adversely affected. In addition, as~~ a ~~lessee~~period of ~~the land use right~~50 years, weexpiring ~~are not entitled to apply for the construction related permits and documents, and consequently, we do not own the title of the buildings constructed~~ on ~~the leased land. On June~~December 118, ~~2010, we entered into a Transfer Agreement with the lessor in connection with the CWSF Construction Project at the Shenyang site~~2057. ~~Pursuant to the agreement~~However, we have ~~the~~not ~~contractual~~yet ~~right~~paid ~~to request~~ the ~~lessor~~required toland ~~transfer~~grant ~~ownership~~fees ~~of buildings constructed by us on the site after the lessor obtains the Property Ownership Certificate from the Shenyang Property Administration Authority~~ and ~~Construction~~other ~~Administration~~taxes ~~Authority~~ and ~~we comply with all legal and regulatory requirements in obtaining the ownership of the buildings from the lessor~~fees. ~~Although~~If we ~~have~~fail ~~made requests~~ to pay the ~~lessor~~land togrant ~~obtain~~fees ~~the~~and ~~required~~other ~~permits~~requisite taxes and ~~certificate~~fees, ~~lessor has not obtained~~ the ~~required~~applicable ~~construction~~land ~~related~~administration ~~permits,~~authority ~~nor~~may ~~the~~rescind ~~Property Ownership Certificate for the buildings. If~~ our ~~lessor~~land ~~fails~~grant ~~to obtain these permits~~contract, ~~certificates~~ask ~~and~~for ~~other~~compensation ~~documents,~~for the violation ~~applicable construction authority may impose a fine~~ of ~~up to 10% of~~ the ~~construction costs~~contract, or inrevoke ~~limited~~our ~~circumstances,~~Land ~~order~~Use ~~the~~Right ~~demolition of the building~~Certificate. Any penalty or ~~request~~revocation toof ~~demolish~~ the ~~building~~Land Use Right Certificate could have a material adverse effect on our business, results of operation and financial condition.

InFor ~~August 2010,~~the ~~through~~operation ~~our~~of ~~subsidiary,~~Suo'ang ~~Suoke~~New ~~Clean~~ Energy, on wethe ~~entered into an agreement to purchase a~~ land ~~use right~~ for ~~approximately~~which ~~5 acres~~we oflease ~~land~~the ~~and~~Land aUse ~~production~~Right ~~factory in Dongguan~~Certificate, ~~Guandong Province. In addition, in September 2010,~~ we ~~entered~~constructed ~~into~~a anbuilding ~~agreement~~according to ~~purchase~~our ~~two~~construction ~~production~~land ~~lines~~use planning topermit; behowever, ~~operated~~we ~~within~~did ~~the~~not ~~new~~obtain ~~Guangdong~~other ~~facility. With~~required ~~the~~construction ~~addition~~project ~~of these~~permits ~~new~~and ~~CWSF~~other ~~production lines~~documents, ~~the~~including ~~Guangdong~~construction project ~~facility~~planning ~~was~~permits, ~~completed~~construction ~~and~~commencement ~~commenced~~permits ~~production~~and infire ~~January~~prevention ~~2011~~design ~~with~~and ~~capacity~~inspection ofrelated ~~300,000 metric tons~~documents. InUpon ~~March~~completion of ~~2011~~construction, we ~~entered~~did ~~into~~not anapply ~~agreement~~for tothe ~~purchase~~required ~~another new~~inspection ~~CWSF~~and ~~production~~acceptance ~~line~~examination ~~with~~of athe ~~capacity~~building, ofand ~~750~~consequently,~~000~~ ~~metric~~we did ~~tons~~not ~~for~~obtain ~~Guangdong.~~the WeProperty ~~expect~~Ownership ~~this~~Certificate. ~~new~~If ~~CWSF~~we ~~production~~fail ~~line~~ to beobtain ~~operational~~the ~~by August~~required ~~2011.~~construction Werelated ~~expect~~permits ~~to have an annual production capacity of 1,050,000 metric tons~~ and isother ~~expected to expand our total annual production capacity to 1~~documents,~~900,000~~ complete ~~metric tons by~~ the ~~end~~inspection ofand ~~2011.~~acceptance Weexamination ~~are in the process~~ of ~~taking~~ the ~~necessary~~building ~~steps~~and to obtain athe ~~land~~Property ~~use~~Ownership ~~right certificate~~Certificate, ~~which~~the isapplicable construction ~~required~~authority ~~for~~may usimpose toa ~~obtain~~fine ~~the~~of ~~rights~~up to ~~use~~10% ~~the~~of ~~land and~~ the ~~title~~construction tocosts, ~~the~~or ~~buildings.~~in Welimited ~~are~~circumstances, ~~also~~order in the ~~process~~ demolition of ~~registering~~the ~~business~~building. ~~license~~Any ofpenalty ~~the~~or ~~facility.~~request ~~Failure~~ to ~~obtain~~demolish the ~~land~~building ~~use right certificate and business license~~ could have a material adverse effect on our business, results of operation and financial condition.

Our principal executive and administrative offices are located in Xi'an City, Shaanxi Province, China, with approximately 233 square meters of office space. Through Suoke Clean Energy, we entered into a real property purchase agreement with Xi'an Shengrong Real Estate Co., Ltd., dated January 12, 2010 to purchase this office space, for a purchase price of RMB1,586,798 (approximately $230,000). Xi'an Shengrong Real Estate Co., Ltd. has been granted the land use right to the property on which the building is located until June 19, 2052. We have settled all payment in November 2011, and we have applied for athe transfer of this office's title to Suoke Clean Energy, but the title transfer process has not yet been completed as at December 31, 2011. As a result, Suoke Clean Energy is not a legal owner of this office until title to the office has been duly transferred to Suoke Clean Energy. As our registered address is not in Xi'an City, we are required to register as a branch office in Xi'an City. We have submitted to the local authorities an application for the establishment and registration as a branch office, however failure to have registered a branch office in Xi'an may subject us to a fine up to RMB 100,000 or we may even be ordered to close our offices in Xi'an. Any penalty or request to close offices could have an adverse effect on our business, results of operation and financial condition.

3736

We Risks ~~currently~~Related ~~have not paid sufficient social welfare insurance contributions on behalf of our employees. If we fail~~ to ~~settle~~an ~~unpaid~~Investment ~~social~~in ~~insurance,~~Our weSecurities ~~may be subject to a penalty.~~

~~Under~~The ~~PRC~~full ~~law,~~exercise ~~our PRC subsidiaries are obligated to pay social welfare insurance contributions to a public fund on behalf~~ of our ~~employees,~~outstanding ~~including~~warrants ~~pension,~~could ~~work-related injury insurance, unemployment insurance, medical insurance and maternity insurance,~~ result in ~~accordance~~substantially ~~with~~depressing the ~~premium~~prevailing ~~rates~~market ~~stipulated~~prices ~~by the local PRC government. We are required, but have not yet, registered with and obtained the Social Security Registration Certificate~~ for our ~~PRC~~common ~~subsidiaries from the local labor and social security authority~~stock. Since the amount of social insurance due is based on actual payment of salary, our PRC subsidiaries may not adjust their payment of social insurance in a timely manner and may pay below the required premium rates. We intend to settle unpaid social insurance. If we fail to settle unpaid social insurance, an employee may terminate his or her labor contract without prior notice, we may be fined by the local government authorities, and we may be ordered by the local labor and social security authority to make up the unpaid social insurance within a prescribed time limit.

~~Risks~~The ~~Related~~full toexercise anof ~~Investment~~outstanding warrants could result in ~~Our~~the ~~Securities~~substantial dilution of our common stock in terms of a particular percentage ownership in the company as well as the book value of common stock. The sale of a large amount of common stock received upon the exercise of the warrants on the public market, or the perception that such sales could occur, could substantially depress the prevailing market prices for our common stock.

~~The~~As ~~full~~of ~~exercise~~December 31, of2011, ~~our~~there were 2,476,647 warrants outstanding from the financings that closed in September 2008 and July 2009. In the event of the exercise of these warrants, ~~could~~a ~~result~~stockholder will suffer substantial dilution of his, her or its investment in ~~substantially~~terms ~~depressing~~of the ~~prevailing~~percentage ~~market~~ownership in ~~prices~~us ~~for~~as ~~our~~well as the book value of the shares of common stock. held.

~~The~~To ~~full~~date, ~~exercise~~we ofhave ~~outstanding~~not ~~warrants~~paid ~~could~~any ~~result~~cash individends ~~the~~and ~~substantial~~no ~~dilution~~cash dividends ofare ~~our~~expected ~~common~~to ~~stock~~be inpaid ~~terms of a particular percentage ownership~~ in the ~~company~~foreseeable ~~as well as the book value of common stock~~future. The sale of a large amount of common stock received upon the exercise of the warrants on the public market, or the perception that such sales could occur, could substantially depress the prevailing market prices for our common stock.

AsWe ofdo ~~December 31,~~not ~~2010,~~anticipate ~~there~~paying ~~were~~cash ~~3,149,582~~dividends on ~~warrants~~our ~~outstanding~~common ~~from~~stock ~~the financings that closed~~ in ~~September~~the ~~2008~~foreseeable future and ~~July~~we ~~2009.~~may Innot ~~the~~have ~~event~~sufficient offunds ~~the~~legally ~~exercise~~available ofto ~~these~~pay ~~warrants,~~dividends. aEven ~~stockholder~~if the ~~will~~funds ~~suffer~~are ~~substantial~~legally ~~dilution~~available offor ~~his~~distribution, ~~her~~we ormay ~~its~~nevertheless ~~investment~~decide innot ~~terms~~to ofpay ~~the~~any ~~percentage~~dividends. ~~ownership~~We incurrently usintend asto ~~well~~retain all asearnings ~~the~~for ~~book~~our ~~value of the shares of common stock held~~operations.

To Volatility ~~date,~~in weour ~~have~~common ~~not~~stock ~~paid~~price ~~any~~may ~~cash~~subject us ~~dividends and no cash dividends are expected~~ to besecurities ~~paid in the foreseeable future~~litigation.

WeThe domarket ~~not~~for ~~anticipate~~our ~~paying~~common ~~cash~~stock ~~dividends~~is oncharacterized by ~~our~~significant ~~common~~price ~~stock~~volatility inwhen ~~the~~compared ~~foreseeable~~to ~~future~~seasoned issuers, and we ~~may~~expect ~~not~~that ~~have~~our ~~sufficient~~share ~~funds~~price ~~legally~~will ~~available~~continue to ~~pay~~be ~~dividends.~~more volatile ~~Even~~than ifa ~~the~~seasoned ~~funds~~issuer ~~are~~for ~~legally~~the ~~available~~indefinite ~~for~~future. ~~distribution~~In the past, weplaintiffs ~~may~~have ~~nevertheless~~often ~~decide~~initiated ~~not~~securities toclass ~~pay~~action litigation ~~any~~against ~~dividends~~a company following periods of volatility in the market price of its securities. We ~~currently~~may, ~~intend~~in tothe ~~retain~~future, ~~all~~be ~~earnings~~the target ~~for~~of ~~our~~similar ~~operations~~litigation, which could result in substantial costs and liabilities and could divert management's attention and resources.

Our ~~common~~corporate ~~stock~~actions isare ~~thinly~~substantially ~~traded~~controlled ~~and~~by our ~~you~~principal ~~may~~stockholders beand ~~unable~~affiliated ~~to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares~~entities.

Our ~~common~~management, ~~stock~~directors ~~has~~and ~~historically~~their ~~been~~affiliated entities ~~sporadically~~own orapproximately ~~"thinly-traded" on the Over-the-Counter Bulletin Board~~3,458,136 ~~meaning that the number~~ of ~~persons interested in purchasing~~ our outstanding common stock, atrepresenting orapproximately ~~near~~14.43% ~~bid~~of ~~prices~~our atvoting ~~any~~power. ~~given~~These stockholders, ~~time~~acting ~~may~~individually ~~be relatively small~~ or ~~non-existent.~~as ~~This situation is attributable to~~ a ~~number of factors~~group, ~~including~~could ~~the~~exert ~~fact~~substantial ~~that~~influence weover ~~are~~matters asuch ~~small~~as ~~company~~electing ~~which~~directors ~~is relatively unknown to stock analysts, stock brokers, institutional investors~~ and approving ~~others~~mergers inor ~~the~~other ~~investment~~business ~~community~~combination ~~that~~transactions. ~~generate~~In ~~or influence sales volume~~addition, ~~and~~because ~~that~~of ~~even if we came to~~ the ~~attention~~percentage of ~~such~~ownership ~~persons,~~and ~~they~~voting ~~tend~~concentration in tothese beprincipal ~~risk-averse~~stockholders and ~~may~~their beaffiliated ~~reluctant~~entities, toelections ~~follow~~of aour ~~newer~~board ~~company~~of ~~such~~directors aswill ~~ours~~generally orbe ~~purchase~~within ~~or recommend~~ the control ~~purchase~~ of ~~our~~these ~~shares~~stockholders ~~until~~and ~~such~~their ~~time~~affiliated ~~as we became more seasoned~~entities. AsWhile aall ~~consequence, there may be periods~~ of ~~several days or more when trading activity in~~ our ~~shares~~stockholders isare ~~minimal~~entitled orto ~~non-existent,~~vote ason ~~compared~~matters submitted to aour ~~seasoned~~stockholders ~~issuer~~for ~~which~~approval, ~~has~~the aconcentration ~~large and steady volume~~ of ~~trading~~shares ~~activity~~and ~~that~~voting ~~will~~control ~~generally~~presently ~~support~~lies ~~continuous~~with ~~sales~~these ~~without~~principal anstockholders and ~~adverse~~their ~~effect~~affiliated ~~on share price~~entities. OnAs ~~June 14~~such, ~~2010,~~it ~~our~~would ~~common~~be ~~stock~~difficult ~~was~~for ~~listed~~stockholders onto ~~the~~propose ~~NASDAQ~~and ~~Global~~have ~~Market.~~approved Weproposals ~~cannot~~not ~~give~~supported by ~~you~~management. ~~any~~There ~~assurance~~can ~~that~~be ano ~~broader~~assurances orthat ~~more~~matters ~~active~~voted ~~public~~upon ~~trading~~by ~~market for~~ our ~~common~~officers ~~stock~~and ~~will~~directors ~~develop~~in ontheir ~~the~~capacity ~~NASDAQ~~as ~~Global~~stockholders will ~~Market or~~ be ~~sustained,~~viewed orfavorably ~~that~~by ~~current~~all ~~trading~~stockholders ~~levels~~of ~~will~~the ~~be sustained~~company.

