Securities And Exchange Commission

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)

	Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For The Nine-month Period Ended September 30, 2003; Or
	Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For The Transition Period From ________ To _______

Commission File No. 333-88207

CLEAN ENERGY COMBUSTION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

98-0211550
(I.R.S. Employer
Identification No.)

7087 MacPherson Avenue, British Columbia, Canada V5J 4N4
(Address of principal executive offices) (Zip Code)

(604) 435-9339
(Registrant's telephone number, including area code)

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 registration was required to file such Reports), and (2) has been subject to such filing requirements for the past 90 days: Yes No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

14,571,951 shares of common stock, par value $0.0001 per share, as of November 14, 2003

INTRODUCTORY NOTE

The information in this quarterly report is current as of the date of this quarterly report (November 14, 2003), unless an earlier date is specified. We conduct our transactions in the currency of both the United States and Canada, although we consider the United States dollar to be our functional and reporting currency. All references to "dollars" in this quarterly report refer to United States or U.S. dollars unless specific reference is made to Canadian or CDN dollars. For information relative to rates of exchange and currency conversion, see that section contained in explanatory note 2 to our interim consolidated financial statements included in this quarterly report captioned "Foreign Currency Translation".

We prepare our interim consolidated financial statements in accordance with United States generally accepted accounting principles. Our consolidated financial condition and results of operations for the nine-month interim period ended September 30, 2003 are not necessarily indicative of our prospective consolidated financial condition and results of operations for the full fiscal year ended December 31, 2003. The interim consolidated financial statements presented in this quarterly report as well as other information relating to our company contained in this quarterly report should be read in conjunction with the annual consolidated financial statements and more detailed background information relating to our company and our business contained in our annual report on form 10-K for our fiscal year ended December 31, 2002.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this quarterly report we make a number of statements, referred to as "forward-looking statements", which are intended to convey our expectations or predictions regarding the occurrence of possible future events or the existence of trends and factors that may impact our future plans and operating results. These forward-looking statements are derived, in part, from various assumptions and analyses we have made in the context of our current business plan and information currently available to us and in light of our experience and perceptions of historical trends, current conditions and expected future developments and other factors we believe to be appropriate in the circumstances. You can generally identify forward-looking statements through words and phrases such as "seek", "anticipate", "believe", "estimate", "expect", "intend", "plan", "budget", "project", "will be", "will continue", "will likely result", and similar expressions. Forward-looking statements contained in this quarterly report would, for example, include statements relating to the timing and completion of pending or prospective projects and contracts and receipt of revenues.

When reading any forward looking statement you should remain mindful that actual results or developments may vary substantially from those expected as expressed in or implied by that statement for a number of reasons or factors including, by way of example and not limitation, (1) the various risks and uncertainties described in this special note or elsewhere in this quarterly report, and (2) our current and prospective financial requirements and current and prospective lack of capital; our inability to satisfactorily complete pending or new project proposals (including with prospective licensees or joint venture partners) and enter into binding revenue-producing contracts based upon those proposals; our overall inability or that of our licensees or joint venture partners, if any, to design, test, manufacture and sell pulse combustors on a profitable basis, including as a result of insufficient consumer acceptance of and demand for pulse combustors; regulatory constraints, and changes in our business plan and corporate strategies or those of our joint venture partners. Each forward-looking statement should be read in context with, and with an understanding of, the various other disclosures concerning our company and our business made elsewhere in this quarterly report as well as other pubic reports filed with the United States Securities and Exchange Commission (the "SEC"). You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments.

We are not obligated to update or revise any forward-looking statement contained in this quarterly report to reflect new events or circumstances unless and to the extent required by applicable law. All forward-looking statements contained in this quarterly report constitute "forward-looking statements" within the meaning Section 21E of the United States Securities Exchange Act of 1934 and, to the extent it may be applicable by way of the incorporation of statements contained in this quarterly report by reference or otherwise, Section 27A of the United States Securities Act of 1933, each of which establishes a safe-harbor from private actions for forward-looking statements as defined in those statutes.

TABLE OF CONTENTS

	Page
Consolidated Balance Sheets	1
Consolidated Statements Of Operations	2
Consolidated Statements Of Capital Deficiency	3
Consolidated Statements Of Cash Flow	4
Notes To Consolidated Financial Statements	5
Management's Discussion And Analysis Of Financial Condition And Results Of Operations	15
Quantitative And Qualitative Disclosure About Market Risk	19
Disclosure Controls And Procedures	19
Uncertainties And Other Risk Factors That May Affect Our Future Results And Financial Condition	19
Legal Proceedings	28
Changes In Securities And Use Of Proceeds	28
Defaults Upon Senior Securities	28
Submission Of Matters To A Vote Of Security Holders	28
Other Information	28
Exhibits And Reports On Form 8-K	28
Signatures	29
Certification Of Principal Executive Officer	30
Certification Of Principal Accounting And Financial Officer	31

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
CONSOLIDATED BALANCE SHEETS

September 30,
2003
December 31,
2002

ASSETS
(unaudited)

CURRENT

Cash and cash equivalents
$                  299

$                      -

Prepaid expenses
2,825

2,873

Total current assets
3,124

2,873

ADVANCES TO AN AFFILIATED COMPANY (note 4)
297,280

427,543

PATENTS
30,128

39,327

TOTAL ASSETS
$           330,532

$          469,743

LIABILITIES

CURRENT

Accounts payable
$          235,253

$          316,948

Accrued expenses (including accrued interest of $NIL as of
September 30, 2003 and $3,123 as of December 31, 2002-note 5)

59,000

48,123

Advances from related parties (note 5)
32,626

52,697

Total current liabilities
326,879

417,768

PROVISIONS AND LIABILITIES RELATED TO TRANSFER
OF OWNERSHIP OF SUBSIDIARY (note 4)

335,592

468,177

TOTAL LIABILITIES AND PROVISIONS
662,471

885,945

Going concern (note 1)

Commitments and contingencies (note 10)

CAPITAL DEFICIENCY

Authorized (note 6):

Preferred stock; par value $0.0001 per share, 2,000,000 shares

Common stock; par value $0.0001 per share, 15,000,000 shares

Issued (note 6):

Series 'A' convertible preferred stock;
Liquidation preference $1 per share, or $1,000 total;
1,000 shares issued and outstanding as of September 30, 2003 and December 31, 2002

1

1

Series 'B' convertible preferred stock;
Liquidation preference $2 per share, or $483,336 total;
241,668 shares issued and outstanding as of September 30, 2003 and December 31, 2002

242

242

Common stock; 14,571,951 and 11,407,269 shares issued and outstanding
as of September 30, 2003 and December 31, 2002, respectively

1,457

1,141

Additional paid-in capital
3,325,631

2,836,562

Deficiency accumulated during the development stage
(3,659,270)

(3,254,148)

TOTAL CAPITAL DEFICIENCY
(331,939)

(416,202)

TOTAL LIABILITIES AND CAPITAL DEFICIENCY
$           330,532

$           469,743

The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets

-1-

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended
September 30,

Jan. 1, 1999
to
Sept. 30, 2003 (Cumulative)

2003
2002
2003
2002

(ß -----------------------------------------unaudited---------------------------------------------à )

ADMINISTRATION AND MARKETING EXPENSES

Accounting

$ 1,035

$ 900

$ 17,180

$ 9,387

$ 96,331

Administrative wages, benefits and contract fees

26,400

27,197

82,647

94,306

682,873

Amortization

45,027

Communications

4,866

2,295

8,670

5,144

45,629

Foreign exchange (gain) loss

3,413

(36)

3,342

(152)

(24,157)

Interest

250

7,247

2,068

34,945

92,058

Legal and patent maintenance

10,132

11,466

27,045

18,284

382,485

Marketing

10,551

14,948

49,393

41,227

396,759

Occupancy

2,605

7,930

107,759

Office and miscellaneous

431

2,742

1,859

7,192

104,796

Write-down of patents

9,199

9,199

Professional fees

520

15,972

Transfer agent fees

255

900

3,210

9,387

38,521

Total administration and marketing

59,938

66,759

212,543

210,853

1,993,252

RESEARCH AND DEVELOPMENT EXPENSES (note 3)

Wages and other direct costs

41,361

79,090

157,809

1,291,017

Overhead

8,568

18,594

34,770

353,340

375,001

Total research and development

49,929

97,684

192,579

353,340

1,666,018

TOTAL EXPENSES AND NET LOSS FOR THE PERIOD

$ (109,867)

$ (164,443)

$ (405,122)

$ (564,193)

$ (3,659,270)

BASIC AND DILUTED NET LOSS PER SHARE OF COMMON STOCK (note 2)

$ (0.01)

$ (0.02)

$ (0.03)

$ (0.04)

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING

13,024,008

10,382,695

11,954,107

10,382,695

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

-2-

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIENCY

Series 'A'
Preferred Stock
Series 'B'
Preferred Stock

Common Stock

Additional
Paid-in
Capital
Accumulated During
The Development Stage

Shares
Amount
Shares
Amount
Shares
Amount

Period Cumulative
(Nine-month Interim Period Ended September 30, 2003-unaudited)

Issued on incorporation

1,000

$ 1

$ -

9,643,750

$ 964

$ 535

$ -

$ 1,500

Private placement

250,001

250

499,752

500,002

Vesting of previously issued but unexercised warrants granted to consultant (note 6)

2,000

Net loss for the period ended December 31, 1999

(639,404)

Balance, December 31, 1999

1,000

250,001

250

9,643,750

964

502,287

(639,404)

(135,902)

Vesting of previously issued but unexercised
warrants granted to consultant (note 6)

18,500

Issued on conversion of promissory note

487,944

975,838

975,887

Net loss for the year ended December 31, 2000

(907,826)

Balance, December 31, 2000

1,000

250,001

250

10,131,694

1,013

1,496,625

(1,547,230)

(49,341)

Vesting of previously issued but unexercised
warrants granted to consultant (note 6)

30,601

Disposition of subsidiary (note 4)

