**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D. C. 20549
  **FORM
        10-QSB**
  x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  For
                  the quarterly period ended:June
                  30, 2007
 
 o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  For
                  the transition period fromto
 
 Commission
        File number 000-51364
 
 **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 (Exact
        name of registrant as specified in charter)
 
 Utah
              
              32-0028823(State
                  or other jurisdiction of incorporation)
              
              (IRS
                  Employer Identification No.)
 
 No.18
                  Zhong Guan Cun Dong St.
                Haidian
                  District
                Beijing,
                  P. R. China 100083(Address
                  of principal executive offices)
 
 011-86-10-82600527
 Issuer’s
        telephone number
 
 
 Check
        whether the issuer (1) has filed all reports required to be filed by
        Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
        12
        months (or for such shorter period that the registrant was required to file
        such
        reports), and (2) has been subject to such filing requirements for the past
        90
        days.
 Yes x No o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes o No x
  As
        of
        August 17, 2007, the Company had 16,423,360 shares of its common stock, par
        value $.001 per share, outstanding.
  Transitional
        Small Business Disclosure Format:
 Yes o No x
  
 
 **Table
        of Contents**
 
 PART
                  I. - FINANCIAL INFORMATIONItem
                  1.Financial
                  Statements
              
              
              1Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              
              
              6Item
                  2.Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              
              16Item
                  3.Controls
                  and Procedures
              
              
              29PART
                  II. - OTHER INFORMATIONItem
                  2.Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              
              29Item
                  5.Other
                  Information
              
              
              29Item
                  6.Exhibits
              
              
              30Signatures
              
              
              31
  
 
 **PART
        I**
 
 **Item
        1.**  **Financial
        Statements**
 
 **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
   **UNAUDITED
        FINANCIAL STATEMENTS**
 **JUNE
        30, 2007 AND 2006**
 **(Stated
        in US dollars)**
 
 SINO
        GAS INTERNATIONAL HOLDINGS, INC.
  CONTENTS
                PAGESREPORT
                    OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
                1CONSOLIDATED
                    BALANCE SHEETS
                2
                    -
                    3CONSOLIDATED
                    STATEMENTS OF INCOME
                4CONSOLIDATED
                    STATEMENTS OF CASH FLOWS
                5NOTES
                    TO FINANCIAL STATEMENTS
                6
                    -
                    15
 
 
 
 Board
        of
        Directors and Stockholders
 Sino
        Gas
        International Holdings, Inc.
 
 
 **Report
        of Registered Independent Public Accounting Firm**
 
 
 We
        have
        reviewed the accompanying interim consolidated balance sheets ** of
        Sino
        Gas International Holdings, inc. as of June 30, 2007 and December 31, 2006,
        and
        the related consolidated statements of income for the six months and the
        year
        then ended and cash flows for the six-month and three-month periods then
        ended.
        These interim consolidated financial statements are the responsibility of
        the
        Company's management.
 
 We
        conducted our review in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        information consists principally of applying analytical procedures and making
        inquiries of persons responsible for financial and accounting matters. It
        is
        substantially less in scope than an audit conducted in accordance with the
        standards of the Public Company Accounting Oversight Board, the objective
        of
        which is the expression of an opinion regarding the financial statements
        taken
        as a whole. Accordingly, we do not express such an opinion.
 
 Based
        on
        our review, we are not aware of any material modifications that should be
        made
        to the accompanying interim consolidated financial statements for them to
        be in
        conformity with U.S. generally accepted accounting principles.
 
 South
                    San Francisco, California
                Samuel
                    H. Wong & Co., LLPAugust
                    3, 2007
                Certified
                    Public Accountants
  1
 **SINO
            GAS INTERNATIONAL HOLDINGS, INC.**
 
 **CONSOLIDATED
            BALANCE SHEETS**
 **AT
            JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
 
 **Notes**
              **June
                  30,**
                **2007**
              
              **December
                  31, 2006**ASSETSCurrent
                  assetsCash
                  and cash equivalents
              
              $
              6,653,639
              
              $
              3,638,673Restricted
                  cash
              
              
              -
              
              
              3,124,541Notes
                  receivable
              
              
              1,031,503
              
              
              477,390Accounts
                  receivable
              
              
              5,064,425
              
              
              6,534,740Inventory
              
              
              57,690
              
              
              -Advances
                  to suppliers
              
              
              1,063,674
              
              
              68,309Prepayments
                  and others
              
              
              122,344
              
              
              141,878Other
                  receivables
              
              
              1,834,598
              
              
              1,263,800Total
                  current assets
              
              $
              15,827,873
              
              $
              15,249,331*Long
                  term assets*Investments
                  in equity securities
              