38The elimination of liability of our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.

~~The~~Our ~~market~~articles ~~price~~of ~~for~~incorporation ~~our~~contains ~~common~~a provision ~~stock~~that iseliminates ~~particularly~~the ~~volatile~~liability ~~given~~of our ~~status~~directors asto aour ~~relatively~~company ~~small~~and ~~company~~stockholders ~~with~~to athe ~~small~~extent allowed under Nevada law, and ~~thinly~~we ~~traded~~are ~~"float"~~prepared ~~that~~to ~~could~~give ~~lead~~such indemnification to ~~wide~~our ~~fluctuations~~directors inand officers to the extent provided by Nevada law. We also have contractual indemnification obligations under our ~~share~~agreements ~~price~~with some of our directors. The ~~price~~foregoing atindemnification ~~which~~obligations could ~~you~~result ~~purchase~~in our ~~common~~company ~~stock~~incurring ~~may~~substantial ~~not~~expenditures beto ~~indicative~~cover of the ~~price~~cost ~~that~~of ~~will~~settlement ~~prevail~~or indamage ~~the~~awards ~~trading~~against ~~market.~~directors and ~~You~~officers, which we may be unable to ~~sell~~recoup. ~~your~~These ~~common~~provisions ~~stock~~and atresultant orcosts ~~above~~may ~~your~~also ~~purchase~~discourage ~~price~~our ifcompany atfrom ~~all~~bringing a lawsuit against directors and officers for breaches of their fiduciary duties, ~~which~~and may ~~result~~similarly indiscourage ~~substantial~~the ~~losses~~filing toof ~~you~~derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and stockholders.

The market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than that of a more seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common stock is sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large amount of our common stock are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without an adverse impact on its share price. Secondly, we are a speculative or "risky" investment due to our limited operating history and uncertainty of future market acceptance for our current and potential products. As a consequence of this enhanced risk, more risk-adverse investors may be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.37

~~Many~~The ~~of these factors are beyond our control and may decrease the~~ market price ~~of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price~~ for our ~~common~~ stock ~~will~~may be at any time, including as to whether our common stock will sustain its current market price, or as to what effect the sale of shares or the availability of common stock for sale at any time will have on the prevailing market pricevolatile.

~~Volatility~~The inmarket ~~our~~price ~~common~~for our stock ~~price~~ may be volatile and subject usto wide fluctuations in response to ~~securities~~factors ~~litigation.~~including the following:

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

~~Our~~• ~~corporate~~changes ~~actions~~in ~~are~~financial ~~substantially~~estimates ~~controlled~~ by ~~our~~securities ~~principal~~research ~~stockholders and affiliated entities.~~ analysts;

~~Our~~• ~~management,~~conditions directors and their affiliated entities own approximately 4,042,875 of our outstanding common stock, representing approximately 18.03% of our voting power. These stockholders, acting individually or as a group, could exert substantial influence over matters such as electing directors and approving mergers or other business combination transactions. In addition, because of the percentage of ownership and voting concentration in ~~these~~alternative ~~principal~~energy ~~stockholders~~ and ~~their~~coal-based ~~affiliated~~product entities, elections of our board of directors will generally be within the control of these stockholders and their affiliated entities. While all of our stockholders are entitled to vote on matters submitted to our stockholders for approval, the concentration of shares and voting control presently lies with these principal stockholders and their affiliated entities. As such, it would be difficult for stockholders to propose and have approved proposals not supported by management. There can be no assurances that matters voted upon by our officers and directors in their capacity as stockholders will be viewed favorably by all stockholders of the company.markets;

~~The~~• ~~elimination~~changes ofin ~~liability~~the ofeconomic ~~our~~performance ~~directors,~~or ~~officers~~market ~~and~~valuations ~~employees under Nevada law and the existence~~ of ~~indemnification~~other ~~rights~~alternative toenergy ~~our directors, officers~~ and ~~employees~~coal-based ~~may~~products ~~result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.~~ companies;

~~Our~~• ~~articles~~announcements of incorporation contains a provision that eliminates the liability of our directors to our company and stockholders to the extent allowed under Nevada law, and we are prepared to give such indemnification to our directors and officers to the extent provided by ~~Nevada~~us law. We also have contractual indemnification obligations under our agreements with some of our directors. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or ~~damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage~~ our ~~company~~competitors ~~from bringing a lawsuit against directors and officers for breaches~~ of ~~their~~new ~~fiduciary duties~~products, ~~and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions~~acquisitions, ifstrategic ~~successful~~partnerships, ~~might~~joint ~~otherwise~~ventures ~~benefit~~or ~~our~~capital ~~company and stockholders.~~commitments;

39• additions or departures of key personnel;

~~Past~~• ~~company~~intellectual ~~activities~~property ~~prior~~litigation; ~~to the reverse merger may lead to future liability for the Company.~~ and

~~Prior~~• togeneral ~~the~~economic closing of the reverse merger transaction on October 20, 2006, we were engaged in businesses unrelated to our current operations. Although certain prior Company stockholders have provided certain indemnifications against any loss, liability, claim, damage or ~~expense~~political ~~arising~~conditions ~~out of or based on any breach of or inaccuracy~~ in any of their representations and warranties made in connection with the Exchange Agreement, any liabilities relating to such prior business against which we are not completely indemnified may have a material adverse effect on the CompanyChina.

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

~~The~~We ~~market~~may ~~price~~need ~~for~~additional ~~our~~capital, ~~stock~~and ~~may~~the besale ~~volatile~~of ~~and~~additional common ~~subject~~stock toor ~~wide~~other ~~fluctuations~~equity securities could result in ~~response~~additional dilution to ~~factors~~our ~~including~~stockholders. ~~the following:~~

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

~~• changes in financial estimates by securities research analysts;~~38

•Shares ~~conditions~~eligible infor ~~alternative~~future ~~energy~~sale ~~and~~may ~~coal-based~~adversely ~~product~~affect ~~markets;~~the market.

•From ~~changes~~time into ~~the~~time, ~~economic~~certain ~~performance~~of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant ~~valuations~~to Rule 144 promulgated under the Securities Act of ~~other~~1933, ~~alternative~~as ~~energy~~amended ~~and~~(the ~~coal~~"Securities Act"), subject to certain limitations. In general, pursuant to amended Rule 144, non-~~based~~affiliate ~~products~~stockholders ~~companies;~~may freely sell their shares after six months subject only to the current public information requirement (which disappears after one year). Affiliates may freely sell their shares after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. Of 23,863,701 shares of our common stock outstanding as of December 31, 2011, 20,272,408 shares are freely tradable without restriction. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our common stock.

•If ~~announcements~~we byfail usto ormaintain ~~our~~an ~~competitors~~effective system of ~~new products~~internal controls, ~~acquisitions,~~we ~~strategic~~may ~~partnerships,~~not ~~joint~~be ~~ventures~~able to accurately report our financial results or ~~capital~~prevent ~~commitments;~~fraud.

•We ~~additions~~are orsubject ~~departures~~to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of ~~key~~the ~~personnel;~~Sarbanes-Oxley Act of 2002, as amended, adopted rules requiring every public company to include a management report on such company's internal controls over financial reporting in its annual report, which contains management's assessment of the effectiveness of our internal controls over financial reporting. We reported certain significant deficiencies involving control activities. These deficiencies may impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act.

•Our ~~intellectual~~reporting ~~property~~obligations ~~litigation;~~as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Effective internal controls, particularly those related to revenue recognition, financial statement close, disclosure, are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, the deficiencies in internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common stock. Furthermore, we anticipate that considerable cost would be incurred and significant management time and other resources would be occupied to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

~~• general economic or political conditions in China.~~39

InITEM ~~addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies~~1B. ~~These~~UNRESOLVED ~~market~~STAFF ~~fluctuations may also materially and adversely affect the market price of our common stock.~~COMMENTS

WeNot ~~may need additional capital, and the sale of additional common stock or other equity securities could result in additional dilution to our stockholders~~applicable.

WeITEM ~~believe that our current cash and cash equivalents, net proceeds from this offering and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the near future~~2. WeDESCRIPTION ~~may,~~OF however, require additional cash resources due to our business expansion plans, changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell equity or debt securities or obtain a credit facility. The sale of equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.PROPERTY

40In July 2006, we purchased a land use right for the property located in Tongchuan City's Yaozhou District where our CWSF plant is situated, and obtained the land use right certificate for this property in December 2007. The land use right allows us to lease this property for a period of fifty (50) years. In June 2007, the first phase of the plant became operational and CWSF production commenced in July 2007. In August 2009, we entered into a 10-year lease agreement for the land use right to a total of 7,400 square meters of land for the property located in Shenyang City's Dongling District, where our CWSF plant is situated.

~~Shares~~In ~~eligible~~August 2010, through our subsidiary, Suoke Clean Energy, we entered into an agreement to purchase a land use right for ~~future~~approximately ~~sale~~5 ~~may~~acres ~~adversely~~of ~~affect~~land and a production factory in Dongguan, Guandong Province. As of December 2011, the ~~market~~property ownership certificate transferring the land use right to us for land has not yet been obtained. It is currently in process of obtaining.

~~From~~ The ~~time~~table tobelow provides ~~time,~~summary ~~certain~~descriptions of ~~our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in~~ the ~~open~~properties ~~market~~used ~~pursuant~~for ~~to Rule 144 promulgated under~~ the ~~Securities~~Company's ~~Act~~business ofoperations ~~1933,~~ as amended (the "Securities Act"), subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may freely sell their shares after six months subject only to the current public information requirement (which disappears after one year). Affiliates may freely sell their shares after six months subject to the Rule 144 volume, manner of ~~sale (for equity securities), current public information and notice requirements. Of 23,452,270 shares of our common stock outstanding as of~~ December 31, 2010, 13,747,268 shares are freely tradable without restriction. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our common stock.2011

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

Property Location	Area (sq m)		Expiration Date	Purpose
Room 1502, Building D, Wangzou International City Building No. 3 Tangyan Road Gaoxin District, Xi'an, Shaanxi Province, PRC		233	July 19, 2052	Company headquarters

Wangjiabian Village, Dongjiahe Town, Yaozhou District, Tongchuan Shaanxi Province, PRC		43,956	December 8, 2057	CWSF production plant and raw materials warehouse

Wenguantun, Qianjin Town, Dongling District, Shenyang, Liaoning Province, PRC		7,400	August 1, 2019	CWSF production plant and raw materials warehouse

WeDongguan ~~are~~facility subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, adopted rules requiring every public company to include a management report on such company's internal controls over financial reporting in its annual report, which contains management's assessment of the effectiveness of our internal controls over financial reporting. We reported certain material weaknesses involving control activities, specifically:property

1.Dongguan ~~Although~~Clean Energy, welocated ~~have~~at ~~hired~~Liu ~~additional~~Yong ~~accounting~~Wei ~~and~~Industrial ~~operations~~Park, ~~personnel~~Wan Jiang District, weDongguan ~~are~~City occupies 20,234 square meters (5 acres). The property ownership certificate for land is still in the ~~progress~~process of ~~developing~~being ~~proper~~obtained. ~~financial~~The ~~reporting~~delay ~~procedures~~is ~~and~~mainly ~~policies~~caused ~~for~~by ~~(i)~~complex ~~accounting~~registration procedures ~~for~~to ~~complex~~be ~~and~~complied ~~non-routine~~with ~~transactions,~~in ~~(ii)~~finalizing ~~closing~~the ~~our~~share ~~financial~~structure ~~statements~~of atDongguan ~~the~~Clean ~~end~~Energy, ofas it involved investment by a ~~period~~foreign owned business entity, ~~(iii)~~and ~~disclosure~~need ~~requirements~~approval ~~and~~of ~~processes~~the ~~for~~proper ~~SEC~~commercial ~~reporting~~administration department of Guangdong province.

2ITEM 3. AsLEGAL ~~a small company, we do not have sufficient personnel to set up adequate review functions at each reporting level.~~PROCEEDINGS

3On May 6, 2011, a complaint was filed in the Federal District Court for the Central District of California against the Company and certain of its current and former officers and directors. AsThe complaint, brought as a putative class action on behalf of ~~December~~all 31persons other than the Defendants who purchased the common stock of the Company between April 6, ~~2010~~2009 and May 5, we2011, ~~have~~was ~~not~~based ~~kept~~entirely aon matters ~~complete~~raised ~~set~~by short sellers (and matters related thereto) and alleged violations of ~~ledgers~~Sections 10(b) and 20(a) of the Exchange ~~parent~~Act of 1934 and rules promulgated thereunder. ~~The~~On ~~parent~~September ~~company~~8, ~~has~~2011, nothe ~~revenue~~putative class counsel filed a First Amended Complaint, now asserting claims under Sections 11 and ~~income~~15 of the Securities Act of 1933 on behalf of all persons (other than the Defendants) who acquired the Company’s common stock pursuant or traceable to the December 21, 2010 Registration Statement and ~~has~~Prospectus. ~~been~~The ~~mainly~~Company ~~functioning~~moved asto adismiss ~~pass-through~~the ~~legal~~First ~~entity~~Amended Complaint for ~~financing~~failure ~~subsidiary~~to ~~companies~~meet pleading requirements, and the Court granted that ~~are~~motion ~~operating~~but ~~overseas~~gave Plaintiff leave to amend his complaint. ~~The~~Plaintiff ~~parent~~filed ~~company’s~~a ~~operations~~Second Amended ~~include~~Complaint ~~accounting~~on ~~for~~or ~~equity~~about March 5, ~~derivative~~2012. By agreement, the served defendants have and ~~corporate~~will ~~transactions~~continue to defend litigation vigorously until April 20, 2012 to answer, move or otherwise respond to the Second Amended Complaint. The Company continues to deny the allegations and will continue to defend the litigation vigorously. No prediction can be made, however, as to the final outcome of the matter.