294,522

Net loss for the year ended December 31, 2001

(812,445)

Balance, December 31, 2001

1,000

250,001

250

10,131,694

1,013

1,821,748

(2,359,675)

(536,663)

Conversion of series 'B' convertible preferred stock into common stock

8,333)

(8)

8,333

Conversion of loans and other debt to common stock

1,267,242

127

823,581

823,7

Reduction of provision for liability related to transfer of subsidiary (note 4)

191,226

Net loss for the year ended December 31, 2002

(894,473)

Balance, December 31, 2002

1,000

241,668

242

11,407,269

1,141

2,836,562

(3,254,148)

(416,202)

Conversion of loans and other debt to common stock

3,164,682

316

356,485

356,80

Reduction of provision for liability related to transfer of subsidiary (note 4)

132,584

Net loss for the nine-month period ended September 30, 2003

(405,122)

Balance, September 30, 2003

1,000

$ 1

241,668

$ 242

14,571,951

$ 1,457

$ 3,325,631

$ (3,659,270)

$ (331,939

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements of capital deficiency

-3-

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
CONSOLIDATED STATEMENTS OF CASH FLOW

Nine-months Ended
September 30,
Nine-months Ended
September 30,

Jan. 1, 1999
to
Sept. 30, 2003 (Cumulative)

2003
2002
2003
2002

( ß --------------------------------------------------------unaudited------------------------------------------------------------ à)

OPERATING ACTIVITIES

Total expenses and net loss

$      ( 109,868)

$      (204,489)

$      405,123)

$      (297,959)

$      (3,659,271)

Adjustments to reconcile total expenses and net loss to net cash utilized in operating activities:

Amortization

-

-

-

-

45,027

Non-cash consulting expense

-

-

-

-

51,101

Write-down of patents

-

-

9,199

-

9,199

Change in operating assets and liabilities:

Accounts receivable and prepaid expenses

-

(2,825)

48

(2,825)

(21,144)

Accounts payable

(106,719)

19,685

81,695

169,689

894,612

Accrued liabilities

(12,270)

44,375

10,877

49,298

241,369

Net cash used in operating activities

(228,857)

(143,254)

(466,694)

(81,797)

(2,439,107)

INVESTING ACTIVITIES

Additions to patents

-

(480)

-

(1,278)

(39,327)

Purchase of property and equipment

-

-

-

-

(92,791)

Net cash provided by (used in) investing activities

-

(480)

-

(1,278)

(132,118)

FINANCING ACTIVITIES

Advances from (to) an affiliated company

(644)

(119,155)

130,263

(199,814)

114,558

Advances from (to) shareholders (note 5)

-

-

-

-

273,779

Advances from (to) related parties

484,314

262,889

336,730

282,889

707,949

Net proceeds from disposal of subsidiary

-

-

-

-

(2,051)

Proceeds from issue of common stock

-

-

-

-

976,887

Proceeds from issue of series 'A' convertible preferred stock

-

-

-

-

500

Proceeds from issue of series 'B' convertible preferred stock

-

-

-

-

500,002

Net cash provided by financing activities

228,644

143,734

466,943

83,075

2,571,524

NET DECREASE IN CASH AND CASH EQUIVALENTS

(213)

-

299

-

299

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

512

-

-

-

-

CASH AND CASH EQUIVALENTS, END OF PERIOD

$                 299

$                    -

$              299

$                    -

$                   299

SUPPLEMENTAL SCHEDULE OF INTEREST AND INCOME TAXES PAID

Interest paid for the periods ended September 30, 2003 and September 30, 2002 and the cumulative period ended September 30, 2003 was $2,068, $34,945 and $92,058, respectively, and income taxes paid for each of the periods ended September 30, 2003 and September 30, 2002 and the cumulative period ended September 30, 2003 was $0.

NON-CASH INVESTING AND FINANCING ACTIVITIES

During the current period ended September 30, 2003, amounts totaling $356,801 outstanding with respect to wages, loans, interest thereon and other payables owed to officers, directors, employees, shareholders and other creditors were converted into 3,164,682 common shares.

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements of cash flows

-4-

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature Of Business; Organization And Operations; Going Concern

Clean Energy Combustion Systems, Inc. ("we", "our company" or "Clean Energy") was incorporated under the laws of the State of Delaware and organized and commenced operations on March 1, 1999. These financial statements include select pre-organization transactions and commitments incurred between January 1, 1999 and the date of incorporation on March 1, 1999, that were accepted by our board of directors in connection with our organization as obligations of our company.

We are engaged in the business of designing, engineering, manufacturing, marketing, distributing, licensing and otherwise commercially exploiting our suite of proprietary mid- to high-frequency oscillating valveless combustion or 'burner" technologies, including our patented pulse blade combustion or "PBC" technology. This technology, which is our principal technology, has completed the primary development stage and is in a position to be commercially exploited. Our objective is to enter into licensing, royalty, joint venture, or manufacturing agreements with established national and international heat transfer industry manufacturers.

Since we have not generated operating revenues to date, we should be considered a development stage enterprise. As of September 30, 2003, we have incurred losses from inception totalling $3,659,270, have a working capital deficiency of $323,755, and do not currently have the financial resources to complete our business plan. Our ability to continue as a going concern will be dependent upon our ability to attain future profitable operations and to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. External financing, predominately in the short-term by loans from affiliated parties and project grants or financings, in the longer-term through the issuance of equity or debt, will be sought to finance development of our products; however, there can be no assurance that sufficient funds will be raised. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time. In the event that we are unable to generate sufficient capital to meet our current operating expenses, Clean Energy will be required to reevaluate our planned expenditures and allocate our total resources in such manner as our board of directors and management deem to be in our best interest. This may result in a substantial reduction of the scope of our existing and planned operations. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amount and classifications of liabilities that might be necessary, should we be unable to continue as a going concern.

We are authorized under our Certificate of Incorporation to issue shares of common stock, series 'A' preferred stock, series 'B' preferred stock and series 'C' preferred stock (sometimes referred to in our consolidated financial statements and this quarterly report as "common shares", "series 'A' preferred shares", "series 'B' preferred shares" and "series 'C' preferred shares", respectively). See note 6.

Significant Accounting Policies

Basis Of Presentation

We prepared these consolidated financial statements in conformity with accounting principles generally accepted in the United States.

-5

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidation

We have consolidated the accounts of our wholly-owned subsidiary, Clean Energy USA Inc. ("Clean Energy USA") with those of Clean Energy. All significant intercompany balances and transactions between Clean Energy and Clean Energy USA were eliminated as a consequence of the consolidation process.

Reclassifications

Certain items in our prior year's consolidated financial statements have been reclassified to conform to our current year's consolidated financial statement presentation.

Foreign Currency Translation

Clean Energy is a Delaware corporation and considers the United States dollar to be the appropriate functional currency for our operations and these financial statements, notwithstanding that we do business in Canada in transactions denominated in Canadian dollars. It is anticipated that the majority of our business will be conducted in United States dollars and our anticipated customer base will be within the United States. For purposes of preparing these financial statements, foreign currency monetary assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Other balance sheet items and revenues and expenses are translated at the rates prevailing on the respective transaction dates. Translation gains and losses are included in operations.

Estimates And Assumptions

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results may differ from those estimates.

Cash And Cash Equivalents

Cash and cash equivalents consist of cash on hand, funds on deposit and short-term investments with an original maturity of ninety days or less. Clean Energy holds no cash or cash equivalents at the date of these financial statements.

Short-Term Investments

Short-term investments consist of term deposits with a one-year maturity. These investments are cashable and can be drawn on at any time. Clean Energy holds no short-term investments at the date of these financial statements.

Research And Development

Research and development costs are expensed as incurred.

Marketing Costs

Marketing costs, including advertising costs, are expensed as incurred.

-6-

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Patents

Costs related to the acquisition of patents are capitalized and, upon production of revenues, are amortized on a straight-line basis, commencing upon the production of revenues from the patent, over the shorter of the duration of the patent, which is twenty years, or the estimated life of the associated technology. As we have not commenced production of revenues to date, no amortization has been recorded to date in these consolidated financial statements. The costs of servicing our patents are expensed as incurred. Clean Energy assesses potential impairment of patents by measuring the expected net recovery based on cash flows from products based on these rights on an annual basis. These capitalized costs are valued at the lower of amortized cost and net recoverable amount.

Property And Equipment

We have historically stated property and equipment at cost, and then recorded amortization on these assets on a straight-line basis over their respective estimated service lives. As a consequence of the divestiture of our research and development subsidiary on December 31, 2001, Clean Energy holds no property or equipment at the date of these financials statements. All property and equipment used by Clean Energy is currently leased from Clean Energy Research Inc. as part of an overhead charge. See note 3.

Income Taxes

Current income tax expense, if any, is the amount of income taxes expected to be payable for the current year. A deferred tax asset and/or liability is computed for both the expected future impact of differences between the financial statement and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be 'more likely than not' realized in future tax returns. Tax rate changes are reflected in income in the period such changes are enacted.

Impairment Of Long-Lived Assets And Long-Lived Assets To Be Disposed

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the assets. If any assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the net recoverable value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Basic And Diluted Loss Per Share

Our basic loss per share is computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", by dividing the net loss for the period attributable to holders of our common shares by the weighted average number of common shares outstanding for the period. Our diluted loss per share is computed, also in accordance with SFAS No. 128, by including the potential dilution that could occur if holders of our dilutive securities were to exercise or convert these securities into common shares. Common share equivalents are excluded from the computation if their effect is anti-dilutive. Common share equivalents consist of common shares issuable upon the conversion of the convertible loans, notes and special warrants (using the if-converted method) and incremental shares issuable upon the exercise of common share purchase options and warrants (using the treasury stock method).