              
              3,087,297
              
              
              2,939,029Plant
                  and equipment, net
              
              
              14,645,720
              
              
              10,608,530Construction
                  in progress
              
              
              7,444,513
              
              
              4,628,076Intangible
                  assets
              
              
              307,108
              
              
              457,830Goodwill
              
              
              112,750
              
              
              -TOTAL
                  ASSETS
              
              $
              41,425,261
              
              $
              33,882,796LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  liabilitiesBank
                  Loans
              
              $
              2,623,020
              
              $
              2,430,445Accounts
                  payable
              
              
              6,794,401
              
              
              3,891,388Other
                  payables
              
              
              1,295,103
              
              
              1,790,500Unearned
                  revenue
              
              
              840,221
              
              
              37,760Accrued
                  liabilities
              
              
              135,705
              
              
              325,922Total
                  current liabilities
              
              $
              11,688,450
              
              $
              8,476,015Minority
                  interest
              
              
              65,575
              
              
              -TOTAL
                  LIABILITIES
              
              $
              11,754,025
              
              $
              8,476,015
  See
        accompanying notes to financial statements and accountant’s report
  2
 **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 
 **CONSOLIDATED
          BALANCE SHEETS (Continued)**
 **AS
          OF JUNE 30, 2007 AND DECEMBER 31,**  **2006**
 **(Stated
          in US Dollars)**
  **Notes**
              **2007**
              
              **2006**STOCKHOLDERS’
                  EQUITYPreferred
                  Stock A US$0.001 par value; 20,000,000 authorized; nil and nil
                  issued and
                  outstanding as of June 30, 2007 and December 31, 2006
                  respectively
              
              
              -
              
              
              -Preferred
                      Stock B US$0.001 par value; 5,000,000 authorized; 3,387,446
                      and 4,023,268
                      issued and outstanding as of June 30, 2007 and December 31,
                      2006
                      respectively
              
              $
              3,387
              
              $
              4,023Common
                        Stock US$0.001 par value; 250,000,000 authorized; 16,423,360
                        and
                        14,692,647 issued and outstanding as of June 30, 2007 and
                        December 31,
                        2006 respectively
              
              
              16,423
              
              
              14,693Additional
                  paid-in-capital
              
              
              14,655,841
              
              
              12,069,176Statutory
                  reserves
              
              
              2,269,315
              
              
              2,025,022Retained
                  earnings
              
              
              11,089,768
              
              
              10,469,571Accumulated
                  other comprehensive income
              
              
              1,636,502
              
              
              824,296$
              29,671,236
              
              $
              25,406,781TOTAL
                      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              41,425,261
              
              $
              33,882,796
  See
        accompanying notes to financial statements and accountant’s report
  3
 **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 
 **CONSOLIDATED
          STATEMENTS OF INCOME**
 **FOR
          THE THREE AND SIX MONTHS** **ENDED** **JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
    Six
                      months ended
                    June
                      30,
                  
                  
                  
                  Three
                      months ended
                    June
                      30,*Notes*
                  2007
                  
                  2006
                  
                  2007
                  
                  2006Net
                      revenues
                  
                  $
                  5,234,372
                  
                  $
                  1,499,540
                  
                  $
                  2,796,145
                  
                  $
                  841,276Cost
                      of revenues
                  
                  
                  3,731,833
                  
                  
                  983,487
                  
                  
                  1,894,203
                  
                  
                  463,800Gross
                      profit
                  
                  
                  1,502,539
                  
                  
                  516,053
                  
                  
                  901,942
                  
                  
                  377,476Operating
                      expensesSelling
                      and marketing expenses
                  
                  
                  199,494
                  
                  
                  26,825
                  
                  
                  143,296
                  
                  
                  16,622General
                      and administrative expenses
                  
                  
                  688,859
                  
                  
                  253,820
                  
                  
                  247,485
                  
                  
                  136,677Income
                      from continuing operations
                  
                  $
                  614,186
                  
                  $
                  235,409
                  
                  $
                  511,161
                  
                  $
                  224,177Finance
                      costs, net
                  
                  
                  33,550
                  
                  
                  (3,142
                  )
                  
                  38,920
                  
                  
                  (3,056
                  )Other
                      income
                  
                  
                  11,781
                  
                  
                  43,465
                  
                  
                  (24,307
                  )
                  