Our management has undertaken steps to address these issues, including the engagement of a new chief financial officer whom management believes has the requisite financial reporting experience, skills and knowledge to complement our existing personnel. Additionally, four independent directors now sit on our board of directors, including a member who is appropriately credentialed as a financial expert. The independent directors have been tasked to establish certain internal audit functions within our company, and we have also established audit and compensation committees comprised entirely of independent directors. We have also hired additional accounting and operational personnel and in April 2010, we engaged the Shanghai office of Ernst & Young as an outside consultant to assist with evaluating and improving our accounting system and working process (including internal audit and material transaction review and verification process) to strengthen the timeliness and efficiency of our disclosure and internal controls and procedures. However, there is no assurance that additional remedial measures will not be necessary, or that after the remediation our management will be able to conclude that our internal controls over our financial reporting are effective.40

~~Our~~On ~~reporting~~May ~~obligations~~9, as2011, athe ~~public~~Company ~~company~~filed ~~will place~~ a ~~significant~~complaint in the ~~strain~~Supreme onCourt ~~our~~of ~~management,~~the ~~operational~~State ~~and~~of ~~financial~~New ~~resources~~York ~~and~~against ~~systems~~Geoinvesting ~~for~~LLC, ~~the~~an ~~foreseeable~~individual ~~future.~~calling ~~Effective~~himself ~~internal~~“Alfred ~~controls~~Little”, and ~~particularly~~unidentified ~~those~~persons ~~related~~acting ~~to revenue recognition~~with, ~~are necessary~~ for, usor tothrough ~~produce reliable financial reports and are important to help prevent fraud~~them. AsThe asuit ~~result~~seeks, ~~our~~among other ~~failure~~relief, $55 tomillion ~~achieve~~in compensatory damages and ~~maintain~~$10 ~~effective~~million ~~internal controls over financial reporting could result~~ in ~~the~~punitive ~~loss~~damages ofresulting ~~investor~~from ~~confidence in~~ the ~~reliability~~defendants’ offraud, ~~our financial statements~~defamation, ~~which in turn could harm our business~~ and ~~negatively~~tortuous ~~impact~~interference with the ~~trading~~Company’s ~~price~~business ~~of our common stock~~relationships. ~~Furthermore,~~The wecomplaint ~~anticipate~~has ~~that~~been weserved ~~will~~on ~~incur~~Geoinvesting ~~considerable~~LLC ~~costs~~ and ~~use~~the ~~significant~~individual ~~management~~calling ~~time~~himself “Alfred Little”, ~~and~~both ~~other~~of ~~resources~~which inhave anmoved ~~effort~~ to ~~comply~~dismiss ~~with~~the ~~Section 404~~complaint, ~~and~~primarily ~~other~~on ~~requirements~~jurisdictional ~~of the Sarbanes-Oxley Act~~grounds.

41We may be subject to, from time to time, various legal proceedings relating to claims arising out of our operations in the ordinary course of our business.

ITEM 1B4. ~~UNRESOLVED~~MINE ~~STAFF~~SAFETY ~~COMMENTS~~DISCLOSURES

Not applicable.

~~ITEM~~PART ~~2. DESCRIPTION OF PROPERTY~~II

InMarket August 2010, through our subsidiary, Suoke Clean Energy, we entered into an agreement to purchase a land use right for approximately 5 acres of land and a production factory in Dongguan, Guandong Province. We are in the process of taking the necessary steps to obtain a land use certificate, which is required for us to obtain the rights to use the land.Information

~~The~~Our ~~table~~common ~~below~~stock ~~provides~~has ~~summary~~been ~~descriptions~~listed ofon the NASDAQ ~~properties~~Global ~~used~~Market ~~for~~under the ~~Company's~~symbol ~~business~~"SCEI" ~~operations~~since asJune 14, 2010. From January 1, 2008 until May 7, 2010, our common stock was quoted on the Over-the-Counter Bulletin Board ("OTCBB") under the symbol "SCLX." After we effectuated a 1-for-10 reverse split on May 7, 2010, our symbol changed to "SCLXD" for a period of ~~December~~20 31business days until June 7, 2010:, and then resumed trading under the symbol "SCLX."

Property Location	Area (sq m)		Expiration Date	Purpose
Room 1502, Building D, Wangzou International City Building No. 3 Tangyuan Road Gaoxin District, Xi'an, Shaanxi Province, PRC		233	July 19, 2052	Company headquarters
Wangjiabian Village, Dongjiahe Town, Yaozhou District, Tongchuan Shaanxi Province, PRC		43,956	December 8, 2057	CWSF production plant and raw materials warehouse
Wenguantun, Qianjin Town, Dongling District, Shenyang, Liaoning Province, PRC		7,400	August 1, 2019	CWSF production plant and raw materials warehouse

~~ITEM~~The ~~3. LEGAL~~following ~~PROCEEDINGS~~table sets forth the high and low closing prices for our common stock for the periods indicated as reported by the NASDAQ Global Market:

We may be subject to, from time to time, various legal proceedings relating to claims arising out of our operations in the ordinary course of our business.

Quarter Ended		High		Low
2011:
First Quarter	$	7.61	$	4.84
Second Quarter		5.77		1.15
Third Quarter		2.62		0.8
Fourth Quarter		1.65		0.65
2010:
First Quarter		8.50		3.70
Second Quarter		9.40		6.11
Third Quarter		6.35		5.08
Fourth Quarter		8.56		5.91

~~ITEM~~Based 4upon information furnished by our transfer agent, as of March 26, 2012, we had 2,938 holders of record of our common stock. ~~[REMOVED~~ ~~AND~~This ~~RESERVED]~~number does not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

~~PART II~~42

~~ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~Dividends

~~Market~~The ~~Information~~payment of dividends by entities established in the PRC is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in the PRC, subject to certain statutory procedural requirements. Each of our PRC subsidiaries, including wholly foreign owned enterprises, is also required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to their general reserves or statutory reserve fund until the aggregate amount of such reserves reaches 50% of their respective registered capital. Our statutory reserves are not distributable as loans, advances or cash dividends. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. If we or our subsidiaries are unable to receive all of the revenues from our operations due to the above mentioned government controls, we may be unable to pay dividends on our common stock.

~~Our~~Notwithstanding ~~common~~the ~~stock~~above-mentioned ~~has~~restrictions ~~been listed~~ on our ~~the~~ability ~~NASDAQ~~to ~~Global~~pay ~~Market~~dividends, ~~under~~we ~~the~~have ~~symbol~~not ~~"SCEI"~~paid, ~~since~~and ~~June 14,~~do ~~2010.~~not ~~From~~currently ~~January 1,~~intend ~~2008~~to ~~until~~pay ~~May 7,~~cash ~~2010,~~dividends on our common stock ~~was~~in the ~~quoted~~foreseeable onfuture. ~~the~~Our ~~Over-the-Counter~~policy ~~Bulletin~~is ~~Board~~to ~~("OTCBB")~~retain ~~under~~all ~~the~~earnings, ~~symbol~~if ~~"SCLX."~~any, ~~After~~to weprovide ~~effectuated~~funds ~~a 1-~~for~~-10~~ ~~reverse~~operation ~~split~~and onexpansion ~~May 7~~of our business. The declaration of dividends, ~~2010~~if any, ~~our~~will ~~symbol~~be ~~changed~~subject to ~~"SCLXD"~~the ~~for~~discretion aof ~~period~~our board of 20directors, ~~business~~which ~~days~~may ~~until~~consider ~~June 7,~~such ~~2010~~factors as our results of operations, ~~and~~financial ~~then~~condition, ~~resumed~~capital ~~trading~~needs ~~under~~and ~~the~~acquisition ~~symbol~~strategy, ~~"SCLX~~among others."

42Securities Authorized for Issuance under Equity Compensation Plans

~~The~~Please ~~following~~see ~~table sets forth~~ the ~~high~~discussion ~~and~~in ~~low~~Item ~~closing~~12 ~~prices~~titled ~~for~~“Equity Compensation ~~our~~Plan ~~common~~Information” ~~stock for the periods indicated as reported by the NASDAQ Global Market and the OTCBB, as adjusted for the reverse stock split:~~ below.

Quarter Ended	High		Low
2010:
First Quarter	$	8.50	$	3.70
Second Quarter		9.40		6.11
Third Quarter		6.35		5.08
Fourth Quarter		8.56		5.91
2009:
First Quarter		2.40		1.40
Second Quarter		4.50		1.60
Third Quarter		5.60		3.10
Fourth Quarter		6.80		4.10

ITEM 6. SELECTED FINANCIAL DATA

~~Based~~Not ~~upon information furnished by our transfer agent, as of March 30, 2011, we had 3,976 holders of record of our common stock~~applicable. ~~This number does not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.~~

43ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

~~Dividends~~The following discussion and analysis of our results of operations and financial condition for the fiscal years ended December 31, 2011 and 2010 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this annual report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors”, “Cautionary Notice Regarding Forward-Looking Statements” and “Description of Business” sections and elsewhere in this annual report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “predict,” and similar expressions to identify forward-looking statements. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of this report. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

~~While~~Our ~~there~~financial statements are noprepared ~~restrictions~~in ~~that~~US ~~limit~~Dollars ~~our ability to pay dividends, we have not paid,~~ and in doaccordance ~~not~~with ~~currently~~accounting ~~intend~~principles togenerally ~~pay~~accepted ~~cash dividends on our common stock~~ in the ~~foreseeable~~United ~~future~~States. ~~Our~~See ~~policy~~“Exchange isRates” tobelow ~~retain all earnings, if any, to provide funds~~ for ~~operation~~information concerning ~~and expansion of our business. The declaration of dividends, if any, will be subject to~~ the ~~discretion~~exchanges ofrates ~~our~~at ~~board of directors,~~ which ~~may~~Renminbi ~~consider~~(“RMB”) ~~such~~were ~~factors~~translated asinto ~~our~~US ~~results~~Dollars of(“USD”) ~~operations,~~at ~~financial~~various pertinent ~~condition,~~dates ~~capital needs~~ and ~~acquisition~~for ~~strategy,~~pertinent ~~among others~~periods.

~~Securities Authorized for Issuance under Equity Compensation Plans~~43

As of December 31, 20010, we did not have any equity compensation plans in effect, although our board of directors may approve from time to time the issuance of equity compensation to our employees as additional compensation outside of an equity compensation plan. Overview

~~Sales~~Sino Clean Energy Inc. (sometimes referred to in this quarterly report as the “Company”, “we” or “our”) is a holding company that, through its subsidiaries, is a leading third party commercial producer and distributor of ~~Unregistered~~coal-water ~~Securities~~slurry fuel (“CWSF”) in China. CWSF is a clean fuel that consists of fine coal particles suspended in water. Our CWSF products are mainly used to fuel boilers and furnaces to generate steam and heat for residential and industrial applications. We sell our products in China and our customers include industrial, commercial, residential and government organizations. Our strong reputation in the CWSF industry in China, together with our established track record for consistently delivering products in large quantities, has enabled us to expand our customer base. We primarily use washed coal to produce CWSF. We acquire the raw materials for each of our production facilities primarily from nearby coal mines. We have established strong relationships with our suppliers and our ability to purchase large quantities of raw materials has allowed us to achieve favorable pricing and delivery terms.

~~The~~In ~~following~~November ~~are~~2009, ~~all~~Suoke ~~issuances~~Clean ofEnergy ~~securities~~duly entered byinto ~~the~~an ~~registrant~~equity ~~during~~transfer ~~the~~agreement ~~past~~with ~~three~~former ~~years~~shareholders ~~which~~of ~~were~~Suo'ang ~~not~~New ~~registered~~Energy, ~~under~~pursuant ~~the~~to ~~Securities~~which ~~Act~~100% equity interests of ~~1933,~~Suo’ang asNew ~~amended~~Energy ~~(the~~was ~~“Securities~~transferred ~~Act”).~~to InSuoke ~~each~~Clean ofEnergy ~~these~~and ~~issuances~~such ~~the~~acquisition ~~recipient~~was ~~represented~~approved ~~that~~by hethe orgovernment itauthority, Tongchuan ~~was~~Administration ~~acquiring the shares~~ for ~~investment~~Industry ~~purposes only,~~ and ~~not~~Commerce. ~~with~~On aMay ~~view~~14, ~~towards~~2010, ~~distribution~~Tongchuan orAdministration ~~resale~~for ~~except~~Industry inand ~~compliance~~Commerce ~~with~~also ~~applicable~~issued a ~~securities~~proof ~~laws.~~showing Noall ~~general~~registration ~~solicitation~~for oracquisition ~~advertising~~ was ~~used~~completed. inAll ~~connection with any~~ transaction, documents and ~~the~~governmental ~~certificate~~process ~~evidencing~~for ~~the~~acquisition, therefore, ~~securities~~has ~~that~~been ~~were~~completed. ~~issued~~The ~~contained~~entity athat ~~legend~~entered ~~restricting~~into ~~their~~contractual ~~transferability~~arrangement ~~absent~~with ~~registration under~~ the ~~Securities~~Company ~~Act~~is orSuo'ang ~~the~~BST ~~availability~~rather ofthan Suo’ang anNew ~~applicable exemption therefrom~~Energy. ~~Unless~~The ~~specifically~~Company ~~set~~terminated ~~forth~~contractual ~~below,~~arrangement nowith ~~underwriter~~Suo’ang ~~participated~~BST inon ~~the~~December ~~transaction~~31, ~~and no commissions were paid in connection with the transactions~~2009.