-7-

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation

We have adopted the disclosure-only provisions of Statement of Financial Accounting Standards Statement ("SFAS") No. 123, Accounting For Stock Based Compensation, issued by the Financial Accounting Standards Board ("FASB"), and the subsequent amendment of SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosure, while following Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees", ("APB 25"), and related interpretations, in accounting for the grant of common share purchase options to our employees and directors. Under APB 25, companies are not required to record any compensation expense relating to the grant of options to employees or directors where the awards are granted upon fixed terms with an exercise price equal to fair value and the only condition of exercise is continued employment.

Comprehensive Income

Comprehensive income is reported and displayed in these consolidated financial statements in conformity with Statement of Financial Accounting Standards Statement ("SFAS") No. 130, Reporting Comprehensive Income, issued by the Financial Accounting Standards Board ("FASB"). SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements.

Recent Adopted Accounting Standards

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets to be held and used, to be disposed of other than by sale, and to be disposed of by sale. We adopted SFAS No. 144 in the first quarter of 2002 on a prospective basis. The adoption of SFAS No. 144 did not have a significant impact on our consolidated financial position or results of operations.

In June 2001, the FASB introduced SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition of intangible assets acquired outside of a business combination whether acquired individually or with a group of other assets. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. We adopted SFAS No. 141 on a prospective basis as of July 2001, and SFAS No. 142 in January 2002. The adoption of SFAS No. 141 and SFAS No. 142 did not have an impact on our consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Among other things, SFAS No. 145 rescinds both SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and the amendment to SFAS No 4, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Through this rescission, SFAS No. 145 eliminates the requirement (in both SFAS No. 4 and SFAS No. 64) that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. Generally, SFAS No. 145 is effective for transactions occurring after May 15, 2002. The adoption of SFAS No. 145 did not have a significant impact on our consolidated financial position or results of operations.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions. SFAS No. 147 requires that acquisitions of financial institutions be accounted in accordance with SFAS Nos. 141 and 142, and put any intangible asset therefrom under the guidance of SFAS No. 144. We adopted SFAS No. 147 in the fourth quarter of 2002 on a prospective basis. The adoption of SFAS No. 147 did not have a significant impact on our consolidated financial position or results of operations.

-8-

CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock Based Compensation, to provide methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation, as well as requiring prominent disclosure about the method and effect of accounting for stock-based compensation. We adopted SFAS No. 148 in the fourth quarter of 2002 on a prospective basis. The adoption of SFAS No. 148 did not have a significant impact on our consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligation. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 will be effective for exit or disposal activities initiated after December 31, 2002. We do not anticipate that our adoption of SFAS No. 146 will have a material impact on our consolidated financial position or results of operations. The adoption of SFAS No. 143 did not have a significant impact on our consolidated financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that the liability for a cost associated with an exit or disposal activity be recognized at its fair value when the liability is incurred. Under previous guidance, a liability for certain exit costs was recognized at the date that management committed to an exit plan, which was generally before the actual liability has been incurred. SFAS No. 146 will be effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a significant impact on our consolidated financial position or results of operations.

Research And Development Activities

The bulk of our research and development activities are currently conducted through Clean Energy Research Inc. ("Clean Energy Research"), a service corporation owned and controlled by Mr. Barry A. Sheahan, our Chief Financial Officer and a director, pursuant to a cost plus research and development contract entered into effective as of January 1, 2003. Under that agreement, Clean Energy Research provides pre-approved budgeted pulse combustion research and development services to Clean Energy USA (our wholly-owned subsidiary company), and invoices the latter company for its budgeted costs, related overhead and a 10% mark-up. The purpose of conducting research and development activities on an arms'-length basis through an entity owned and controlled by a related party as described is to preserve our ability to indirectly benefit from certain grants and tax-incentive programs offered in both the United States and Canada, which we could not otherwise directly utilize by reason of our becoming a public company whose stock is publicly traded.

Prior to entering into the noted agreement with Clean Energy Research, we conducted the bulk of our research and development activities from January 1, 2002 pursuant to a letter of intent containing similar provisions entered into between Clean Energy USA and Clean Energy Technologies (Canada) Inc., a British Columbia corporation owned and controlled by another of our affiliates ("Clean Energy Technologies"), which had been our wholly-owned research and development subsidiary through December 31, 2001. Effective January 1, 2003, Clean Energy Technologies transferred its property and equipment and assigned its leasehold interests to Clean Energy Research Inc. ("Clean Energy Research") through McSheahan Enterprises, Ltd. ("McSheahan Enterprises"), a personal service corporation owned and controlled by Mr. Barry A. Sheahan. As part of these transactions, Clean Energy Research also assumed certain liabilities of Clean Energy Technologies as of January 1, 2003, including advances made by Clean Energy to Clean Energy Technologies, and the relationship with Clean Energy Technologies was terminated. See note 4.

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CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Provisions And Liabilities Related To Transfer Of Subsidiary

On December 31, 2001, we sold all of the shares of our research and development subsidiary, Clean Energy Technologies, to one of our principal shareholders and directors as of that date, Mr. John D. Chato, for the sum of $1, and concurrently entered into a research and development letter of intent with that company on a cost-plus basis. See note 3. No pro forma disclosure has been provided in connection with the transfer, as there has been no significant change to our operating expenses in connection with the transfer and related transactions. As a consequence of that sale, we recorded an increase

of $294,522 to our additional paid-in capital on December 31, 2001, calculated as follows:

Proceeds from disposition	$ 1
Net liabilities of Clean Energy Technologies on date of disposition	2,095,253
Offset of provisions and liabilities related to transfer of ownership	(659,403)
Offset against amount due from Clean Energy Technologies related to research and development charges	(1,141,328)

Net increase in additional paid-in capital	$ 294,522

The provisions and liabilities related to transfer of ownership in the amount of $659,403 itemized in the above table reflects total amounts advanced to our former subsidiary company, Clean Energy Technologies, and amounts payable by Clean Energy Technologies which we may have to satisfy by reason of our prior relationship with that company. Since originally recording this charge on December 31, 2001, our provision for advances decreased by the net amount of $73,437, while our liability for obligations decreased by $250,375 (including, with respect to the nine-month interim period ended September 30, 2003, a decrease in our provision for advances by the net amount of $130,263, and a decrease in our liability for obligations of $2,322). The net of these amounts since December 31, 2001 is a decrease of $323,811 (including, with respect to the nine-month interim period ended September 30, 2003, a net decrease of $132,585), which net amount has been credited to additional paid-in capital as a reduction of provision for liabilities related to the transfer of subsidiary. Effective January 1, 2003, the obligation to repay the advances to an affiliated company were assumed by Clean Energy Research Inc., a company owned and controlled by Mr. Barry A. Sheahan, our Chief Financial Officer and a director. Details of provisions for advances to Clean Energy Research and liabilities related to transfer of ownership of Clean Energy Technologies are as follows:

	September 30, 2003	December 31, 2002

Valuation allowance related to advances to an affiliated company	$ 297,280	$ 427,543
Liabilities related to transfer of ownership	38,312	40,634

	$ 335,592	$ 468,177

As at December 31, 2002, we had advanced $427,543 (CDN $667,872) to Clean Energy Technologies, which obligation has since been assumed by Clean Energy Research with the concomitant release of Clean Energy Technologies effective as of January 1, 2003. As at September 30, 2003, the advances had been reduced by net payments in the amount of $130,263 (CDN $203,088) by Clean Energy Research, decreasing its total obligation for advances to Clean Energy to $297,280 (CDN $464,784), after taking into consideration the advances assumed from Clean Energy Technologies. These advances are non-interest bearing, are repayable in Canadian dollars and have no specific terms of repayment.

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CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As the repayment of these advances by Clean Energy Research is dependant in part on Clean Energy acquiring sufficient funding to honor our research and development contract with Clean Energy Research, thereby providing it with a source of funds to repay the advances, a valuation allowance equal to the full amount of the advances has been set up and the net gain on disposition of subsidiary was reduced accordingly. This allowance has been decreased to reflect the net reduction in advances in the current period.

Advances From Related Parties

Summarized below are our advances and borrowing from related parties as of September 30, 2003 and December 31, 2002:

	September 30, 2003	December 31, 2002

Advances from an officer, director & principal shareholder	$ 29,000	$ -
Advances from a minority shareholder	3,626	52,697

Total	$ 32,626	$ 52,697

The advances from an officer, director and principal shareholder reflects advances by Mr. R. Dirk Stinson, a director and the current President of Clean Energy and an indirect principal shareholder of Clean Energy through Ravenscraig Properties Ltd. These advances are unsecured, bear interest at the rate of 8.75% per annum, are repayable in Canadian dollars, and have no specific terms of repayment. Interest of $0 as at September 30, 2003 has been accrued. Pursuant to the underlying loan agreement, Mr. R. Dirk Stinson has the right to convert any portion of outstanding indebtedness into common shares at a conversion rate equal to 80% of the average market trading price for the 30 day period prior to conversion, but not to exceed $2 per share.

The advances from a minority shareholder bear no interest and have no specific terms of repayment.

Share Capital

Series 'A' Preferred Stock

Our series 'A' preferred shares are non-voting and may be converted into one common share at the option of the holder at any time. The affirmative consent of a majority of all outstanding series 'A' preferred shares is required to liquidate or dissolve our company, to sell our principal assets, to merge or consolidate our company with another, to declare a dividend, to make any changes in our authorized capital stock, or to issue additional preferential preferred shares. Should our common shares be accepted for listing on The New York Stock Exchange or The American Exchange or accepted for quotation on Nasdaq, all outstanding series 'A' preferred shares will automatically convert into common shares on a one for one basis once our common shares have been actively traded on that exchange or market for a two year continuous period. In the event of the voluntary or involuntary liquidation, dissolution or winding up of our company, our series 'A' preferred shareholders will be entitled to an amount equal to $1 per share, but after payment has been made to all series 'B' preferred shareholders with respect to their liquidation preference.

Clean Energy designated and issued 1,000 series 'A' preferred shares upon our incorporation.

Series 'B' Preferred Stock

Our series 'B' preferred shares are voting and are entitled to participate in dividends with our common shares.