                  43,465Other
                      expenses
                  
                  
                  (11,977
                  )
                  
                  (2
                  )
                  
                  (10,482
                  )
                  
                  (2
                  )Income
                      before taxation
                  
                  $
                  647,540
                  
                  $
                  275,730
                  
                  $
                  515,292
                  
                  $
                  264,585Income
                      tax
                  
                  
                  27,343
                  
                  
                  17,587
                  
                  
                  10,478
                  
                  
                  16,584Net
                      income
                  
                  $
                  620,197
                  
                  $
                  258,142
                  
                  $
                  504,814
                  
                  $
                  248,001Net
                      income per share,Basic
                  
                  $
                  0.04
                  
                  $
                  0.02
                  
                  $
                  0.03
                  
                  $
                  0.02Diluted
                  
                  $
                  0.03
                  
                  $
                  0.02
                  
                  $
                  0.03
                  
                  $
                  0.02Weighted
                      average shares outstandingof
                      common stock,Basic
                  
                  
                  15,216,279
                  
                  
                  14,361,646
                  
                  
                  15,273,626
                  
                  
                  14,361,646Diluted
                  
                  
                  19,486,791
                  
                  
                  14,361,646
                  
                  
                  19,360,386
                  
                  
                  14,361,646
  See
        accompanying notes to financial statements and accountant’s report
  4
 **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
          THE SIX-MONTHS AND THREE-MONTHS ENDED JUNE 30, 2007 AND
          2006**
 **(Stated
          in US Dollars)**
 Six
                    months ended June 30,
                
                Three
                    months ended June 30,**2007**
                
                **2006**
                
                **2007**
                
                **2006****Cash
                    Flows from Operating Activities**Net
                    income
                
                $
                620.197
                
                $
                258,142
                
                $
                504,814
                
                $
                248,050Depreciation
                    and Amortization
                
                
                696,453
                
                
                65,154
                
                
                657,609
                
                
                32,188(Increase)/decrease
                    in accounts and other receivables
                
                
                (630,427
                )
                
                2,562,340
                
                
                (940,846
                )
                
                1,293,092(Increase)
                    in inventories
                
                
                (57,690
                )
                
                (12,899
                )
                
                (57,690
                )
                
                (12,899
                )Increase/(decrease)
                    in accounts and other payables
                
                
                3,019,392
                
                
                (908,689
                )
                
                532,069
                
                
                147,155Net
                    cash provided by operating activities
                
                **$**
                **3,648,392**
                ****
                **$**
                **1,964,049**
                ****
                **$**
                **532,069**
                ****
                **$**
                **1,707,587****Cash
                    Flows from Investing Activities**Purchase
                    of plant and equipment
                
                $
                (4,733,643
                )
                $
                (2,117,412
                )
                $
                (1,412,955
                )
                $
                (2,066,095
                )Restricted
                    Cash
                
                
                3,124,541
                
                
                -
                
                
                -
                
                
                -Payment
                    for the construction in progress
                
                
                (2,816,436
                )
                
                -
                
                
                (1,471,000
                )
                
                151,996Payment
                    of cost of intangible assets
                
                
                307,163
                
                
                (5,678
                )
                
                479,373
                
                
                (10,871
                )Acquisition
                    of subsidiaries
                
                
                (173,167
                )
                
                (27,854
                )
                
                757,634
                
                
                (27,854
                )Increase
                    in minority interest
                
                
                65,575
                
                
                -
                
                
                65,575
                
                
                -Net
                    Cash Used in Investing Activities
                
                **$**
                **(4,225,967**
                **)**
                **$**
                **(2,150,944**
                **)**
                **$**
                **(1,646,948**
                **)**
                **$**
                **(1,952,824**
                **)****Cash
                    Flows from Financing Activities**Repayment
                    of Bank borrowings
                
                
                192,575
                
                
                -
                
                
                2,623,020
                
                
                -Issue
                    of share capital
                
                
                2,587,759
                
                
                -
                
                
                2,587,759
                
                
                -Net
                    Cash Provided by Financing Activities
                
                **$**
                **2,780,334**
                ****
                **$**
                **-**
                ****
                **$**
                **5,210,779**
                ****
                **$**
                **-****Net
                    in Cash & Cash Equivalents Sourced/(Used)**
                
                $
                2,202,760
                
                $
                (186,895
                )
                $
                4,095,900
                
                $
                (245,237
                )Effect
                    of foreign currency translation on Cash & Cash
                    equivalents
                
                
                812,206
                
                
                (27,121
                )
                