On ~~July~~October 2012, 2009, weSuo’ang ~~entered~~New ~~into~~Energy established aShenyang ~~securities~~Sou’ang ~~purchase~~Energy ~~agreement~~Co., ~~with~~Ltd., ~~several~~a ~~institutional~~wholly-owned ~~and/or~~PRC ~~accredited~~subsidiary ~~investors~~ (~~collectively the~~ “~~Purchasers~~Shenyang Energy”), ~~pursuant~~ to ~~which~~ conduct the ~~Company~~CWSF ~~sold~~business ~~and~~in ~~issued~~Shenyang, toLiaoning ~~the Purchasers $6~~province.~~177~~ ~~million~~In inAugust ~~aggregate~~2010, ~~principal~~the ~~amount~~Company ofacquired ~~10%~~all ~~senior~~the ~~secured~~outstanding ~~convertible~~capital ~~notes~~stock ~~initially~~of ~~due~~Dongguan Clean ~~July~~Energy ~~16,~~Water ~~2012,~~Coal Mixture ~~and~~Company ~~warrants~~(“Dongguan toClean ~~purchase~~Energy”). upAt tothe ~~approximately~~time, ~~16.26~~the ~~million~~assets ~~shares~~and liabilities of ~~common~~Dongguan ~~stock~~Clean inEnergy aconsisted ~~private~~primarily ~~placement~~of ~~pursuant~~a business license to ~~Regulation~~manufacture Dand ~~under~~distribute ~~the~~CWSF ~~Securities~~in ~~Act~~Dongguan, ofwhich ~~1933,~~the Company asbegan ~~amended~~to ~~(the~~use ~~“Securities~~in ~~Act”)~~January 2011.

On July 1, 2009, we entered into a Securities Purchase Agreement with several institutional and/or accredited investors pursuant to which the Company sold and issued to the Purchasers $5.415 million in aggregate principal amount of 10% senior secured convertible notes initially due June 30, 2012, and warrants to purchase up to 14.25 million shares of common stock in a private placement pursuant to Regulation D under the Securities Act.44

OnCorporate ~~March~~Organization ~~31, 2009, we issued 1,166,500 shares of restricted common stock to an independent consultant that we engaged for consultation~~ and ~~advisory services relating to investor relation. On April 1, 2009, we issued an additional 1,166,500 shares of restricted common stock to the same consultant.~~History

OnWe orwere ~~about~~originally ~~March~~incorporated ~~27,~~in ~~2009,~~Texas as we“Discount ~~entered~~Mortgage ~~into~~Services, anInc.” ~~agreement~~on ~~with~~July ~~the~~11, ~~investors~~2000. ~~who~~In ~~participated~~September in2001, ~~our~~we ~~private~~purchased ~~financing~~Endo inNetworks, ~~September 2008~~Inc., ~~The~~a ~~agreement~~Canadian software ~~amends~~developer, ~~certain~~and ~~terms~~changed ofour ~~the~~name ~~convertible~~to ~~debentures~~“Endo asNetworks, ~~well~~Inc.” ason ~~the~~November ~~warrants~~5, ~~that~~2001. weWe ~~issued~~re-domiciled to ~~these~~the ~~investors~~State of Nevada on December 13, 2001.

On ~~September~~October 1920, ~~2008,~~2006 we ~~entered~~consummated ~~into~~ a ~~Securities~~share exchange ~~Purchase~~transaction ~~Agreement~~ with ~~four~~Hangson, ~~institutional~~a ~~and/or~~British ~~accredited~~Virgin ~~investors~~Islands ~~pursuant~~company, tothe ~~which~~stockholders ~~the~~of ~~Company~~Hangson ~~sold~~and toa ~~the~~majority ~~purchasers~~of ~~$535,000~~our instockholders. We ~~aggregate~~issued ~~principal~~a ~~amount~~total of ~~18%~~2,600,000 ~~convertible~~shares ~~debentures~~of ~~due~~our ~~September~~common ~~18,~~stock ~~2009,~~to the Hangson shareholders and ~~warrants~~a toconsultant ~~purchase up~~in tothe 3transaction,~~566,667~~ ~~shares~~in exchange for 100% of the common stock of ~~the~~Hangson. ~~Company,~~As in a ~~private~~result ~~placement~~of ~~pursuant~~the totransaction ~~Regulation~~we Sbecame ~~under~~engaged in the ~~Securities~~CWSF ~~Act.~~business, Wethrough ~~also~~the ~~issued~~operations of aSuo’ang ~~warrant~~BST toand ~~Ancora~~Suo’ang ~~Securities,~~New ~~Inc~~Energy., asOn ~~finder’s~~January ~~fee~~4, to2007, ~~purchase~~we upchanged toour 90name from “Endo Networks,~~000~~ ~~shares~~Inc.” to of“China ~~common~~West ~~stock~~Coal atEnergy anInc.”, ~~exercise~~and ~~price~~then ofon ~~$0.25~~August ~~per~~15, ~~share~~2007, ~~and~~we tochanged ~~expire~~our onname ~~September~~again 18to our present name, ~~2010~~Sino Clean Energy Inc.

OnHangson ~~September~~was ~~16, 2008, we entered into~~ a ~~Securities~~holding ~~Purchase~~company ~~Agreement~~that ~~with two~~controlled Suo’ang ~~institutional~~BST and ~~accredited~~Suo’ang ~~investors~~BST’s ~~pursuant~~80%-owned tosubsidiary ~~which~~Suo’ang ~~the~~New ~~Company~~Energy, ~~sold~~through toa ~~the~~series ~~purchasers~~of ~~$800,650~~contractual arrangements. inThe ~~aggregate~~remaining ~~principal~~20% ~~amount~~ of ~~18%~~Suo’ang ~~secured~~New ~~convertible~~Energy ~~debentures~~was ~~due~~owned ~~September~~by ~~15,~~Mr. ~~2009~~Peng Zhou, ~~and~~a ~~warrants~~member toof ~~purchase up~~our toboard 5of directors and,~~337,667~~ at ~~shares~~that oftime, the ~~common~~chief ~~stock~~operating officer of ~~the~~Suo’ang ~~Company,~~BST. inSuo’ang aBST, ~~private~~through ~~placement~~Suo’ang ~~pursuant~~New toEnergy, ~~Regulation~~commenced CWSF Dproduction ~~under~~in ~~the~~July ~~Securities Act~~2007. ~~The~~Although ~~Company~~Hangson ~~also~~was ~~issued~~entitled ~~a warrant~~ to ~~Ancora~~acquire ~~Securities,~~the ~~Inc.,~~remaining as20% ~~finder~~of Suo’sang ~~fee,~~New toEnergy ~~purchase~~from upMr. ~~to 267~~Zhou,~~100~~ the ~~shares~~transfer ofwas ~~common~~not ~~stock~~completed atand ~~an exercise price of $0~~Mr.25 ~~per~~Zhou ~~share~~remained ~~and~~as tothe ~~expire~~record onshareholder ~~September~~of ~~15,~~Suo’ang ~~2010~~New Energy.

44In 2009, we effected a reorganization of our corporate structure in order to make Suo’ang New Energy a wholly-owned subsidiary which included entering into a series of agreements transferring the contractual arrangements, through which Hangson controlled Suo’ang BST, to Suoke Clean Energy.

On ~~June~~September 3015, ~~2008~~2009, weSuo’ang BST and Hangson entered into a ~~Securities~~share ~~Purchase~~transfer ~~Agreement~~agreement with ~~Mr.~~Suoke ~~Peng~~Clean ~~Zhou,~~Energy apursuant ~~member~~to ofwhich ~~our~~Suo’ang ~~board~~BST and Hangson agreed to transfer 100% of ~~directors~~the equity interests in Suo’ang New Energy to Suoke Clean Energy. However, ~~and~~since Mr. Zhou still owned 20% of Suo’ang New Energy, on November 10, 2009, Suo’ang BST and Hangson entered into a ~~limited~~subsequent ~~liability~~share ~~company~~transfer inagreement with ~~the~~Suoke ~~PRC.~~Clean ~~Pursuant~~Energy to ~~the~~transfer ~~terms~~80% of ~~the~~Suo’ang ~~Securities~~New ~~Purchase~~Energy’s ~~Agreement,~~equity weinterests ~~agreed~~ to ~~acquire~~Suoke ~~from~~Clean Energy and, Mr. Zhou, with ~~his~~Hangson’s consent, entered into a share transfer agreement with Suoke Clean Energy to transfer the remaining 20% equity interest ~~ownership~~of ~~interest~~Suo’ang inNew Energy. On November 12, 2009, Suo’ang New Energy inreceived ~~exchange~~a new business license from the Tongchuan Administration for Industry and Commerce, which reflected that the ~~issuance~~acquisition of ~~7,500,000~~100% ~~shares~~of the equity of ~~our~~Suo’ang ~~restricted~~New ~~common~~Energy by ~~stock~~Suoke toClean MrEnergy had been completed. ~~Zhou~~As ~~pursuant~~a result we were able, through Suoke Clean Energy, to ~~Regulation~~own S100% of the ~~Securities~~equity ~~Act~~interests of Suo’ang New Energy.

~~ITEM~~On 6October 12, 2009, Suo’ang New Energy established a wholly-owned subsidiary to conduct the CWSF business in Shenyang, Liaoning Province. ~~SELECTED~~ ~~FINANCIAL~~On ~~DATA~~December 31, 2009, we entered into a series of termination agreements to terminate the contractual arrangements by and among Suoke Clean Energy, Suo’ang BST and certain stockholders of Suo’ang BST. We no longer needed to keep such contractual arrangements in place due to the fact that Suo’ang BST was no longer engaged in any substantial business operations. In connection with the termination agreements, certain assets held by Suo’ang BST, such as office equipment, vehicles, bank deposits, and accounts receivable, were transferred to Suoke Clean Energy. Employees of Suo’ang BST signed new employment contracts with Suoke Clean Energy. All rights and obligations under certain business operation agreements and research and development contracts between Suo’ang BST and third parties were assigned to Suo’ang New Energy. Hangson has had no substantive operations of its own after the transfer and termination of the contractual arrangements.

~~Not~~In ~~applicable~~August 2010, the Company acquired all the outstanding capital stock of Dongguan Clean Energy Water Coal Mixture Company (“Dongguan Clean Energy”). At the time, the assets and liabilities of Dongguan Clean Energy consisted primarily of a business license to manufacture and distribute CWSF in Dongguan, which the Company began to use in January 2011.

~~ITEM~~Effective May 7~~. MANAGEMENT~~, 2010, the Company announced a reverse stock split pursuant to which each ten shares of Company’Ss ~~DISCUSSION~~common ~~AND~~stock ~~ANALYSIS~~then ORissued ~~PLAN~~and OFoutstanding ~~OPERATION~~was automatically converted into one share of the Company’s common stock. All share and per share amounts in the accompanying condensed consolidated financial statements have been adjusted to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.

~~The~~On ~~following~~July ~~discussion~~11, ~~and~~2011, ~~analysis~~the ofCompany ~~our~~entered into ~~results~~an ofEquity ~~operations~~Acquisition ~~and~~Agreement ~~financial~~to ~~condition~~purchase ~~for the fiscal~~100% ~~years~~of ~~ended~~the ~~December~~outstanding ~~31,~~equity ~~2010~~interest ~~and 2009 should be read~~ in ~~conjunction~~Crown ~~with our~~Energy ~~financial~~from ~~statements~~Mr. ~~and~~Zhongrui Deng, the ~~notes~~sole ~~to those financial statements that are included elsewhere in this annual report~~stockholder. ~~Our~~Crown ~~discussion~~Energy ~~includes~~owns ~~forward-looking~~60% ~~statements~~of ~~based~~the ~~upon~~equity ~~current~~interest ~~expectations~~in ~~that~~Nanhai ~~involve~~Clean ~~risks~~Energy ~~and~~Fuel ~~uncertainties~~Co., ~~such as our plans~~Ltd., ~~objectives,~~a ~~expectations~~company primarily ~~and~~engaged ~~intentions.~~in ~~Actual~~the ~~results~~production and ~~the~~sale ~~timing~~ of ~~events~~clean ~~could~~energy ~~differ~~coal-water ~~materially~~slurry ~~from~~fuel. ~~those~~Pursuant ~~anticipated~~to inthe ~~these~~terms ~~forward-looking~~of ~~statements~~the asagreement, the aCompany ~~result~~will ofengage a ~~number~~valuation ofexpert ~~factors,~~chosen ~~including~~by ~~those~~the ~~set~~parties ~~forth~~to ~~under~~appraise the ~~“Risk~~value ~~Factors”, “Cautionary Notice Regarding Forward-Looking Statements” and “Description~~ of ~~Business”~~Crown ~~sections~~Energy’s ~~and elsewhere in this annual report~~assets. WeThe parties ~~use~~will ~~words~~then ~~such~~determine asthe ~~“anticipate,”~~purchase ~~“estimate,”~~price ~~“plan,”~~of ~~“project,”~~the ~~“continuing,”~~equity ~~“ongoing,”~~interest ~~“expect,”~~and ~~“believe,”~~determine ~~“intend,”~~the ~~“may,”~~payment ~~“will~~terms,” ~~“should,”~~with ~~“could,”~~all ~~“predict,”~~such ~~and~~terms ~~similar expressions~~ to be ~~identify~~memorialized ~~forward-looking statements. Although we believe the expectations expressed~~ in ~~these~~a ~~forward-looking~~supplemental ~~statements~~agreement. ~~are~~The ~~based~~agreement onalso ~~reasonable~~provides ~~assumptions~~that ~~within~~ the ~~bound~~current ofmanagement ~~our knowledge~~ of ~~our~~Crown ~~business,~~Energy ~~our~~and ~~actual~~its board ~~results~~of ~~could~~directors ~~differ~~will ~~materially~~be ~~from~~reappointed ~~those~~after ~~discussed~~the inconsummation ~~these~~of ~~statements~~the acquisition. ~~Factors~~If ~~that~~after ~~could~~due ~~contribute~~diligence to(which ~~such~~is ~~differences~~still ~~include~~in process), ~~but~~the ~~are~~acquisition ~~not~~is ~~limited to~~finalized, ~~those~~the ~~discussed~~Company inwill ~~the~~gain ~~“Risk~~control ~~Factors”~~of ~~section~~60% of ~~this~~Foshan ~~report.~~Nan WeHai ~~undertake~~and nothe ~~obligation~~Company’s production tocapacity ~~update~~will ~~publicly~~increase ~~any~~by ~~forward-looking~~1,000,000 ~~statements for any reason even if new information becomes available or other events occur in the future~~MT.