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CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The affirmative consent of a majority of all outstanding series 'B' preferred shares is required to make any change in our authorized capital stock or to issue additional preferential preferred shares. Our series 'B' preferred shares may be converted at the option of the holder, at any time, into common shares on a one for one basis. Should our common shares be accepted for listing on The New York Stock Exchange or The American Exchange or accepted for quotation on Nasdaq, all outstanding series 'B' preferred shares would automatically convert into common shares on a one for one basis. In the event of the voluntary or involuntary liquidation, dissolution or winding up of our company, our series 'B' preferred shareholders will be entitled to an amount equal to $2 per share before any payment will be made or any assets distributed to the holders of series 'A' preferred shares, common shares, or any other junior equity security.

During the period ended December 31, 1999, we designated 250,001 preferred shares as series 'B' preferred stock, and issued those shares pursuant to a private placement for gross proceeds of $500,002.

During the year ended December 31, 2002, one of our shareholders converted 8,333 series 'B' preferred shares to common shares, leaving 241,668 series 'B' preferred shares issued and outstanding at December 31, 2002.

Series 'C' Preferred Stock

Our series 'C' preferred shares are voting and are entitled to participate in dividends with our common shares.

The affirmative consent of a majority of all outstanding series 'C' preferred shares is required to liquidate or dissolve our company, to sell our principal assets, to merge or consolidate our company with another, to declare a dividend, to make any changes in our authorized capital stock, to issue additional preferential preferred shares, to declare any dividends or to redeem or purchase any series 'C' preferred shares. Our series 'C' preferred shares may be converted at the option of the holder, at any time, into common shares on a one for one basis. Should our common shares be accepted for listing on The New York Stock Exchange or The American Exchange or accepted for quotation on Nasdaq, all outstanding series 'C' preferred shares would automatically convert into one common share. In the event of our voluntary or involuntary liquidation, dissolution or winding up, our series 'C' preferred shareholders will be entitled to an amount equal to the stated value or issuance cost before any payment will be made or any assets distributed to the holders of our series 'A' preferred shares, series 'B' preferred shares, common shares, or any other junior equity security.

During the period ended December 31, 1999, we designated 500,000 preferred shares as series 'C' preferred stock. No series 'C' preferred shares have been issued to date.

Common Stock

During 2001, our board of directors and shareholders authorized the creation of an additional 10,000,000 common shares, which will increase our total authorized common shares to 25,000,000 shares upon our filing of an amendment to our certificate of incorporation. To date, we have not filed the necessary amendment to our certificate of incorporation to institute this action.

Employee And Director Stock Options

Through September 30, 2003, the only stock plan pursuant to which Clean Energy has made grants to employees and directors of our company has been the 1999 Clean Energy Combustion Systems, Inc. Stock Plan (the

"1999 Plan"), pursuant to which 1,000,000 common shares are reserved for issuance to directors, employees and consultants in the form of stock options or outright stock grants. We have summarized below all outstanding options under the 1999 Plan as of September 30, 2003:

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CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Type Of Option

Grant Dates

Exercise Prices

As of September 30, 2003

Outstanding

Vested and Exercisable

Options granted to directors

1-20-01 to 3-15-02

$2.00

240,000

180,000

Options granted to executive officers(1)

3-5-99 to 9-1-03

$2.00

267,000

235,000

Options granted to employees

3-5-99 to 2-8-01

$2.00 to $3.00

100,000

88,000

607,000

503,000

(1) Includes options granted to executive officer-directors in their capacities as employees.

The director options outstanding as of September 30, 2003 generally vest one-third each on the first through third anniversaries of the grant date, respectively, based upon the continued provision of services as a director. Except for options issued under management service agreements described below, the executive officer and employee options outstanding as of September 30, 2003 generally vest over five years from the grant date, based upon the continued provision of services as an executive officer or employee, although some employee options provide for one-year vesting. The exercise prices for the options, which range from $2 to $3, were fixed before Clean Energy's common shares were publicly traded, and were based upon the prior sales price for convertible series 'B' preferred shares to non-related parties. All of the director, executive officer and employee options generally lapse, if unexercised, five years from the date of vesting.

Effective April 1, 2001 Clean Energy entered into annually-renewable management services agreements with JPT 2 Holdings and McSheahan Enterprises, personal service corporations controlled by Messrs. John P. Thuot and Barry A. Sheahan, respectively, pursuant to which Mr. Thuot provided management services as President to Clean Energy and Mr. Sheahan provided management services as Chief Financial Officer of Clean Energy, respectively. Under these agreements, each corporation was granted options to purchase 1,000 common shares at an exercise price of $2 per share for each month of service provided by the executive officer. These options expire five years subsequent to their date of grant (see note 10).

During the current nine-month period, outstanding options decreased by a net amount of 31,000, representing the difference being the cancellation of 40,000 previously issued options and the grant of 9,000 new options pursuant to the agreement with McSheahan Enterprises noted above.

Common Share Purchase Warrants

During 1999, we issued 36,000 stand-alone common share purchase warrants as additional consideration pursuant to a public relations services agreement pursuant to which the holder is given the right to purchase 36,000 common shares at $2 per share. The right to exercise these warrants vests in equal monthly instalments over a twenty-four month period, and each instalment lapses five years after date of vesting. As at September 30, 2003, all of the 36,000 shares have vested and none have been exercised.

During 2002, we issued 36,000 stand-alone common share purchase warrants as additional consideration pursuant to a public relations services agreement pursuant to which the holder is given the right to purchase 36,000 common shares at $2 per share. The right to exercise these warrants vests in equal monthly instalments over a twelve-month period, and each instalments lapses five years after date of vesting. As at September 30, 2003, all of the 36,000 shares have vested and none have been exercised.

Financial Instruments

Our financial instruments consist of accounts payable, accrued liabilities, advances to an affiliated company and advances from related parties. The fair value of these financial instruments approximates our carrying values due to the short-term maturity of these financial instruments and similarity to current market rates. It is management's opinion that Clean Energy is not exposed to significant interest, currency or credit risks arising from these financial instruments.

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CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(a development stage enterprise)
(expressed in U.S. dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Commitments And Contingencies

Effective April 1, 2001 Clean Energy entered into management services agreements with JPT 2 Holdings and McSheahan Enterprises, personal service corporations controlled by Messrs. John P. Thuot and Barry A. Sheahan, respectively, pursuant to which Mr. Thuot provided management services as President to Clean Energy and Mr. Sheahan provided management services as Chief Financial Officer of Clean Energy, respectively. Each agreement has a one-year initial term, renews automatically for successive one-year terms, and replaces a prior employment agreement with the named executive officer. Under the initial agreement, Clean Energy agreed to pay each corporation CDN $8,000 per month for the provision of management services by the executive officer, and to grant options to 1,000 common shares at an exercise price of $2 per share for each month of service by the executive officer. These options expire five years subsequent to their date of grant. Both agreements were renewed on April 1, 2002, with the payment increased to CDN $8,400 per month. Effective September 1, 2002, the agreement with JPT 2 Holdings was amended to reduce the payment under that agreement to CDN $2,000 per month, and to terminate the grant of options effective August 2, 2002. The agreement with McSheahan Enterprises was renewed on April 1, 2003, with the payment increased to CDN $8,800 per month.

We have entered into an investor relations and communications services agreement whereby Clean Energy is obligated to pay a monthly fee of CDN $2,250 for a one-year period, commencing June 2001. The agreement was renewed in July, 2002 and is renewable annually unless terminated, but may be cancelled upon sixty days written notice.

Effective January 1, 2003, we entered into a research and development contract with McSheahan Enterprises, a personal service corporation owned and controlled by Mr. Barry A. Sheahan, our Chief Financial Officer and a director. That agreement was assigned by McSheahan Enterprises Ltd. to Clean Energy Research Inc., with an effective date of January 1, 2003. Under that agreement, Clean Energy Research agreed to provide pre-approved budgeted pulse combustion research and development services to Clean Energy USA, and to invoice the latter company for its budgeted costs, related overhead and a 10% mark-up. The purpose of entering into a research and development arrangement with Clean Energy Research on the noted arms-length basis was to continue to preserve our ability to indirectly benefit from certain grants and tax-incentive programs offered in both the United States and Canada, which we could not otherwise directly utilize by reason of our becoming a public company whose stock was publicly traded.

Effective October 1, 2003, we entered into an employment agreement with Mr. Denver Collins, to provide services to the company as its Vice-President of Engineering & Product Development. Mr. Collins is employed under the agreement for an initial three-year initial term. After the initial term, the agreement renews automatically for successive one-year terms, unless either Mr. Collins or Clean Energy elects by a written, five-month notice not to renew or the agreement is terminated earlier in accordance with it's terms. Under the terms of the agreement Mr. Collins will be entitled to an annual salary of $96,000 plus out-of-pocket expenses for travel and the maintenance of a home office. This agreement replaced a prior consulting agreement with Mr. Collins.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Clean Energy is engaged in the business of designing, engineering, manufacturing, marketing, distributing, licensing and otherwise commercially exploiting our suite of proprietary mid- to high-frequency oscillating valveless combustion or "burner" technologies. We were formed on formed on March 1, 1999, for the principal purpose of acquiring exclusive world-wide license rights to our patented pulse blade combustion or "PBC" technology. This technology, which is our principal technology, has completed the primary development stage and is in a position to be commercially exploited.

Our objective is to enter into licensing, royalty, joint venture or manufacturing agreements with established national and international heat transfer industry manufacturers which will result in the introduction of a variety of different burner units based upon this technology into various selected market segments. We have no revenues to date, nor have we entered into any revenue producing contracts to date, although we are currently working on a number of proto-types under several proposal requests which could lead to development grants by manufacturers or others over the next two to six months, and contract revenues after twelve months. Since we have not generated operating revenues to date, we should be considered a development stage enterprise. For additional and more detailed background information relating to our company and our business, see our annual report on form 10-K for our fiscal year ended December 31, 2002.

The consolidated results of operations for the nine-month interim periods ended September 30, 2003 included in this quarterly report are not necessarily predictive of results to be expected for our full fiscal year ended December 31, 2003.

