China Energy Corp (OTC BB:CHGY)

As of May 31, 2011 we had a working capital surplus of $6,310,207, compared with a working capital deficit of $21,723,598 as of November 30, 2010. The improvement of liquidity was mainly due to (i) the full repayment of notes receivable amounting to $14.7 million which was lent for strategic purposes to related parties affiliated to the Company through family members of the Chairman; (ii) net income from the operating business in the first half of 2011; and (iii) proceeds from finance obligation amounting to $9.3 million.

We anticipate that the combination of our sales and collection of accounts receivables with our longer accounts payable cycle, customer deposits and proceeds from bank and shareholder loans will generate sufficient cash flow to sustain our working capital needs.

As of November 30, 2010 we had a working capital deficit of approximately $21,723,598, including $6,629,669 principal amount of loans from shareholders which are due on demand. We anticipate that the combination of our sales and collection of accounts receivables with our longer accounts payable cycle, customer deposits and proceeds from bank and shareholder loans will generate sufficient cash flow to sustain our working capital needs. It is our view that, many of our current liabilities, which are included in the definition of working capital, do not impose strict and time sensitive cash repayment terms on us. For example, advances from customers to be repaid in coal (which we believe will be readily available), current portion of deferred income (which is the portion of pipeline construction reimbursement, already received by us, to be amortized in the next year), and shareholder loans (which we believe would not be called by a shareholder at a time adverse to the Company) amount to an aggregate of $15,095,490 of our current liabilities. However, we may require other sources of capital to reduce the impact of our working capital deficit.

As of August 31, 2009 we had a working capital deficit of $29,009,833. We anticipate that the combination of our sales and collection of accounts receivables, customer deposits and proceeds from bank and shareholder loans will generate sufficient cash flow to sustain our working capital needs. However we may require other sources of capital.

Source: SEC form 10Q (for the fiscal quarter ended August 31, 2009)