~~Our~~Founded ~~financial~~in ~~statements~~2003, ~~are~~Foshan ~~prepared~~Nan inHai UShas ~~Dollars~~an installed capacity of 1.2 million MT and inreserved ~~accordance~~capacity ~~with~~of ~~accounting~~1 ~~principles~~million ~~generally~~MT. ~~accepted~~Located in ~~the~~Foshan ~~United~~City, ~~States.~~Guangdong ~~See~~Province, ~~“Exchange~~where ~~Rates”~~the ~~below~~local government promotes CWSF for ~~information~~energy ~~concerning~~conservation and carbon emissions reduction, Foshan Nan Hai supplies to the ~~exchanges~~largest ~~rates~~CWSF atboiler ~~which~~in ~~Renminbi~~China ~~(“RMB”)~~and ships ~~were~~its ~~translated~~CWSF ~~into~~output USfrom ~~Dollars~~its ~~(“USD”)~~own at3,000-MT ~~various~~barge ~~pertinent~~dock. ~~dates~~Foshan ~~and~~Nan Hai has been performing its annual audit work for ~~pertinent~~2011 ~~periods~~and after its audited financial statements are available, we will start the required due diligence work. The evaluation and negotiation process is expected to be completed in the second quarter of 2012.

~~Overview~~45

~~Sino~~Critical ~~Clean~~Accounting ~~Energy Inc.~~Policies ~~is a holding company that, through its wholly-owned PRC operating subsidiaries, based upon total third party sales revenue in China, is a leading producer~~ and distributor of coal-water slurry fuel ("CWSF") in China. CWSF is a clean fuel that consists of fine coal particles suspended in water and mixed with chemical additives. Our CWSF products are mainly used to fuel boilers and furnaces to generate steam and heat for residential and industrial use. We sell our products in China and our customers include industrial, commercial, residential and government organizations. Our strong reputation in the CWSF industry in China, together with our established track record for consistently delivering high quality products in large quantities, has enabled us to expand our customer base since establishing commercial operations in 2007 to become the largest third-party CWSF producer in China, as measured by CWSF sales volumes for 2010. Third party CWSF producers do not include entities that produce CWSF in-house for their own consumption or, parties that import CWSF for sale. Estimates

~~Corporate~~Use ~~Organization~~of ~~and History~~Estimates

~~Our~~The ~~current~~preparation ~~corporate~~of ~~structure~~consolidated isfinancial statements in conformity with accounting principles generally accepted in the ~~result~~United States of aAmerica ~~number~~requires ofmanagement ~~complex~~to ~~corporate~~make estimates ~~restructurings~~and ~~through~~assumptions ~~which~~that weaffect ~~acquired~~the ~~control~~reported amounts of ~~our~~assets ~~CWSF~~and ~~business~~liabilities, indisclosure ~~the~~of ~~PRC.~~contingent Weassets ~~entered~~and ~~into~~liabilities at ~~this~~the ~~series~~date of ~~corporate~~the ~~restructurings~~financial instatements, ~~part~~and ~~because~~the ~~certain~~reported ~~rules~~amounts of revenues and ~~regulations~~expenses induring the ~~PRC~~reporting ~~restrict~~period. Because of the ~~ability~~use of ~~non-PRC~~estimates ~~companies~~inherent ~~that~~in ~~are~~the ~~controlled~~financial byreporting ~~PRC~~process, ~~residents~~actual toresults ~~acquire~~could ~~PRC~~differ ~~companies~~from those estimates. Those estimates and assumptions include estimates for allowance for doubtful accounts, inventory valuation, impairment consideration, and assumptions used in the valuation of derivative liabilities.

45Revenue Recognition

WeRevenues ~~were~~of originally incorporated in Texas as "Discount Mortgage Services, Inc." on July 11, 2000. In September 2001, we purchased Endo Networks, Inc., a Canadian software developer, and on November 5, 2001, changed our name to "Endo Networks, Inc." We re-domiciled to the ~~State~~Company ofare ~~Nevada~~from onsales ~~December 13, 2001~~of CWSF.

OnSales ~~October 20,~~are ~~2006~~recognized wewhen ~~consummated~~the afollowing four ~~share~~revenue ~~exchange~~criteria ~~transaction~~are ~~with~~met: ~~Hangson,~~persuasive aevidence ~~British~~of ~~Virgin~~an ~~Islands~~arrangement ~~company~~exists, ~~the~~delivery ~~stockholders~~has ofoccurred, ~~Hangson and stockholders who held a majority of~~ the ~~shares~~selling ofprice ~~our~~is ~~common~~fixed or ~~stock. We issued a total of 2~~determinable,~~600,000~~ ~~shares of our common stock to the Hangson stockholders~~ and acollectability ~~consultant~~is inreasonably ~~the~~assured. Revenues ~~transaction,~~are inpresented ~~exchange~~net ~~for 100%~~ of ~~the~~value ~~common~~added ~~stock~~tax ~~of Hangson~~(“VAT”). In Asour arevenue ~~result~~arrangements, ofphysical ~~the~~delivery ~~transaction~~is ~~we became engaged in~~ the ~~CWSF~~point ~~business~~ in ~~China,~~time ~~through~~when ~~the~~customer ~~operations~~acceptance ofoccurs ~~Suo'ang~~since ~~BST~~title and ~~Suo'ang~~risk ~~New~~of ~~Energy.~~loss are Ontransferred ~~January 4, 2007, we changed our name from "Endo Networks, Inc."~~ to ~~"China~~the ~~West Coal Energy Inc~~customer.," No ~~and~~return ~~then~~allowance onis ~~August 15,~~made ~~2007,~~as weproducts ~~changed~~are tonot ~~our~~returnable ~~present~~upon ~~name,~~acceptance ~~"Sino~~by ~~Clean Energy Inc." to better reflect~~ the ~~direction and business of the Company~~customers.

~~Hangson~~Accounts was a holding company that controlled Suo'ang BST and Suo'ang BST's 80%-owned subsidiary Suo'ang New Energy, through a series of contractual arrangements. The remaining 20% of Suo'ang New Energy was owned by Mr. Peng Zhou, a member of our board of directors and, at that time, the chief operating officer of Suo'ang BST. Suo'ang BST, through Suo'ang New Energy, commenced CWSF production in July 2007. Although Hangson was entitled to acquire the remaining 20% of Suo'ang New Energy from Mr. Zhou, Mr. Zhou remained as the record shareholder of Suo'ang New Energy.receivable

InAccounts ~~2009~~receivable are recognized and carried at the original invoiced amount less an allowance for any uncollectible accounts. The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receivable balances. Under the aging method, webad ~~effected~~debts adetermined ~~reorganization~~by management are based on historical experience as well as the current economic climate and are applied to customers’ balances categorized by the number of ~~our~~months ~~corporate~~the ~~structure~~underlying ininvoices ~~order~~have remained outstanding. The valuation allowance balance is adjusted to ~~make~~the ~~Suo'ang~~amount ~~New~~computed ~~Energy~~as a ~~wholly-owned~~result ~~subsidiary~~of (the ~~"2009~~aging ~~Reorganization")~~method. When facts subsequently become available to indicate that an adjustment to the bad debt allowance should be made, ~~which~~this ~~included~~is ~~entering~~recorded ~~into~~as a ~~series~~change ofin ~~agreements~~estimate ~~transferring~~in the ~~contractual~~current ~~arrangements,~~year. ~~through~~As ~~which~~of December ~~Hangson~~31, ~~controlled~~2011 ~~Suo'ang~~and ~~BST~~2010, tono ~~Suoke~~allowance ~~Clean~~for ~~Energy~~doubtful debts was provided.

OnDerivative ~~September 15,~~financial 2009, Suo'ang BST and Hangson entered into a share transfer agreement with Suoke Clean Energy pursuant to which Suo'ang BST and Hangson agreed to transfer 100% of the equity interests in Suo'ang New Energy to Suoke Clean Energy. However, since Mr. Zhou still owned 20% of Suo'ang New Energy, on November 10, 2009, Suo'ang BST and Hangson entered into a subsequent share transfer agreement with Suoke Clean Energy to transfer 80% of Suo'ang New Energy's equity interests to Suoke Clean Energy and, Mr. Zhou, with Hangson's consent, entered into a share transfer agreement with Suoke Clean Energy to transfer the remaining 20% equity interest of Suo'ang New Energy. On November 12, 2009, Suo'ang New Energy received a new business license from the Tongchuan Administration for Industry and Commerce, which reflected that the acquisition of 100% of the equity of Suo'ang New Energy by Suoke Clean Energy had been completed. As a result we were able, through Suoke Clean Energy to own 100% of the equity interests of Suo'ang New Energy. On October 12, 2009, Suo'ang New Energy established a wholly-owned subsidiary to conduct the CWSF business in Shenyang, Liaoning Province.instruments

OnThe ~~December 31,~~Company ~~2009,~~evaluates weall ~~entered~~of ~~into~~its afinancial instruments ~~series~~to ofdetermine ~~termination~~if ~~agreements~~such toinstruments ~~terminate~~are ~~the~~derivatives ~~contractual~~or ~~arrangements~~contain byfeatures ~~and~~that ~~among~~qualify ~~Suoke~~as ~~Clean~~embedded ~~Energy,~~derivatives. ~~Suo'ang~~For ~~BST~~derivative financial ~~and~~instruments ~~certain~~that ~~stockholders~~are ofaccounted ~~Suo'ang~~for ~~BST.~~as Weliabilities, nothe ~~longer~~derivative ~~needed~~instrument is toinitially ~~keep~~recorded ~~such~~at ~~contractual~~its ~~arrangements~~fair invalue and ~~place~~is ~~due~~then tore-valued ~~the~~at ~~fact~~each ~~that~~reporting ~~Suo'ang~~date, ~~BST~~with ~~was~~changes noin ~~longer~~the ~~engaged~~fair value reported in ~~any~~the ~~substantial~~consolidated ~~business~~statements of operations. For Instock-based ~~connection~~derivative ~~with~~financial ~~the termination agreements~~instruments, ~~certain~~the ~~assets~~Company ~~held~~uses bya ~~Suo'ang~~Monte-Carlo ~~BST,~~Simulation ~~such~~of asBlack-Scholes-Merton ~~office~~option ~~equipment,~~pricing model ~~vehicles,~~to ~~bank~~value ~~deposits,~~the ~~and~~derivative ~~accounts~~instruments ~~receivable,~~at ~~were~~inception ~~transferred~~and toon ~~Suoke~~subsequent ~~Clean~~valuation ~~Energy~~dates. ~~Employees~~The classification of ~~Suo'ang~~derivative ~~BST~~instruments, including ~~signed~~whether ~~new~~such ~~employment~~instruments ~~contracts~~should ~~with~~be ~~Suoke~~recorded ~~Clean~~as ~~Energy.~~liabilities ~~All~~or ~~rights~~as ~~and~~equity, ~~obligations~~is ~~under~~evaluated ~~certain~~at ~~business~~the ~~operation~~end ~~agreements~~of ~~and~~each ~~research~~reporting ~~and~~period. Derivative instrument ~~development~~liabilities ~~contracts~~are ~~between~~classified ~~Suo'ang~~in ~~BST~~the ~~and~~balance ~~third~~sheet ~~parties~~as ~~were~~current ~~assigned~~or tonon-current ~~Suo'ang~~based ~~New~~on ~~Energy.~~whether ~~Hangson~~net-cash ~~has~~settlement ~~had no substantive operations~~ of ~~its~~the derivative ~~own~~instrument ~~after~~could ~~the~~be ~~transfer~~required ~~and~~within ~~termination~~12 months of the ~~contractual~~balance ~~arrangements~~sheet date.

OnStock ~~June 30,~~based 2009, Hangson acquired all of the outstanding shares of Wiscon, a limited liability company incorporated in Hong Kong under the Companies Ordinance. On December 31, 2009, Hangson transferred all of the outstanding shares of Wiscon to Sino Clean Energy Inc. As a result, Wiscon became a direct wholly-owned subsidiary of Sino Clean Energy Inc.compensation

~~Although~~The ~~the~~Company ~~equity~~periodically ~~transfers~~issues stock options and warrants to employees and non-employees in ~~the~~non-capital ~~PRC~~raising ~~described~~transactions ~~above~~for ~~were~~services ~~approved~~and byfor ~~local~~financing ~~governmental~~costs. ~~agencies,~~The ~~they~~Company accounts ~~were~~for ~~not~~stock ~~approved~~option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial ~~PRC~~Accounting ~~Ministry~~Standards Board, whereas the value of ~~Commerce~~the ~~("MOFCOM")~~award oris measured on the ~~China~~date ~~Securities~~of grant and ~~Regulatory~~recognized ~~Commission~~over (the ~~"CSRC")~~vesting period. ~~For~~The aCompany ~~discussion~~accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the ~~risks~~Financial ~~and~~Accounting ~~uncertainties~~Standards ~~arising~~Board, ~~from~~whereas ~~these~~the ~~PRC~~value ~~rules~~of ~~and~~the ~~regulations~~stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, ~~see~~or ~~"Risk~~b) ~~Factors—The~~at ~~failure~~the date at which the necessary performance to ~~comply~~earn ~~with~~the ~~PRC~~equity ~~regulations~~instruments ~~relating~~is tocomplete. ~~mergers~~Non-employee ~~and~~stock-based ~~acquisitions~~compensation ofcharges ~~domestic~~generally ~~enterprises~~are byamortized ~~offshore~~over the ~~special~~vesting ~~purpose~~period ~~vehicles~~on ~~may~~a ~~subject~~straight-line usbasis. toIn ~~severe~~certain ~~fines~~circumstances orwhere ~~penalties~~there are no future performance requirements by the non-employee, option grants are immediately vested and ~~create~~the ~~other~~total ~~regulatory~~stock-based ~~uncertainties~~compensation ~~regarding~~charge ~~our~~is ~~corporate~~recorded ~~structure~~in the period of the measurement date."