Results Of Operations
Operating Revenues

We had no revenues for our nine-month and three-month interim fiscal periods ended September 30, 2003 and September 30, 2002, respectively.

Operating Loss

We incurred an operating loss of $405,122

for our nine-month interim period ended September 30, 2003, as compared to $564,193 for the corresponding interim period in fiscal 2002, representing a $159,071 or 28.19% overall decrease. For our three-month interim period ended September 30, 2003, we incurred an operating loss of $109,867, as compared to $164,443 for the corresponding interim period in fiscal 2002, representing a decrease of $54,576 or 33.19%.

The 28.19% overall decrease in our operating loss for our nine-month interim period ended September 30, 2003 over the corresponding interim period in fiscal 2002 was primarily attributable to a $160,761, or 45.5%, decrease in research & development expenses from $

353,340 to $192,579; partially offset by a $1,690, or 0.80%, increase in administration and marketing expenses from $210,853 to $212,543. The 33.19% overall decrease in our operating loss for our three-month interim period ended September 30, 2003 over the corresponding interim period in fiscal 2002 was primarily attributable to a $47,755, or 48.89%, decrease in research & development expenses from $97,684 to $49,929; and a $6,821, or 10.22%, decrease in administration and marketing expenses from $66,759 to $59,938. The increase in administration expense for our nine-month interim period ended September 30, 2003 over the corresponding interim

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period in fiscal 2002 was primarily attributable to patent expense associated with writing off of our diesel technology patents which have been abandoned, as well as increased marketing costs, including travel. The decrease in administration expense for our three-month interim period ended September 30, 2003 over the corresponding interim period in fiscal 2002 was primarily attributable to reduced interest costs. Research and development expense generally relates to the cost to develop, improve and test our burner systems and related components. These costs are incurred by way of a cost-plus contract with Clean Energy Research. The decrease in research and development expense for our nine-month and three-month interim periods ended September 30, 2003 over the corresponding interim periods in fiscal 2002 was primarily attributable to reduction in full-time staff.

Relationships And Transactions On Terms That Would Not Be Available From Clearly Independent Third Parties

During the nine-month interim period ended September 30, 2003, we did not enter into any transactions with any parties that are not clearly independent on terms that would be more favorable than that which might have been available from other clearly independent third parties.

Liquidity And Capital Resources
Sources of Cash

Our cash flow requirements from our inception through September 30, 2003 have been principally funded by:

$500,002 in gross proceeds from a private placement of series 'B' preferred shares which closed on April 6, 1999,
$975,887 in short-term advances from a director and principal shareholder, which amounts were subsequently converted in fiscal 2000 into 487,944 common shares at a conversion price of $2 per share in August 2000 pursuant to the terms of our financing agreement with that creditor;
a $659,403 reduction in liabilities as the result of the transfer of ownership of our wholly-owned subsidiary, Clean Energy Technologies, on December 31, 2001;
$823,798 in short-term advances, wages, fees and other payables due to a group of directors, shareholders, employees and other creditors, who collectively agreed in September 2002 to convert that indebtedness into 1,267,242 common shares at a conversion price of $0.65 per share; and
$356,801 in short-term advances, wages, fees and other payables due to a group of directors, shareholders, employees and other creditors, who collectively agreed in August 2003 to convert that indebtedness into 3,164,682 common shares at conversion prices ranging from $0.09 to $0.20 per share.

There are no guarantees, commitments, lease and debt agreements or other agreements that could trigger adverse change in our credit rating, earnings, cash flows or stock price, including requirements to perform under standby agreements, other than (1) a default in our obligations under our office lease in the amount of $13,150 (CDN$19,068) and (2) term and contingent liabilities of Clean Energy Research in the amount of $38,312 as of September 30, 2003 which arose from contracts previously entered into by Clean Energy either jointly with, or on behalf of, Clean Energy Technologies before its transfer in on December 31, 2001 by Clean Energy. These contingent liabilities are included as part of our liabilities relating to Clean Energy Research in our consolidated balance sheet.

-16-

Current Cash Position and Historical Changes In Cash Position

Our cash and cash equivalents position as of September 30, 2003 was $299as compared to $0 as of December 31, 2002. Our cash and cash equivalents position as of September 30, 2002 and December 31, 2001 were each $0.

For the nine-month period ended September 30, 2003, we generated $466,993 in cash from financing activities, partially offset by $466,694 in cash used in operating activities. For the nine-month period ended September 30, 2002, we generated $83,075 in cash from financing activities, offset by $81,797 in cash used in operating activities and $1,906 used in investing activities.

Our operating activities required cash in the amount of $466,694 for our nine-month interim period ended September 30, 2003, as compared to cash requirements of 81,797 for the corresponding interim period in fiscal 2002. The $466,694 of cash used in operating activities for our nine-month interim period ended September 30, 2003 reflected our net loss of $405,123 for that period, as decreased for non-cash deductions and a net increase in non-cash working capital balances. The $81,797 of cash used in operating activities for our nine-month interim period ended September 30, 2002 reflected our net loss of $297,959 for that period, as decreased for non-cash deductions and a net increase in non-cash working capital balances.

There were no investing activities for our nine-month interim period ended September 30, 2003, as compared to $1,278 of cash used for investing activities for the corresponding interim period in fiscal 2002. There were no purchases of property or equipment, or investment in patents for our nine-month interim period ended September 30, 2003 compared to $1,278 invested in patents for the corresponding interim period in fiscal 2002.

We raised $466,993 in cash from financing activities for our nine-month interim period ended September 30, 2003, as compared to $83,075 in cash raised from financing activities for the corresponding interim period in fiscal 2002. The $466,993 cash raised through financing activities for our nine-month interim period ended September 30, 2003 was principally comprised of $336,730 in funds advanced by shareholders and related parties, and $130,263 repayment of advances to an affiliated company. The $83,075 in cash raised through financing activities for our nine-month interim period ended September 30, 2002 was principally comprised of $282,889 in funds advanced by shareholders and related parties, partially offset by $199,814 of advances to an affiliated company.

Plan Of Operation And Prospective Capital Requirements

Our ability to continue as a going concern will be dependent upon our entering into revenue producing contracts and raising additional working capital to fund these contracts, conduct addition research and development activities through our contract with Clean Energy Research and fully implement our longer-term business plan and marketing strategies. We anticipate that we will need to raise at least $850,000 to fund our projected operating, research and development and project costs over the next twelve months assuming we continue to stay our longer-term projects, and at least $5,000,000 in working capital (including the $850,000 noted above) to fully implement our business plan and marketing strategies including the acquisition of the necessary plant, equipment and personnel to pursue our longer-term projects. These estimates will be subject to significant change based upon any contracts we may enter into and/or additional capital we may raise, including any grant monies we or Clean Energy Research may receive.

Our operating expenses are currently being funded in part through advances or debt conversions by our officers, directors, shareholders and creditors. We cannot give you any assurance that any of these parties will continue to accommodate us. We have made no binding arrangements or received binding commitments to obtain additional working capital as of the date of this quarterly report.

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Our intent is to raise additional working capital to fund our ongoing capital and operational requirements in one or more increments through contract advances, public or private sales of debt or equity securities, debt financing or short-term loans, or a combination of the foregoing. We currently are in contact with, and over the past year have also been in contact with, a number of financing sources, including investors, lenders and finders, relative to funding our ongoing capital requirements. We have not to date, however, received commitments from any of these sources on terms our board deems acceptable. Our ability to raise monies has also been impacted in part by poor general economic conditions and enhanced risks associated in investing in development stage ventures.

In view of our limited operating history and lack of revenues and profits to date, we cannot give you any assurance that we will be able to secure the additional capital we require at all, or on terms which will not be objectionable to our company or our shareholders, including substantial dilution or the sale or licensing of our technologies. Our failure or inability under these circumstances to obtain additional capital on acceptable terms or at all would have a material adverse effect on our company and our business, which would result in our being forced to materially scale back or even suspend our operations, or even force us to seek a merger with or to sell our business to a third party. In view of these considerations, note 1 of our financial statements states that if we do not raise sufficient capital there is substantial doubt as to our ability to continue as a going concern.

Other Matters
Research and Development Expenditures

Research and development expenditures are expensed as incurred.

Foreign Exchange

We recorded a $3,343 foreign currency translation loss for our nine-month period ended September 30, 2003 as an administration expense recovery item on our statements of operations and deficiency in assets in consolidating our books for financial reporting purposes as the result of the fluctuation in United States-Canadian currency exchange rates during that period. We cannot give you any assurance that our future operating results will not be similarly adversely affected by currency exchange rate fluctuations. See that section of this quarterly report captioned "Quantitative and Qualitative Disclosure About Market Risk" for a description of other aspects of our company that may be potentially affected by foreign exchange fluctuations.

Inflation

In our view, at no time over the past three fiscal years has inflation or changing prices had an adverse material impact on our operating results.

Critical Accounting Policies

Our consolidated financial condition and results of operations are not currently subject to or impacted by any critical accounting policies involving areas in which subjective or complex judgments are made with respect to methods, assumptions or estimates concerning the effect of matters that are inherently uncertain.

Recent Accounting Pronouncements

For a summary of the effect of recent accounting pronouncements affecting our company, see that section in explanatory note 2 to our interim consolidated financial statements included with this quarterly report captioned "Recent Adopted Accounting Standards".

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Currency Fluctuations

One market risk that affects our company relates to foreign currency fluctuations between United States and Canadian dollars. To the extent we maintain our accounts in Canadian funds or enter into transactions denominated in Canadian currency, our financial position could be adversely affected by United States-Canadian currency fluctuations. We have not previously engaged in activities to mitigate the effects of foreign currency fluctuations due to the absence of Canadian revenues to date, and we anticipate that the exchange rate between the United States and Canadian dollar will remain fairly stable.