46The fair value of the Company’s common stock option grant is estimated using the Black-Scholes-Merton option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton option pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton option pricing model could materially affect compensation expense recorded in future periods.

~~Critical Accounting Policies and Estimates~~46

~~Use~~Recently ofissued ~~Estimates~~accounting pronouncements

~~The~~In ~~preparation~~May 2011, ofthe ~~consolidated~~Financial ~~financial~~Accounting Standards ~~statements~~Board in(“FASB”) issued ~~conformity~~Accounting ~~with~~Standards ~~accounting~~Update ~~principles~~(ASU) No. 2011-04, ~~generally~~“Amendments ~~accepted~~to Achieve inCommon ~~the~~Fair ~~United~~Value ~~States~~Measurement ofand ~~America~~Disclosure ~~requires~~Requirements ~~management~~in toU.S. ~~make~~GAAP ~~estimates~~ and ~~assumptions~~IFRSs”. ASU ~~that~~No. 2011-4 does ~~affect~~not ~~the~~require ~~reported~~additional ~~amounts~~fair ofvalue ~~assets~~measurements and ~~liabilities,~~is ~~disclosure~~not ofintended ~~contingent~~to ~~assets~~establish ~~and~~valuation ~~liabilities~~standards ator ~~the~~affect ~~date~~valuation practices outside of ~~the~~ financial ~~statements,~~reporting. The ~~and~~ASU ~~the~~is ~~reported~~effective ~~amounts~~for ofinterim ~~revenues~~ and ~~expenses~~annual ~~during~~periods ~~the~~beginning ~~reporting~~after ~~period~~December 15, 2011. ~~Because~~The ofCompany will adopt the ~~use~~ASU ofas ~~estimates~~required. The ~~inherent~~ASU inwill affect the ~~financial~~Company’s ~~reporting~~fair ~~process~~value disclosures, ~~actual~~but will not affect the Company’s results ~~could~~of ~~differ~~operations, ~~from~~financial ~~those~~condition ~~estimates~~or liquidity.

~~Revenue~~In ~~Recognition~~June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required. It will have no affect on the Company’s results of operations, financial condition or liquidity.

~~Sales~~In ~~are~~September ~~recognized~~2011, inthe ~~when~~FASB ~~the~~issued ~~following~~ASU ~~four~~2011-08, “Testing ~~revenue~~Goodwill ~~criteria~~for ~~are~~Impairment”, ~~met:~~an ~~persuasive~~update ~~evidence~~to ofexisting anguidance ~~arrangement~~on ~~exists,~~the ~~delivery~~assessment ~~has~~of ~~occurred,~~goodwill impairment. This update simplifies the ~~selling~~assessment ~~price~~of isgoodwill ~~fixed~~for orimpairment ~~determinable,~~by ~~and~~allowing ~~collectibility~~companies to consider qualitative factors to determine whether it is ~~reasonably~~more ~~assured. Revenues~~likely ~~are~~than ~~presented~~not ~~net~~that ofthe fair value ~~added~~of ~~tax~~a ~~(“VAT”).~~reporting Inunit ~~our~~is ~~revenue~~less ~~arrangements,~~than ~~physical~~its ~~delivery~~carrying isamount before performing the two ~~point~~step impairment review process. It also amends the examples of events or circumstances that would be considered in ~~time~~a ~~when~~goodwill ~~customer~~impairment ~~acceptance~~evaluation. The ~~occurs~~amendments ~~since~~are ~~title~~effective for annual and ~~risk~~interim ofgoodwill ~~loss~~impairment ~~are~~tests ~~transferred~~performed for tofiscal ~~the~~years ~~customer~~beginning after December 15, 2011. No ~~return~~Early ~~allowance~~adoption is ~~made~~permitted. The asCompany ~~products~~is ~~are not~~currently ~~returnable~~evaluating the ~~upon~~affects ~~acceptance~~adoption byof ~~the~~ASU ~~customers~~2011-08 may have on its goodwill impairment testing.

~~Accounts~~Other ~~receivable~~recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

~~Accounts~~Production receivables are recognized and carried at original invoiced amount less an allowance for any uncollectible accounts. The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receivable balances. Under the aging method, bad debts determined by management are based on historical experience as well as the current economic climate and are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. The valuation allowance balance is adjusted to the amount computed as a result of the aging method. When facts subsequently become available to indicate that an adjustment to the allowance should be made, this is recorded as a change in estimate in the current year. As of December 31, 2010 and 2009, accounts receivable were net of allowances of zero and zero, respectively.Capacity

~~Derivative~~As ~~Financial~~at ~~Instruments~~December 31, 2011, we had in-place CWSF production capacity of 1,150,000 MT. The following table shows the breakdown of production capacity for each production facility.

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a Monte-Carlo simulation option pricing models to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.47

~~Stock~~Production ~~based~~capacity ~~Compensation~~as at December 31, 2011

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. Options vest and expire according to terms established at the grant date.

	Estimated hourly		Working
Production line	production	Working day	hour	Total	Rounding
	(Metric tons)	(day)	(hour)	(Metric tons)	(Metric tons)
Tongchuan I	28	300	12	100,800	100,000
Tongchuan II	69	300	12	248,400	250,000
Tongchuan III	56	300	12	201,600	200,000
Shenyang I	42	300	12	151,200	150,000
Shenyang II	42	300	12	151,200	150,000
Dongguan I	42	300	12	151,200	150,000
Dongguan II	42	300	12	151,200	150,000
Total				1,155,600	1,150,000

47The production capacity per hour in each production line can be adjusted within a reasonable range. For example, for a production line with an annual run-rate capacity of 100,000 MT, the hourly rate is approximately 28 MT. It can be adjusted to a minimum of 24 MT or maximum 32 MT. The adjustment of capacity directly affects the useful life of plant and machinery.

We estimate the fair value of stock options and warrants using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options that have no vesting restrictions and are fully transferable. This model requires the input of subjective assumptions, including the expected price volatility of the underlying stock and the expected life of stock options. Projected data related to the expected volatility of stock options is based on the average volatility of the trading prices of comparable companies and the expected life of stock options is based upon the average term and vesting schedules of the options. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore the existing valuation models do not provide a precise measure of the fair value of our employee stock options.Seasonality

WeThe ~~estimate~~Company’s ~~the~~sales ~~fair~~are ~~value~~usually ofhigher in ~~shares~~the ofwinter ~~common~~months ~~stock~~as ~~issued for services based on~~ the ~~closing~~demand ~~price~~for of our ~~common~~thermal ~~stock~~or onheat ~~the~~supply ~~date~~is ~~shares are granted~~greater. ~~For~~ ~~periods~~There ~~prior~~is tomore ~~the~~seasonality ~~consummation~~in of the ~~Merger~~northern ~~Transaction,~~part ~~there was no readily available market quotations for our shares~~ of ~~common stock and~~ China, aslike ~~such,~~Shenyang wewhere ~~used alternative methods to value shares of our common stock including valuations based upon~~ the ~~conversion~~temperatures ~~price~~are ~~per~~colder ~~share~~in ~~of common stock of our convertible notes and~~ the ~~sale~~winter ~~price of units consisting of one share of our common stock and warrants to purchase one share of common stock, which management believes were the best indicators of the fair value of our common stock~~months.

~~Recently~~We ~~issued~~realize ~~accounting~~that ~~pronouncements~~seasonality plays a large part with respect to residential CWSF use, because of the peak usage during the months of October through March. In response to this business risk, we have expanded our customer base to introduce more industrial customers who are not seasonal customers, since their need for CWSF does not change during the year.

~~In April 2010~~Furthermore, the ~~Financial~~Company Accounting Standards Board (FASB) issued new accounting guidance in applying the milestone method of revenue recognition to research or development arrangements. Under this guidance management may recognize revenue contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to be considered substantive. This standard is effective on a prospective basis for research and development milestones achieved in fiscal years, beginning on or after June 15, 2010. Early adoption is permitted; however, adoption of this guidance as of a date other than January 1, 2011 will ~~require~~continue ~~the Company~~ to develop ~~apply~~different ~~this~~sources ~~guidance retrospectively effective as~~ of ~~January 1,~~customers ~~2010 and will require disclosure of the effect of this guidance as applied to all previously reported interim periods~~ in the ~~fiscal~~southern ~~year~~part of ~~adoption.~~China Aswhere ~~the~~there ~~Company~~is ~~plans to implement this standard prospectively, the effect of this guidance will be~~ limited toseasonality ~~future transactions~~risk. The Company ~~does~~realizes that ~~not~~it ~~expect~~is ~~adoption~~important ~~of this standard~~ to ~~have~~balance aour ~~material~~customer ~~impact~~portfolio onin ~~its~~order ~~financial~~to ~~position~~utilize orour ~~results~~production offacilities ~~operations~~throughout ~~as it has no material research and development arrangements which will be accounted for under~~ the ~~milestone method~~year.

In ~~April 2010~~2011, ~~the FASB issued new accounting guidance to clarify that an employee share-based payment award~~ with anthe ~~exercise~~development ~~price denominated~~ in ~~the~~southern part ~~currency~~ of aChina, ~~market~~Guangdong inprovince, which afocuses ~~substantial~~primarily ~~portion~~on ofindustrial ~~the~~business, ~~entity's~~we ~~equity~~anticipate ~~securities~~that ~~trades~~the ~~should~~percentage ~~not~~of beour ~~considered~~industrial customer tobase ~~contain~~will aincrease ~~condition~~so that isthe ~~not~~seasonal aimpact ~~market,~~on ~~performance,~~our orrevenues ~~service~~and ~~condition.~~net ~~Therefore,~~income ~~an entity would not classify such an award~~ as a ~~liability~~result if it otherwise qualifies as equity. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company does not expect adoption of ~~this~~seasonality ~~standard~~ will ~~have~~be aeven further ~~material impact on its consolidated financial statements~~diminished.

InGovernment ~~January~~Regulations ~~2010, the FASB issued new accounting guidance which requires new disclosures regarding transfers in and out of Level 1 and Level 2 fair value measurements, as well as requiring presentation~~ on aRevenues ~~gross basis of information about purchases, sales, issuances~~ and ~~settlements~~Gross in Level 3 fair value measurements. The guidance also clarifies existing disclosures regarding level of disaggregation, inputs and valuation techniques. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2009. Disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010. As this guidance requires only additional disclosure, there should be no impact on the consolidated financial statements of the Company upon adoption.Profit

In ~~October 2009,~~China's a2010 ~~new~~Report ~~accounting~~on ~~consensus~~Central ~~was issued for multiple-deliverable revenue arrangements. This consensus amends existing revenue recognition accounting standards. This consensus provides accounting principles~~ and ~~application guidance on whether multiple deliverables exist~~Local Budgets, ~~how~~ the ~~arrangement~~Chinese ~~should~~Government bestates ~~separated~~that ~~and~~it ~~the~~has ~~consideration~~budgeted ~~allocated.~~approximately ~~This~~$12 ~~guidance~~billion ~~eliminates~~for ~~the~~energy ~~requirement~~conservation ~~to establish the fair value of undelivered products~~ and ~~services~~pollution reduction and ~~instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means~~ to ~~determine~~promote the ~~fair~~development ~~value~~ of ~~that~~low-carbon ~~undelivered item~~technologies. ~~Previously~~The ~~the~~CWSF ~~existing~~industry ~~accounting~~is ~~consensus~~highly ~~required~~encouraged ~~that~~by the ~~fair~~PRC ~~value~~Government, ofand ~~the~~as a ~~undelivered~~result ~~item be~~ the ~~price~~number of ~~the~~competitors ~~item~~is ~~either~~expected ~~sold~~to increase in ~~a separate transaction between unrelated third parties or~~ the ~~price charged for each item when the item is sold separately by the vendor~~future. ~~Under~~During the ~~existing~~first ~~accounting~~quarter ~~consensus, if the fair value~~ of ~~all of the elements in the arrangement was not determinable~~2011, ~~then~~we ~~revenue~~agreed ~~was~~to ~~deferred until all of~~ reduce the ~~items~~selling ~~were~~price ~~delivered~~to orHaizhong ~~fair~~Heating ~~value~~by ~~was~~approximately ~~determined.~~8% ~~This~~from ~~new~~March ~~approach~~1, is2011 ~~effective~~through ~~prospectively~~October ~~for~~31, ~~revenue~~2012 ~~arrangements~~due ~~entered~~to ~~into~~government orregulation on ~~materially~~its ~~modified~~heating inprice ~~fiscal~~to ~~years~~residential ~~beginning~~users. onAs ora ~~after June 15~~result, ~~2010.~~it ~~The Company~~ is inlikely ~~the~~that ~~process of evaluating whether~~ the ~~adoption~~gross ofprofit ~~this~~margin ~~standard~~is ~~will~~in ~~have~~ a ~~material~~decreasing ~~effect on its financial position, results of operations or cash flows~~trend.

48According to Frost & Sullivan, overall CWSF demand is expected to grow at a CAGR of 24.7% from 2008 to 2014. In the highly competitive market, it is expected that we have a large competitive advantage because we have established a first mover advantage as one of the first commercial CWSF producers in China. With a dominant market position and exclusive agreements with select strategic partners, it is expected that our revenues and gross profit are going to increase due to increase in demand and our increase in market share.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.48

~~RESULTS~~Currency ~~OF OPERATIONS~~Fluctuations

~~Fiscal~~The ~~year~~majority ~~ended~~of ~~December~~our ~~31,~~business ~~2010~~is transacted in China and we use Renminbi as ~~compared~~the tofunctional ~~fiscal~~and ~~year~~operational ~~ended~~currency. ~~December~~Currency ~~31,~~fluctuations ~~2009~~do not have a significant impact on revenues or expenses.

~~Revenues. Our~~RESULTS ~~revenues~~OF are derived from our sales of CWSF. For the year ended December 31, 2010, we had revenues of $106,273,785 as compared to revenues of $46,012,353 for the year ended December 31, 2009, an increase of 131%. This significant increase is primarily attributable to the increased production from the 200,000 metric ton production line added in 2010 in Tongchuan, which led to an increase in sales to customers .The annual production capacity as of December 31, 2010 was 850,000 tons as compared to 650,000 tons as at December 31 2009. At December 31 , 2010 we had 43 customers under CWSF supply agreements totaling approximately 980,000 tons per year, as compared to 30 customers totaling approximately 600,000 tons of CWSF per year as at December 31 , 2009. Our sales and number of customers in the 2010 as compared to 2009 are indicative of the growing market acceptance of CWSF.OPERATIONS

~~Cost~~Fiscal ~~of Goods Sold. Cost of goods sold, consisting of raw materials, direct labor and manufacturing overhead, were $64,444,862 for the~~ year ended December 31, ~~2010,~~2011 as compared to ~~$28,922,846 for the~~ fiscal year ended December 31, ~~2009, an increase of 123%. The large increase in cost of goods sold is in line with the increase in sales. Gross profit margin improved from 37% in 2009 to 39.27% in~~ 2010 ~~as a result of better pricing in CWSF . As a result of the new production line added in 2010, depreciation of plant and machinery for the year 2010 was $2,127,386 as compared to $1,504,559 in 2009 .~~

~~Selling~~The ~~Expenses.~~following ~~Selling~~tables ~~expenses~~set ~~totaled~~forth ~~$4,600,685~~key ~~for~~components ~~the~~of ~~year~~our ~~ended~~results of ~~December~~operations ~~31, 2010, as compared to $1,125,884~~ for the ~~year~~years ~~ended December 31, 2009, an increase of 309%~~ indicated. ~~This increase is mainly in transportation cost which amounted to $ 4,530,881 due to the growth of our business in 2010.~~

General and Administrative Expenses. General and administrative expenses totaled $2,574,200 for the year ended December 31, 2010, as compared to $1,796,032 for the year ended December 31, 2009, an increase of approximately 43%. This increase is primarily attributable to the expansion of our operating size .

	Year Ended December 31,
	2011			2010

Revenue	$	102,174,694		$	106,273,785
Cost of goods sold		(69,967,105	)		(64,444,862	)
Gross profit		32,207,589			41,828,923
Selling expenses		4,885,784			4,600,685
General and administrative expenses		3,926,288			2,574,200
Income from operations		23,395,517			34,654,038
Other income
Interest expense		-			(10,464,567	)
Interest income		262,569			105,096
Gain on extinguishment of derivative liability		3,590,721			28,404,181
Change in fair value of derivative liabilities		10,234,566			2,197,831
Total other income		14,087,856			20,242,541
Income before provision for income taxes		37,483,373			54,896,579
Provision for income taxes		5,358,455			6,891,173
Net income	$	32,124,918		$	48,005,406

~~Other~~Revenue. ~~Income~~Our ~~(Expenses)~~revenues are derived from our sales of CWSF. ~~Other~~For ~~income~~the ~~consists~~year ~~primarily~~ended ofDecember ~~rental~~31, ~~income~~2011, ~~interest~~we ~~income,~~had ~~cost~~revenues from sales of our ~~private~~coal-water ~~placement~~slurry fuel of $102,174,694 ~~changes~~as incompared to revenues of $106,273,785 for the ~~fair~~year ~~value~~ended ~~and~~December ~~extinguishment~~31, of2010, ~~certain~~representing ~~derivative~~a ~~liabilities~~decrease of $4,099,091 ~~and~~or ~~expenses~~4%. This ~~related~~decrease is primarily attributable to ~~the~~a ~~shares~~decrease ofin ~~common~~sales ~~stock~~to ~~held~~one byof our ~~Chief~~major customers, ~~Executive~~Haizhong ~~Officer~~Heating, ~~and~~which, ~~placed~~due into ~~escrow~~modification inof ~~connection~~a ~~with our~~pipeline ~~July,~~in ~~2009~~certain ~~financing~~areas ~~transaction~~of (the “~~Escrowed~~Ming ~~Shares~~Fa”~~). For~~ ~~the~~real estate ~~year~~development ~~ended~~project ~~December~~due ~~31,~~to ~~2010,~~government ~~other~~requirements ~~income~~in ~~was~~the ~~$20~~second quarter of 2011,~~242,541,~~ assuspended ~~compared~~operation of its CWSF boilers. Due to ~~other~~the ~~expenses~~cessation of ~~$46~~the Haizhong Heating CWSF boiler operation and the suspension of its business during the pipeline modification,~~749,191~~ it has become uneconomical for the ~~year~~Shengyang ~~ended~~facility ~~December~~to 31continue operations for only a small number of customers, ~~2009~~which represented less than 20% of revenues at Shenyang. As a result, our Shengyang facility suspended operations in late April 2011. ~~The~~ We ~~increase~~resumed production in ~~other~~October ~~income~~2011 isand ~~primarily~~Haizhong ~~attributable~~Heating resumed operation on November 1, 2011. The reduction in sales volume due to ~~the~~this ~~gain~~business oninterruption ~~extinguishment~~is of81,251 ~~derivative~~MT, approximately ~~liability~~$10.3 ofmillion, ~~convertible~~compared ~~notes~~with ~~and~~the ~~warrants~~same period of ~~$28~~2010. In addition,~~404,181~~ ~~and~~the ~~interest~~Dongguan ~~expense~~facility ~~and~~had ~~finance~~not ~~costs~~reached its planned production volume because one of 10its potential customers,~~464~~ Yongchang Paper,~~567~~ ~~related~~had tonot ~~the~~started ~~convertible~~operation ~~notes converted~~as planned in ~~2010~~2011.

~~Provision~~Increased ~~for~~production ~~Income~~from ~~taxes. For~~ the ~~years~~new ~~ended~~300,000 ~~December~~MT ~~31,~~production line ~~2010~~added ~~and~~in ~~2009,~~February ~~our~~2011 ~~provision~~in ~~for~~Dongguan ~~income~~led ~~taxes~~to ~~was~~an ~~6,891,173~~increase ~~and~~in $2production capacity,~~243,008,~~ ~~respectively.~~but ~~The~~the ~~increase~~decrease in ~~income~~sales ~~taxes~~due ~~reflects~~to ~~the~~a ~~increase~~major customer, inHaizhong ~~taxable~~Heating, ~~income~~reduced ~~from~~the ~~our~~requirements ~~operations~~for in2011 ~~China~~(see below “Accounts Receivable”). ~~For~~Haizhong ~~the~~Heating was ~~years~~our ~~ended~~largest ~~December~~client ~~31,~~in ~~2010~~2011 and ~~2009,~~2010 ~~our~~accounting ~~effective~~for ~~tax~~approximately ~~rate was 13~~87% and 785%, ~~respectively,~~ of ~~income~~the ~~(loss)~~production ~~before~~capacity ~~provision~~in ~~for~~our ~~income~~Shenyang facility ~~taxes~~respectively. InWe ~~2010~~planned ~~and~~to ~~2009,~~increase our ~~effective~~production ~~tax~~capacity ~~rate~~in ~~was~~Shenyang ~~(decreased)~~to ~~increased~~meet bythe ~~(12%)~~anticipated ~~and~~demand ~~48%,~~from Haizhong ~~respectively~~Heating. However, ~~due~~Haizhong toHeating ~~expenses~~delayed ~~related~~its expansion plans due to ~~financing~~government’s ~~and~~delay ~~derivatives~~in ~~that~~the ~~are~~granting ~~classified~~the land asfor ~~permanent~~Haizhong ~~differences~~Heating’s expansion. ~~Additionally,~~As ina ~~2010~~result ~~and~~it ~~2009~~is expected that in 2012, ~~our~~Haizhong ~~effective~~Heating ~~tax~~may ~~rate~~reduce ~~reduced~~purchase from us by 6%up ~~and~~to 330% compared with 2011. As at December 31, ~~respectively~~2011 we had 35 customers under CWSF supply agreements totaling approximately 848,114 ~~for~~MT ~~certain~~per ~~tax~~year, ~~holidays~~as wecompared ~~enjoy~~to in43 ~~the~~customers ~~PRC~~totaling approximately 982,167 tons of CWSF per year as at December 31, 2010.

49The following table sets forth the impact of the change in the quantity and average price of our CWSF on our revenue.

Net Income. We had net income of $48,005,406 for the year ended December 31, 2010, as compared to a net loss of $34,824,668 for the year ended December 31, 2009. The increase in net income is primarily attributable to income from operation and other income from gain on extinguishment of derivative liability of convertible notes and warrants

Year ended December 31,

Attributable

2011

2010

(Decrease)

Average

to decrease

Sales Quantity

in quantity

unit price

in revenue

$/MT

Total

848,114

982,167

(134,053

)

114.34

(15,326,950)

Reconciliation of net income (loss) to adjusted earnings

Year ended December 31,

2011

2010

Increase

Average of

Attributable

Average

in average

Sales Quantity

to increase

unit price

for 2011 and 2010

in revenue

$/MT

Total

120.47

108.20

12.27

915,066

11,227,859

Net decrease in revenue

(4,099,091

)

~~The following table provides a reconciliation of net income (loss) to adjusted earnings~~49

	2010			2009
Net income (loss)	$	48,005,406		$	(34,824,688	)
Non-GAAP adjustments
Expense related to escrow shares		-			11,125,071
Gain on extinguishment of derivative liability		(28,404,181	)		(7,046,556	)
Change in fair value of derivative liabilities		(2,197,831	)		12,770,113
Fair value of shares issued for bonus interest		1,864,701
Cost of private placement		-			24,977,114
Amortization of notes discount		8,601,975			3,942,185
Adjusted earnings	$	27,870,070		$	10,943,239

Cost of Goods Sold. Expenses which comprise cost of goods sold are the direct cost of raw materials (coal, ferrous sulfate, and coal water mixture chemicals), the costs incurred to get the raw materials to our production plants, salaries of production workers, electricity use for production equipment, water used for production, and manufacturing overhead. Manufacturing overhead includes materials, depreciation and amortization related to property, plant, and equipment used directly in production of inventory, rent related to plants used directly in the production of inventory, and other such costs associated with preparing our CWSF for sale. For the year ended December 31, 2011 and 2010, cost of goods sold was $69,967,105 and $64,444,862 respectively, representing an increase of $5,522,244 or 8.6%. The increase in cost of goods sold reflected to a certain extent the decrease in total volume sold this year. The increase is also due to the impairment of prepaid coal of $2.8 million. Gross profit margin decreased from 39% in 2010 to 32% in 2011 mainly as a result of (i) the significantly higher purchase price for coal in Dongguan which increased our cost of production; (ii) higher depreciation costs on the machinery and plant of our Dongguan facility. Depreciation of plant and machinery for the year 2011 was $2,876,486 as compared to $2,127,386 in 2010; and (iii) the impairment of prepaid coal.

~~This~~The ~~table~~reduction ~~excludes~~of ~~from~~selling ~~Net~~price ~~Income (loss) certain items related~~ to ~~the~~Shenyang Haizhong ~~cost~~Heat ofResource, ~~escrow~~Ltd. ~~shares~~from ~~put~~$151 in(RMB960) ~~escrow~~per byMT ~~our chairman as a guarantee on the issuance of our convertible notes, the cost related~~ to ~~the~~$138 ~~issuance of our private placement~~ (~~primarily~~RMB880) ~~related~~per toMT ~~the~~represented ~~fair~~a ~~value~~decrease of ~~the~~8.3%. ~~derivatives~~As ~~created~~Haizhong ~~upon~~was one ~~issuance related to the conversion feature~~ of ~~the~~our ~~notes~~largest ~~and~~customers ~~the~~in ~~fair value of the warrants issued to the convertible note holders)~~2011, the ~~change~~decrease in ~~fair~~market value ofdirectly ~~these~~affected ~~derivatives during~~ the ~~period~~gross asprofit ~~well~~margin as the extinguishment of a portion of the derivative upon conversion of the notes, and amortization of the valuation discount recorded as interest expense relating to these convertible notes and the fair value of shares issued for ~~bonus interest. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when it internally evaluates~~ the ~~performance of the~~ Company~~’s business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods~~. We ~~Moreover,~~expect management believes these non-GAAP measures reflect the essential operating activities of Sino Clean Energy. Accordingly, management excludes these items when making operational decisions. The Company believes that ~~providing~~restrictive ~~the~~regulations ~~non-GAAP measures~~ that ~~management~~may ~~uses~~carry toover ~~its investors is useful~~ to ~~investors~~other ~~for~~customers awill ~~number~~only ofgenerate ~~reasons. The non-GAAP measures provide~~ a ~~consistent~~minor ~~basis for investors to understand the Company’s financial performance in comparison to historical periods~~effect. InOverall ~~addition,~~gross profit itmargin ~~allows~~will ~~investors~~be toapproximately ~~evaluate the Company’s performance using the same methodology and information as that used by our management~~35%. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.