If earnings from our Canadian operations were to increase, our exposure to fluctuations in the United States-Canadian exchange rate would also increase, and we would have to consider utilizing forward exchange rate contracts or engage in other efforts to mitigate these foreign currency risks. We cannot give you any assurance that the use of exchange rate contracts or other mitigation efforts would effectively limit any adverse effects of foreign currency fluctuations on our Company's international operations and our overall results of operations.

Interest Rate Fluctuations

t is our policy to maintain the bulk of our available cash in U.S. dollar-denominated money-market accounts. Our interest income from these short-term investments could be adversely affected by any material changes in interest rates within the United States.

Disclosure Controls And Procedures

Within the ninety days prior to the filing date of this quarterly report, our President and Chief Financial Officer, in consultation with our other members of management and advisors as appropriate, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-14 promulgated under the United States Securities Exchange Act of 1934. Based upon that evaluation, our President and Chief Financial Officer concluded that, as of the date of the evaluation, our disclosure controls and procedures are effective in making known to them on a timely basis material information relating to our company (including consolidated subsidiaries) required to be included in this quarterly report. There were no significant changes in our internal controls or in other factors that could significantly affect these controls, known to our President or Chief Financial Officer, subsequent to the date of the evaluation, including any significant deficiencies or material weaknesses that would require corrective action.

UNCERTAINTIES AND OTHER RISK FACTORS THAT
MAY AFFECT OUR FUTURE RESULTS AND FINANCIAL CONDITION

Our future results of operations or financial condition may be affected by the uncertainties and other risk factors enumerated below as well as those presented elsewhere in this quarterly report and in other reports we periodically file with the SEC, including our annual report on form 10-K for the fiscal year ended December 31, 2002, and should be considered in context with the various disclosures concerning our company presented elsewhere herein and therein.

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Uncertainties and Risks Generally Relating To Our Company And Our Business
As a recently formed company with a limited operating history, we are subject to all the risks and issues inherent in the establishment and expansion of a new business enterprise, and our failure to address these risks and issues will adversely affect our ability to complete pending project proposals, introduce our products to the market, generate revenues and profits, and raise additional working capital

We have a limited operating history and have not to date introduced our products commercially to the markets or entered into binding contracts to do so. We are, as a consequence, subject to all the risks and issues inherent in the establishment and expansion of a new business enterprise. Our failure to successfully address these risks would adversely affect our ability to complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and raise additional working capital.

Our activities through the date of this quarterly report have been limited to completing our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; developing our business plan; obtaining license rights to our burner technologies; establishing administrative offices and laboratory facilities; engaging administrative and research and development personnel; and commencing work on various burner proto-types under pending projects intended to lead to commercial contracts.

Risks and issues inherent in the establishment and expansion of a new business enterprise which we face include, among others, problems of entering new markets, marketing new technologies, hiring and training personnel, acquiring reliable facilities and equipment, and implementing operational controls. In general, development stage companies are subject to risks and or levels of risk that are often greater than those encountered by companies with established operations and relationships. Development stage companies often require significant capital from sources other than operations. The management and employees of startup business shoulder the burdens of the business operations and a workload associated with company growth and capitalization that is disproportionately greater than that for an established business. Our limited operating history makes it difficult, if not impossible, to predict future operating results. We cannot give you any assurance that we will successfully address these risks.

We have accumulated losses since our inception and our continued inability to generate revenues and profits would adversely affect our ability to complete pending project proposals, introduce our products to the market and raise additional working capital, and could ultimately force us to suspend our operations and even liquidate our assets and wind-up and dissolve our company

We are a developmental stage company since we have not commenced commercial sales of our burner technologies and have no revenues to date. Our failure to generate revenues and ultimately profits would, in the shorter-term, adversely affect our ability to complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and raise additional working capital; and in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. We do not anticipate that we will generate revenues for at least twelve months at the earliest, assuming that one or more of our pending projects lead to a commercial contract. We have, as a result of our lack of revenues, incurred operating losses in the amount of $3,659,270 from our inception through September 30, 2003, and we anticipate that we will continue to incur substantial operating losses for the foreseeable future, despite any revenues we may receive in the short-term from any of our pending projects, due to the significant costs associated with the development and marketing of our burner technologies. We cannot give you any assurance that we will generate revenues or profits in the near future or at all.

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If we do not raise additional working capital funds to pay our operating and project expenses, we will not be able to sustain our operations, and may even be forced to liquidate our assets and wind-up and dissolve our company

We currently have insufficient working capital to fund our projected operating and project costs for more than one month. Our inability to raise sufficient additional working capital in the near future would likely force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. Our operating expenses are currently being primarily funded for the indefinite future through advances made by one of our principal shareholders. We cannot give you any assurance that such shareholder will remain in a position to fund our operations notwithstanding his desire to do so. We anticipate that we will need to raise at least $850,000 to fund our projected operating and project costs over the next twelve months, and at least $5,000,000, including the $850,000 noted above, in additional working capital to fully implement our longer-term business plan and marketing strategies. We have no current arrangements for obtaining this additional capital other than our current relationship with the noted shareholder, and will seek to raise this amount in one or more increments through contract advances, public or private sales of debt or equity securities, debt financing or short-term loans, project grants or financings, or a combination of the foregoing. We cannot give you any assurance that we will be able to secure the additional capital we require to continue our operation at all, or on terms which will not be objectionable to our company or our shareholders, including substantial dilution or the sale or licensing of our technologies. Explanatory note 1 to our financial statements states that if we do not raise sufficient capital there is a substantial doubt as to our ability to continue as a going concern. Our independent auditors expressed a going concern opinion in their report accompanying our financial statements for the fiscal year ended December 31, 2002.

We have not entered into any revenue-generating contracts to date, and our failure to enter into revenue-generating contracts would force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company

Although we are working on proto-types under several pending projects, we have not entered into any revenue-generating contracts to date, and our ability to do so will be dependent in primary part upon our ability to satisfactorily complete the proto-types, to raise sufficient capital to fund these efforts, and to otherwise successfully implement our various market strategies under our business plan. Our failure to enter into any revenue-generating contracts would, in the shorter-term, adversely affect our ability to complete other pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and raise additional working capital; and in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company unless we are otherwise able to raise sufficient working capital to fund our continuing operations until we enter into revenue-generating contracts in the farther future. Even if we enter into revenue-generating contracts, we cannot give you any assurance that we will attain or sustain operating profitability as a result of these contracts.

Our burner products are based upon burner technologies that are new and unique, and the failure of these products to achieve or sustain market acceptance would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company

The failure of our burner products to achieve or sustain market acceptance would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company. Products using our burner technologies must compete with established conventional steady-state burner technologies and conventional "tubular" pulse combustion technologies which have already achieved market acceptance. The design for our burner technologies is new and unique, and no products based upon our technologies and configurations have been commercially produced or sold to date, either by our company or by any of our competitors. Additionally, although there is a market for pulse combustion burner products using differently configured pulse burner technology designs, these products are not widely accepted by the market, and therefore not particularly useful as a precedent for the introduction of our pulse combustion burner technology. As is typical in the case of any new technology, demand and market acceptance for products based upon new technologies are subject to a high level of uncertainty and risk, including the risk that the marketplace may not accept, or be receptive to, the potential benefits of these new products. The extent and pace of market acceptance of new burner products based upon our burner technologies will ultimately be a function of many variables, including the efficacy, performance and attributes of these new products; the ability to obtain necessary regulatory approvals to commercially market these new products; the effectiveness of marketing and sales efforts, including educating potential customers as to the distinctive characteristics and benefits of these new products; and the ability to meet manufacturing and delivery schedules; and product pricing. The extent and pace of market acceptance of products based upon our burner technologies will also depend upon general economic conditions affecting customers' purchasing patterns. Because the market for our burner technologies is new and evolving, it is difficult, if not impossible, to predict the future growth rate, and the size of the potential market. We cannot give you any assurance that a market for our burner technologies will develop or, if developed, will be sustainable.

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Our inability to develop our sales, marketing and distribution capabilities either internally or through strategic partners or third party marketing and distribution companies would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital, and may even force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company

We currently have no internal sales, marketing and distribution capabilities, and will likely be forced to rely extensively on strategic partners or third party marketing and distribution companies. Our failure to generate substantial sales through any strategic partners or distribution arrangements we procure or to otherwise develop our own internal sales, marketing and distribution capabilities would, in the shorter-term, adversely affect our ability to introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and raise additional working capital; and in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company.

As a consequence of our prospective reliance upon strategic partners or third party marketing and distribution partners, our ability to effectively market and distribute our burner products will be dependent in large part on the strength and financial condition of others, the expertise and relationships of our strategic partners or distributors and marketers with customers, and the interest of these parties in selling and marketing our products. Our prospective strategic partners and marketing and distribution parties may also market and distribute the products of other companies. If our relationships with any strategic partners or third party marketing and distribution partners were to terminate, we would need to either develop alternative relationships or develop our own internal sales and marketing forces to continue to sell our products. Even if we are able to develop our internal sales, marketing and distribution capabilities, these efforts would require significant cash and other resources that would be diverted from other uses, if available at all, and could cause delays or interruptions in our product supply to customers, which could result in the loss of significant sales or customers. We can give you no assurance that we will be successful in our efforts to engage strategic partners or third party marketing and distribution companies to meet our sales, marketing and distribution requirements.

Our strategic partners
' or third party suppliers' failure to satisfy our manufacturing requirements would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital, and may even force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company

We currently have no internal manufacturing capability, and will likely be forced to rely extensively on strategic partners or third party contract manufacturers or suppliers. A delay or interruption in the supply of components or finished products would, in the shorter-term, adversely affect our ability to introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and raise additional working capital; and in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. Should we be forced to manufacture our

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burner products, we cannot give you any assurance that we will be able to develop or internal manufacturing capability or procure third party suppliers. Moreover, we cannot give you any assurance that any contract manufacturers or suppliers we procure will be able to supply our product in a timely or cost effective manner or in accordance with applicable regulatory requirements or our specifications.

Our inability to increase the amount of financial resources for our research and development requirements would adversely affect our ability to introduce our products to the market and to generate revenues and profits

Due to the early developmental stage of our business, we have expended only limited amounts on research and development of our burner products to date, including development of project proto-types, and currently have very limited resources to devote to future research and development. Unless we are able to obtain and devote resources to our research and development efforts, including project proto-types, we may only be able to develop limited product offerings in the future and our ability to procure contracts or otherwise achieve market acceptance for our burner products will be limited. As a result, we may fail to achieve significant growth in revenues or profitability in the future.

Our inability to achieve or sustain market acceptance for our burner products as a consequence of the intense competition that is prevalent in the conventional burner industry would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company

Products based upon our burner technologies will face intense domestic and foreign competition in all markets in which they are introduced from conventional products and technologies already being sold in these markets. The failure of our burner products to achieve or sustain market acceptance would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company. Additionally, many of our prospective competitors have significantly greater financial, technical and marketing resources and trade name recognition than ours, which may enable them to successfully develop and market products based on technologies or approaches similar to ours, or develop products based on other technologies or approaches which are, or may be, competitive with our burner technologies. The development by our competitors new or improved products, processes or technologies may make our burner technologies less competitive or obsolete. We will be required to devote significant financial and other resources to continue to develop our burner technologies in view of potential competition. We cannot give you any assurance that we will be able to initially penetrate or compete successfully within the heat transfer industry.

Our inability to retain our key managerial and research and development personnel would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital, and may even force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company

Our success depends to a significant extent on the continued efforts of our research and development and senior management team, which currently is composed of a small number of individuals. The loss of any of these personnel could, in the shorter-term, adversely affect our ability to complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and raise additional working capital; and in the longer-term, if not satisfactorily replaced, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. Although some of our research and development and senior management team have signed research and development or management services agreements, we cannot give you any assurance that one or more of these employees will not leave our company. We also do not carry key person life insurance on any of our key management personnel.

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Our inability to attract the qualified personnel engineering, managerial, sales and marketing and administrative personnel required to implement our growth strategies would impede our growth

Our ability to implement our growth strategies will be dependent upon our continuing ability to attract and retain highly qualified engineering, managerial, sales and marketing and administrative personnel. Our inability to attract and retain the necessary personnel would impede our growth. Competition for the type of personnel we require is intense and we cannot give you any assurance that we will be able to retain our key managerial and technical employees, or that we will be able to attract and retain additional highly qualified managerial and technical personnel in the future.

Our inability to effectively manage our growth would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital

Our success will depend upon the rapid expansion of our business. Our inability to effectively manage our growth, or the failure of our new personnel to achieve anticipated performance levels, would adversely affect our ability to complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and raise additional working capital. Expansion will place a significant strain on our financial, management and other resources, and will require us, among other things, to change, expand and improve our operating, managerial and financial systems and controls; improve the coordination between our various corporate functions; and hire additional engineering, sales and marketing, customer service and managerial personnel. We cannot give you any assurance that our efforts to hiring or retain these personnel will be successful, or that we will be able to manage the expansion of our business effectively.

Our inability to protect our patents and proprietary rights would force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company

Our ability to compete effectively will be materially dependent upon the proprietary nature of our designs, processes, technologies and materials. The invalidation or circumvention of key patents or proprietary rights which we own or license would likely force us to suspend our operations, liquidate our assets and wind-up and dissolve our company.

Although we protect our proprietary property, technologies and processes through a combination of patent law, trade secrets and non-disclosure agreements, we cannot give you any assurance that these measures will prove to be effective. For example, in the case of patents, we cannot give you any assurance that our or our licensors' existing patents will not be invalidated, that any patents that we or our licensors' currently or prospectively apply for will be granted, or that any of these patents will ultimately provide significant commercial benefits. Moreover, it is possible that competing companies may circumvent any patents that we or our licensors may hold by developing products which closely emulate but do not infringe our or our these patents, and accordingly market products that compete with our products without obtaining a license from us. In addition to patented or potentially patentable designs, technologies, processes and materials, we also rely on proprietary designs, technologies, processes and know-how not eligible for patent protection. We cannot give you any assurance that our competitors will not independently develop the same or superior designs, technologies, processes and know-how as we possess.

We believe that the international market for our products and technologies is as important as the domestic market, and we will therefore seek patent protection for our products and technologies or those of our licensors in selected foreign countries. Because of the differences in foreign patent and other laws concerning proprietary rights, our products and technologies may not receive the same degree of protection in a number of foreign countries as they would in the United States.

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We cannot give you any assurance that we will be able to successfully defend our patents and proprietary rights. We also cannot give you any assurance that we will not be required to defend against litigation involving the patents or proprietary rights of others, or that we will be able to obtain licenses for these rights. Legal and accounting costs relating to prosecuting or defending patent infringement litigation may be substantial.

Our revenues and profits may be adversely affected by currency fluctuation, regulatory, political and other risks associated with international transactions

We intend to sell our products and technologies internationally as well as to the United States and within Canada. This will subject us to various risks associated with international transactions that may adversely effect our results of operations, including risks associated with fluctuating exchange rates, the regulation by the governments of the United States and Canada as well as foreign governments of fund transfers and export and import duties and tariffs; and political instability. We do not currently engage in activities to mitigate the effects of foreign currency fluctuations, and we anticipate we will be paid in U.S. dollars with respect to any international transactions we may enter into. If earnings from international operations increase, our exposure to fluctuations in foreign currencies may increase, and we may utilize forward exchange rate contracts or engage in other efforts to mitigate foreign currency risks. We can give no you assurance as to the effectiveness of these efforts in limiting any adverse effects of foreign currency fluctuations on our international operations and our overall results of operations.

You may not be able to effect service of process upon or enforce a judgment against Clean Energy and its executive officers or directors

Since Clean Energy's principal executive offices are located in the province of British Columbia, Canada, and our executive officers and all but one of our directors are resident of countries outside of the United States, it may not be possible for you to effect service of process upon, or enforce a judgment against, Clean Energy or our executive officers or directors, with respect to any civil actions predicated on the civil liability provisions of United States federal or state securities legislation that you may file in the federal or state courts of the United States or any resultant judgments you obtain in those courts.

Risks Relating to Our Securities
There is only a limited public market for the common shares on the OTC Bulletin Board and that market is extremely volatile

There is only a limited public market for the common shares on the OTC Bulletin Board, and we cannot give you any assurance that a broader or more active public trading market for the common shares will develop or be sustained, or that current trading levels will be sustained.

The market price for the common shares on the OTC Bulletin Board has been and we anticipate will continue to be extremely volatile and subject to significant price and volume fluctuations in response to a variety of external and internal factors. This is especially true with respect to emerging companies such as ours. Examples of external factors, which can generally be described as factors that are unrelated to the operating performance or financial condition of any particular company, include changes in interest rates and worldwide economic and market conditions and trends, as well as changes in industry conditions, such as changes in the cost of components and energy, regulatory and environment rules, announcements of technology innovations or new products by other companies, and quarterly fluctuation in our or in our competitors' operating results. Examples of internal factors, which can generally be described as factors that are directly related to our operating performance or financial condition, would include release of reports by securities analysts and announcements we may make from time-to-time relative to our ability to enter into contracts or other arrangement, our operating performance, advances in our technology or other business developments specific to our company.

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Because we are a development stage enterprise with a limited operating history and no revenues or profits to date, the market price for the common shares is more volatile than that of a seasoned issuer. Changes in the market price of the common shares, for example, may have no connection with our operating results, financial condition or prospects. No predictions or projections can be made as to what the prevailing market price for the common shares will be at any time, or as to what effect, if any, that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

Sales of substantial amounts of the common shares on the public market, or the perception that substantial sales could occur, could adversely affect the prevailing market prices for those shares and also, to the extent the prevailing market price for the common shares is reduced, adversely impact our ability to raise additional capital in the equity markets. In addition, employees, directors and consultants of Clean Energy currently hold vested options entitling them to acquire 500,000 common shares. Should these persons exercise these options, it is likely they would sell some or all of the underlying common shares on the public markets in order to procure liquidity to pay taxes as well as other reasons they may deem pertinent.

You will be subject to the penny stock rules to the extent our stock price on the OTC Bulletin Board is less than $5

Since the common shares are not listed on a national stock exchange or quoted on the Nasdaq Market within the United States, trading in the common shares on the OTC Electronic Bulletin Board is subject, to the extent the market price for the common shares is less than $5 per share, to a number of regulations known as the "penny stock rules". The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide the customer with additional information including current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer's account, and to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. To the extent these requirements may be applicable they will reduce the level of trading activity in the secondary market for the common shares and may severely and adversely affect the ability of broker-dealers to sell the common shares.

You should not expect to receive a liquidation distribution

If you hold common shares and were we to wind-up and dissolve our company and liquidate and distribute our assets, you would share ratably with our other common shareholders in our assets only after we satisfy any amounts we would owe to our creditors and to our preferred shareholders as a liquidation preference. If our liquidation were attributable to our inability to profitably operate our business, then it is likely that we would have material liabilities at the time of liquidation or dissolution. We cannot give you any assurance that sufficient assets will remain available after the payment of our creditors and preferred shareholders to enable you to receive any liquidation distribution with respect to any common shares or other securities of our company you may hold.

Our current principal shareholders will continue to control our company, and will accordingly retain the power to substantially influence corporate actions that conflict with the interests of public shareholders

Our present executive officers and directors will, as a group, hold approximately 35% of our common shares and, as consequence, hold the power to substantially influence corporate actions that conflict with the interests of our public shareholders, including our business expansion or acquisition policies; whether we should raise additional capital through financing or equity sources, and in what amounts; whether we should retain cash reserves for future product development, or distribute them as a dividend, and in what amounts; whether we should sell all or a substantial portion of our assets, or should merge or consolidate with another corporation; and transactions which may cause or prevent a change in control or the winding-up and dissolution of our company.