~~LIQUIDITY~~The ~~AND~~following ~~CAPITAL~~table ~~RESOURCES~~sets forth the impact of the change in the quantity and average cost of our CWSF on our cost of goods sold:

For the year ended December 31, 2010, we generated $26,218,124 from operating activities, as compared to $9,691,888 that we generated from operating activities for the year ended December 31, 2009.

	Year ended December 31,									Attributable
	2011		2010		(Decrease)			Average		to decrease
		Sales Quantity		Sales Quantity		in quantity			unit cost		in COGS
		MT		MT		MT			$/MT

Total		848,114		982,167		(134,053	)		72.46	$	(9,713,504	)

For the year ended December 31, 2010, we used $21,477,472 in investing activities, as compared to $4,389,843 that we used in investing activities for the year ended December 31, 2009. This increase of cash used in investing activities is mainly due to the increase in the prepayment of coal, related party loan to Suo’ang BST and payment of deposits for purchases of land, equipments and machinery for our new production lines in Guangdong facility.

Year ended December 31,

2011

2010

Increase

Average of

Attributable

Average

in average

Sales Quantity

to increase

unit cost

for 2011 and 2010

in COGS

$/MT

Total

79.20

65.61

13.59

915,066

12,435,747

Impairment of prepaid coal

2,800,000

Net increase in cost of goods sold

5,522,243

50Selling Expenses. Selling expenses totaled $4,885,784 for the year ended December 31, 2011, as compared to $4,600,685 for the year ended December 31, 2010, representing an increase of $285,099 or 6.2%. This increase is mainly attributable to increased transportation costs.

~~For~~The ~~the~~transportation ~~year~~costs ~~ended~~of ~~December~~shipping CWSF ~~31,~~to ~~2010,~~our wecustomers ~~generated~~of $294,~~076~~863,~~224~~517 ~~from~~and ~~financing activities~~$4,530,881 asfor ~~compared~~the toyear $9ended December 31,~~082,787~~ ~~that~~2011 weand ~~generated~~2010 ~~financing~~respectively, ~~activities~~are ~~during~~included in selling expenses on the ~~year~~consolidated ~~ended~~statements ~~December~~of ~~31,~~income ~~2009.~~and ~~This~~other ~~increase~~comprehensive isincome. ~~due~~The ~~mainly~~transportation tocost represented ~~proceeds~~4.7% ~~from~~and ~~issuance~~4.3% of ~~common~~the ~~stocks~~Company’s ofrevenue 28for the year ended December 31,~~282,810~~ in2011 and 2010, respectively.

AsGeneral ofand Administrative Expenses. General and administrative expenses totaled $3,926,288 for the year ended December 31, ~~2010~~2011, as compared to $2,574,200 for the ~~Company~~year ~~had~~ended December ~~cash~~31, 2010, representing an increase of $521,~~055~~352,~~857~~088 or 53%. ~~Our~~ This ~~total~~increase ~~current~~was ~~assets~~primarily ~~were~~due ~~$77,816,049~~to the increase in legal expense and professional fees of our ~~total~~operations. The ~~current~~increase ~~liabilities~~legal ~~were~~consulting, other legal and professional fees totaling approximately $19396,~~498,961,~~000 ~~which~~accounted ~~resulted~~for in29.3% aof ~~net~~the ~~working~~total ~~capital~~increase of ~~$58~~general and administrative expenses. The increase in those costs resulted from increased public company reporting costs,~~317,088~~ acquisition due diligence expenses and advisory services on legal and financial reporting.

WeThe ~~had~~general ~~capital~~expenses ~~expenditure~~associated ~~commitments~~with ~~outstanding~~the development as of ~~December~~our ~~31,~~new ~~2010~~plant in ~~the~~southern ~~amount~~China ofalso ~~$68,837,389~~contributed to the significant increase in ~~relation~~general toand ~~the~~administrative ~~purchase~~expenses including oftravelling ~~coal~~expenses, ~~land~~ entertainment, marketing expenses and ~~machinery~~office supplies.

WeOther ~~believe~~Income. ~~that~~Other income wetotaled ~~have~~$14,087,856 for ~~sufficient~~the ~~cash~~year ~~flow~~ended toDecember ~~meet our~~31, ~~obligations~~2011, oncomprised primarily of a ~~timely~~gain ~~basis~~on extinguishment of derivative liability of $3,590,721 and a gain in change of fair value of the ~~foreseeable~~derivative ~~future~~liabilities of $10,234,566, as compared to other income of $20,242,541 for the year ended December 31, 2010, which was mainly caused by the gain on extinguishment of derivative liability of $28,404,181 and gain in change in fair value of derivative liabilities of $2,197,831, offset against interest expense of $10,464,567.

~~Contractual Obligations~~50

WeThe main ~~have~~factor ~~certain~~affecting ~~commitments~~the ~~that~~fair ~~include~~value ~~future~~of ~~payments.~~derivative Weliabilities ~~have~~is ~~presented below a summary in order to assist in~~ the ~~review~~stock price of ~~this information within~~ the ~~context~~Company. ofThe ~~our~~Company ~~consolidated~~stock ~~financial~~price ~~position,~~dropped 83% ~~results~~during ofthe ~~operations,~~valuation ~~and cash flows~~period.

~~Payments~~The significant ~~Due~~assumptions byused ~~Period~~in asthe valuation is that the derivative holders have rights to exercise the respective financial instruments at any time during the remaining time to maturity before the expiration, the closing stock price of ~~December~~the 31Company to be equal to the fair value of the stock of the Company as the appraisal date and all participants in market are considered to be willing buyers and sellers. As a result, ~~2010~~the market price of stock directly affected the fair value of derivative liabilities for the year.

	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 Years +
Contractual obligations:
Capital expenditure commitment	$	3,882,000		3,882,000		-		-		-
Operating Leases	$	304,329		35,466		70,932		70,932		126,999
Coal inventory purchase agreement	$	64,651,060		64,651,060		-		-		-
Debt repayment and interest on debt (1)	$	-		-		-		-		-
Total contractual obligations:	$	68,837,389		68,568,526		70,932		70,932		126,999

The interest income for the year ended December 31, 2011 and 2010 was $262,569 and $105,096 respectively. The Company keeps its cash in current accounts or demand deposits to meet operating needs. As at December 31, 2011, approximately $42 million was kept in China. According to the People’s Bank of China, the applicable interest rate of demand deposit is of 0.45% which was close to the 0.2% earned by the Company in 2011.

~~Operating~~As ~~lease~~the ~~amounts~~Company uses ~~include~~the ~~minimum~~RMB ~~lease~~as ~~payments~~its ~~under~~functional ~~our~~currency, ~~non-cancelable~~there ~~operating~~is ~~leases~~little need for ~~office~~USD ~~premises~~balances ~~and~~except ~~production~~for ~~plants. The~~paying ~~amounts~~professional ~~presented~~and ~~are~~other ~~consistent~~fees, so ~~with~~most ~~contractual~~of ~~terms~~the ~~and~~Company’s cash balances are in RMB. Hence it will not ~~expected~~be meaningful to ~~differ~~look ~~significantly,~~at ~~unless~~the aapplicable ~~substantial~~USD ~~change~~deposit rates, inas ~~our~~the ~~headcount~~amount ~~needs~~of ~~requires~~interest usinvolved tois ~~exit~~not anmaterial. ~~office~~Therefore ~~facility~~applicable ~~early~~interest orrates ~~expand~~for ~~our~~RMB ~~occupied~~demand ~~space~~deposits in China are used.

~~Capital~~The ~~commitments~~Company chose ~~include~~not ~~purchase~~to ofput ~~land~~the ~~and~~cash ~~machinery~~into ~~for~~short-term investments which may have provided a higher yield due to our ~~production~~desire to maintain a reserve of ~~CWSF~~ ~~and commitment~~cash for ~~TCID~~maintaining ~~Joint~~liquidity. ~~Venture~~ The major component of cost of goods sold is coal, which is a limited resource in China. The Company aims to ~~providing~~maintain ~~heating~~sufficient cash for the ~~new~~advance ~~district~~to suppliers and to deal with the fluctuations in ~~Tongchuan~~the commodities market. Another reason is cash is reserved for development and acquisitions. Since time is required for efficient investment and liquidity is a key factor for the Company, no temporary investment of cash has been made at this time. The Company keeps most of its cash in RMB demand deposit accounts, which earn very little interest as the applicable rate is only 0.45% per annum.

~~Off-Balance~~Provision ~~Sheet~~for ~~Arrangements~~income taxes. For the year ended December 31, 2011 and 2010, our provision for income taxes was $5,358,455 and $6,891,173, respectively. The decrease in income taxes reflects the decrease in taxable income from our operations in China. For the year ended December 31, 2011 and 2010, our effective tax rate was 14.3% and 12.6%, respectively, on income before provision for income taxes.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our investors.51

51Net Income. We had net income of $32,124,918 for the year ended December 31, 2011, as compared to $48,005,406 for the year ended December 31, 2010. The decrease in net income is primarily attributable to the decrease in gross profit of $9,621,334 for the year ended December 31, 2011.

~~ITEM~~Reconciliation ~~7A.~~of ~~QUANTITATIVE~~net ~~AND~~income ~~QUALITATIVE~~to ~~DISCLOSURES~~adjusted ~~ABOUT MARKET RISK~~earnings

~~Not~~The ~~Applicable.~~following table provides a reconciliation of net income to adjusted earnings

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	2011			2010

Net income	$	32,124,918		$	48,005,406

Non-GAAP adjustments
					-
Gain on extinguishment of derivative liability		(3,590,721	)		(28,404,181	)
Change in fair value of derivative liabilities		(10,234,566	)		(2,197,831	)
Fair value of shares issued for bonus interest		-			1,864,701
Amortization of notes discount		-			8,601,975

Adjusted earnings	$	18,299,631		$	27,870,070

~~Our~~This ~~consolidated~~table ~~financial~~excludes ~~statements~~from Net Income (loss) certain items related to the cost related to the issuance of our private placement (primarily related to the fair value of the derivatives created upon issuance related to the conversion feature of the notes and the fair value of the warrants issued to the convertible note holders), the change in fair value of these derivatives during the period as well as the extinguishment of a portion of the derivative upon conversion of the notes, ~~thereto~~conversion ~~begin~~and onexpiration ~~page~~of Fwarrants, and amortization of the valuation discount recorded as interest expense relating to these convertible notes and the fair value of shares issued for bonus interest. The Company believes that these non-1GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when it internally evaluates the performance of the ~~this~~Company’s ~~Annual~~business ~~Report~~and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of Sino Clean Energy. Accordingly, management excludes these items when making operational decisions. The Company believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company’s financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company’s performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.

~~ITEM~~The 9adjusted number of shares used to determine adjusted earnings per share is calculated by adding the basic weighted number of shares to the number of shares that would be issued upon exercise of all warrants classified as derivative liabilities. ~~CHANGES~~ INAt ~~AND~~December ~~DISAGREEMENTS~~31, ~~WITH~~2011, ~~ACCOUNTANTS~~basic ONweighted ~~ACCOUNTING~~number ~~AND~~of ~~FINANCIAL~~shares ~~DISCLOSURES~~of 23,498,018 is increased by 2,476,647 warrant shares that would be issued upon exercise of all the Company’s warrants, resulting in 25,974,665, the adjusted earnings number of shares. For the year ended December 31, 2011, adjusted earnings of $18,299,631 divided by the 25,974,665 adjusted number of shares results in adjusted earnings per share of $0.70 per adjusted shares. At December 31, 2010, basic weighted number of shares of 15,855,682 is increased by 3,149,582 warrant shares that would be issued upon exercise of all the Company’s warrants, resulting in 19,005,264, the adjusted earnings number of shares. For the year ended December 31, 2010, adjusted earnings of $27,870,070 divided by the 19,005,264 adjusted number of shares resulted in adjusted earnings per share of $1.46 per adjusted shares.

~~None.~~LIQUIDITY AND CAPITAL RESOURCES

~~ITEM~~For 9Athe year ended December 31, 2011, cash used in operating activities was $15,737,286, as compared to that provided by $26,218,124 that we generated from operating activities for the year ended December 31, 2010. This ~~CONTROLS~~decrease in ~~AND~~cash ~~PROCEDURES~~generated by operating activities is primarily due to (i) the decrease in net income of $15.9 million; (ii) amortization of discount on convertible notes of $8,601,975 in 2010; (iii) change in fair value of derivative liabilities of $10,234,566; (iv) gain on extinguishment of derivative liability of $3,590,721; (v) the increase in accounts receivables of $9,469,103, prepaid inventory of $29,971,863, and inventories of $71,250.

~~Evaluation~~For the year ended December 31, 2011, cash provided by investing activities was $3,163,854, of ~~Disclosure~~which ~~Controls~~$10,510,965 was repayment from related party and ~~Procedures~~$(7,347,109) was used for purchase of plant and equipment and payment of deposits on long term assets. For the year ended December 31, 2010, the net cash used in investing activities was $(21,477,472) which was for advance to Suo’ang BST of $(10,341,262), purchase of plant and equipment of $(2,735,696) and payment of deposits on long term assets of $(9,174,176).

~~The~~For ~~term “disclosure controls and procedures” is defined in Rule 13a-14(c) of~~ the ~~Securities~~year ~~Exchange~~ended ~~Act~~December of31, ~~1934~~2011, aswe used ~~amended~~ $(~~the “Exchange Act”~~374,014)~~. This~~ ~~term~~from ~~refers~~financing toactivities, ~~the~~which ~~controls~~was ~~and~~primarily ~~procedures~~payment ofon acommon ~~company~~stock ~~that~~repurchase ~~are~~$(799,423) ~~designed~~which tois ~~ensure~~partially off-set ~~that information required to be disclosed~~ by ~~a company in~~ the ~~reports~~cash ~~that~~received itfrom ~~files~~exercise ~~under~~of ~~the~~warrants ~~Exchange~~of ~~Act is recorded~~$594, ~~processed, summarized and reported within required time periods~~216. For ~~Our Chief Executive Officer~~

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