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While our series 'A' preferred shareholders generally do not have the right to vote, we cannot effectuate any of the following transactions or actions without their consent and approval: the declaration or payment of any dividend (other than a stock split) to our common or preferred shareholders; the redemption or purchase of common or preferred shares; the sale of our principal assets or business; a merger or consolidation of our company with any other company; the liquidation or dissolution of our company, the assignment of our assets to our creditors, or a filing for bankruptcy by our company.

An investment in our common shares or other securities will entail you entrusting these and similar decisions to our present management and principal shareholders subject, of course, to their fiduciary duties and the business judgment rule.

Our right to issue additional capital stock at any time could have an adverse effect on your proportionate ownership and voting rights

Our Certificate of Incorporation currently authorizes us to issue 15,000,000 common shares, and 2,000,000 preferred shares, including 248,999 serial or "blank check" preferred shares that will contain rights, preferences and privileges to be prospectively fixed by our board of directors at the time of issuance-without shareholder consent or approval-based upon any factors our board of directors may deem relevant at that time. Our board of directors and shareholders have also recently approved an increase in our authorized capital to 25,000,000 common shares. It is likely that we will be required to issue a large amount of additional securities to raise capital to further our development and marketing plans, particularly our coal project. If you are a common shareholder, your proportionate ownership and voting rights could be adversely effected by the issuance of additional common, series 'C' convertible or "blank check" preferred shares, depending on their rights, preferences and privileges, including a substantial dilution in your net tangible book value per share. We cannot give you any assurance that we will not issue shares of capital stock under circumstances we may deem appropriate at the time.

A third party acquisition of our company would be difficult due to
"anti-takeover" provisions contained in our charter documents and provided for under Delaware corporate law

Some of the provisions contained in our charter documents and Delaware corporate law may discourage transactions involving an actual or potential change in control of our company, and may limit the ability of our shareholders to approve these transactions should they deem them to be in their best interests. For example, our Certificate of Incorporation and Bylaws reserve the right to fill any vacancies in any Non-Series A Director positions exclusively to our Board of Directors; stipulate that our Non-Series A Directors can only be removed for cause; require any action to be taken by our common and series 'B' preferred shareholders to be effected at a duly called annual or special meeting of those shareholders, and prohibit those shareholders from effecting any action by written consent unless approved by a two-thirds affirmative vote of their shares; reserve the right to call special meetings of our common and series 'B' preferred shareholders exclusively to our Board of Directors and designated executive officers; and require any amendments to the preceding provisions to be approved by a two-thirds affirmative vote of our shareholders.

We are also subject to Section 203 of the Delaware General Corporation Law which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any ''interested shareholder'' for a period of three years following the date that shareholder became an interested shareholder.

Our Board of Directors also has the authority to fix the rights and preferences of and issue our "blank check" preferred shares without the approval of our common shareholder and, in some cases, our series 'B' and series 'C' preferred shareholders. Any "blank check" preferred shares we issue could also be utilized as a method for raising additional capital or discouraging, delaying or preventing a change in control of our company. We cannot give you any assurance that we will not issue "blank check" preferred shares under circumstances we may deem appropriate at the time.

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LEGAL PROCEEDINGS

As of the date of this quarterly report, there are:

no material pending legal or governmental proceedings relating to our company or properties to which we are a party, or to our knowledge any proceeding of this nature which are being contemplated or threatened; and

to our knowledge, no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

CHANGES IN SECURITIES AND USE OF PROCEEDS

Not Applicable

DEFAULTS UPON SENIOR SECURITIES

Not Applicable

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable

OTHER INFORMATION

Not Applicable

EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

99.1	Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act
99.2	Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act

Reports on Form 8-K

Form 8-K filed on March 28, 2003 in connection with the termination of Deloitte & Touche LLP as Clean Energy's independent auditors for purposes of preparing the company's consolidated financial statements for the fiscal year ended December 31, 2002, and the appointed Staley, Okada & Partners as Clean Energy's new independent accountants.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this quarterly report on form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated at Burnaby, British Columbia, this 14th day of November, 2003.

	Clean Energy Combustion Systems, Inc.
	By: /s/ R. Dirk Stinson
		R. Dirk Stinson President (principal executive officer)
	By: /s/ Barry A. Sheahan
		Barry A. Sheahan, C.A. Chief Financial Officer (principal accounting officer)

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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, R. Dirk Stinson, certify that:

I have reviewed this quarterly report on form 10-Q of Clean Energy Combustion Systems, Inc.;
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 promulgated under the United States Securities Exchange Act of 1934)4for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2003	By: /s/ R. Dirk Stinson
		R. Dirk Stinson President (principal executive officer)

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CERTIFICATION OF PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER

I, Barry A. Sheahan, C.A., certify that:

I have reviewed this quarterly report on form 10-Q of Clean Energy Combustion Systems, Inc.;
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 promulgated under the United States Securities Exchange Act of 1934)4for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2003	By: /s/ Barry A. Sheahan
		Barry A. Sheahan, C.A. Chief Financial Officer (principal accounting and financial officer)

-31-

			September 30, 2003	December 31, 2002

ASSETS			(unaudited)
CURRENT
	Cash and cash equivalents		$ 299	$ -
	Prepaid expenses		2,825	2,873


Total current assets	3,124	2,873
ADVANCES TO AN AFFILIATED COMPANY (note 4)			297,280	427,543
PATENTS			30,128	39,327

TOTAL ASSETS			$ 330,532	$ 469,743

LIABILITIES
CURRENT
	Accounts payable		$ 235,253	$ 316,948
	Accrued expenses (including accrued interest of $NIL as of September 30, 2003 and $3,123 as of December 31, 2002-note 5)		59,000	48,123
	Advances from related parties (note 5)		32,626	52,697

		Total current liabilities	326,879	417,768
PROVISIONS AND LIABILITIES RELATED TO TRANSFER OF OWNERSHIP OF SUBSIDIARY (note 4)			335,592	468,177
TOTAL LIABILITIES AND PROVISIONS			662,471	885,945
Going concern (note 1)
Commitments and contingencies (note 10)
CAPITAL DEFICIENCY
Authorized (note 6):
	Preferred stock; par value $0.0001 per share, 2,000,000 shares
	Common stock; par value $0.0001 per share, 15,000,000 shares
Issued (note 6):
	Series 'A' convertible preferred stock; Liquidation preference $1 per share, or $1,000 total; 1,000 shares issued and outstanding as of September 30, 2003 and December 31, 2002		1	1
	Series 'B' convertible preferred stock; Liquidation preference $2 per share, or $483,336 total; 241,668 shares issued and outstanding as of September 30, 2003 and December 31, 2002		242	242
	Common stock; 14,571,951 and 11,407,269 shares issued and outstanding as of September 30, 2003 and December 31, 2002, respectively		1,457	1,141
Additional paid-in capital			3,325,631	2,836,562
Deficiency accumulated during the development stage			(3,659,270)	(3,254,148)

TOTAL CAPITAL DEFICIENCY			(331,939)	(416,202)

TOTAL LIABILITIES AND CAPITAL DEFICIENCY			$ 330,532	$ 469,743

Series 'A' Preferred Stock		Series 'B' Preferred Stock		Common Stock		Additional Paid-in Capital	Accumulated During The Development Stage

Shares	Amount	Shares	Amount	Shares	Amount

			Nine-months Ended September 30,			Nine-months Ended September 30,		Jan. 1, 1999 to Sept. 30, 2003 (Cumulative)
			2003	2002		2003	2002	Jan. 1, 1999 to Sept. 30, 2003 (Cumulative)


( ß --------------------------------------------------------unaudited------------------------------------------------------------ à)
OPERATING ACTIVITIES
	Total expenses and net loss		$ ( 109,868)	$ (204,489)		$ 405,123)	$ (297,959)	$ (3,659,271)
	Adjustments to reconcile total expenses and net loss to net cash utilized in operating activities:
		Amortization	-	-		-	-	45,027
		Non-cash consulting expense	-	-		-	-	51,101
		Write-down of patents	-	-		9,199	-	9,199
	Change in operating assets and liabilities:
		Accounts receivable and prepaid expenses	-	(2,825)		48	(2,825)	(21,144)
		Accounts payable	(106,719)	19,685		81,695	169,689	894,612
		Accrued liabilities	(12,270)	44,375		10,877	49,298	241,369

Net cash used in operating activities			(228,857)	(143,254)		(466,694)	(81,797)	(2,439,107)

INVESTING ACTIVITIES

Additions to patents		-	(480)		-	(1,278)	(39,327)
	Purchase of property and equipment		-	-		-	-	(92,791)

Net cash provided by (used in) investing activities			-	(480)		-	(1,278)	(132,118)

FINANCING ACTIVITIES
	Advances from (to) an affiliated company		(644)	(119,155)		130,263	(199,814)	114,558
	Advances from (to) shareholders (note 5)		-	-		-	-	273,779
	Advances from (to) related parties		484,314	262,889		336,730	282,889	707,949
	Net proceeds from disposal of subsidiary		-	-		-	-	(2,051)
	Proceeds from issue of common stock		-	-		-	-	976,887
	Proceeds from issue of series 'A' convertible preferred stock		-	-		-	-	500
	Proceeds from issue of series 'B' convertible preferred stock		-	-		-	-	500,002

Net cash provided by financing activities			228,644	143,734		466,943	83,075	2,571,524

NET DECREASE IN CASH AND CASH EQUIVALENTS			(213)	-		299	-	299
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			512	-		-	-	-

CASH AND CASH EQUIVALENTS, END OF PERIOD			$ 299	$ -		$ 299	$ -	$ 299

Type Of Option	Grant Dates	Exercise Prices	As of September 30, 2003
Type Of Option	Grant Dates	Exercise Prices	Outstanding	Vested and Exercisable

Options granted to directors	1-20-01 to 3-15-02	$2.00	240,000	180,000
Options granted to executive officers(1)	3-5-99 to 9-1-03	$2.00	267,000	235,000
Options granted to employees	3-5-99 to 2-8-01	$2.00 to $3.00	100,000	88,000

			607,000	503,000

CLEAN ENERGY COMBUSTION SYSTEMS INC 10-Q