                212,575
                
                
                1,452**Cash
                    & Cash Equivalents at Beginning of Period**
                
                
                3,638,673
                
                
                907,667
                
                
                2,345,164
                
                
                937,436**Cash
                    & Cash Equivalents at End of Period**
                
                $
                6,653,639
                
                $
                693,651
                
                
                6,653,639
                
                $
                693,651**Supplementary
                    cash flow information:**Interest
                    received
                
                $
                98,584
                
                $
                -
                
                $
                3,931
                
                $
                -Interest
                    paid
                
                
                54,610
                
                
                3,142
                
                
                10,993
                
                
                3,056Income
                    tax paid
                
                
                27,343
                
                
                17,587
                
                
                10,478
                
                
                16,584
  See
        accompanying notes to financial statements and accountant’s report
  5
 **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
  **1.**
              **O****RGANIZATION
                  AND****PRINCIPAL
                  ACTIVITIES**
 
 Sino
        Gas
        International Holdings, Inc. (“the Company”) was incorporated under the laws of
        the State of Utah on August 19, 1983 as Evica Resources, Inc. The Company
        changed its name to American Arms, Inc. on April 5, 1984, and then changed
        its
        name to Dolce Ventures, Inc. on May 21, 2002, and ultimate changed its name
        to
        Sino Gas International Holdings, Inc. on November 17, 2006.
 
 On
        September 7, 2006, the Company underwent a reverse-merger with Gas Investment
        China Ltd. (“GIC”), an International Business Company incorporated in the
        British Virgin Islands, and its wholly-owned subsidiaries, involving an exchange
        of shares whereby the Company issued an aggregate of 14,599.942 shares to
        the
        shareholders of GIC in exchange for all of the issued and outstanding shares
        of
        GIC. For financial reporting purposes, this transaction is classified as
        a
        recapitalization of Sino Gas International Holdings, Inc. and the historical
        financial statements of Gas Investment China Co. Ltd.
 
 The
        Company is a natural gas services operator, principally engaging in the
        investment, operation and management of city gas pipeline infrastructure,
        in the
        distribution of natural gas to residential and industrial users, in the
        construction and operation gas stations, and in the development and application
        of natural gas related technologies. The Company owns and operates 23 natural
        gas distribution systems serving approximately 63,000 residential and eight
        commercial and industrial customers. The Company’s facilities include
        approximately 700 kilometers of pipeline and delivery networks with a designed
        daily capacity of approximately 70,000 cubic meters of natural gas.
 
 The
        common stock of the Company is currently quoted on the National Association
        of
        Securities Dealers' Over-the-Counter Bulletin Board under the symbol
“SGAS.”
 
 *Basis
        of Presentation and Organization*
 
 The
        Company’s consolidated financial statements have been prepared in accordance
        with generally accepted accounting principles in the United States of America
        (“US GAAP”).
  This
        basis of accounting differs in certain material respects from that used for
        the
        preparation of the books of account of the Company’s principal subsidiaries,
        which are prepared in accordance with the accounting principles and the relevant
        financial regulations applicable to enterprises with limited liabilities
        established in the PRC (“PRC GAAP”) or in the accounting standards used in the
        places of their domicile. The accompanying consolidated financial statements
        reflect necessary adjustments not recorded in the books of account of the
        Company’s subsidiaries to present them in conformity with US GAAP.
 
 6
 **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 *(a)*
              *Method
                  of Accounting*
 
 The
        Company maintains its general ledger and journals with the accrual method
        accounting for financial reporting purposes. The financial statements and
        notes
        are representations of management. Accounting policies adopted by the Company
        conform to generally accepted accounting principles in the United States
        of
        America and have been consistently applied in the presentation of financial
        statements, which are compiled on the accrual basis of accounting.
 
 *(b)*
              *Use
                  of estimates*
 
 The
        preparation of the financial statements in conformity with generally accepted
        accounting principles in the United States of America requires management
        to
        make estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting periods. Management makes these estimates using the
        best
        information available at the time the estimates are made; however actual
        results
        could differ materially from those estimates.
 
 *(c)*
              *Economic
                  and political risks*
 
 The
        Company’s operations are conducted in the PRC. Accordingly, the Company’s
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environment in the PRC, and by the general
        state
        of the PRC economy.
  The
        Company’s operations in the PRC are subject to special considerations and
        significant risks not typically associated with companies in North America
        and
        Western Europe. These include risks associated with, among others, the
        political, economic and legal environment and foreign currency exchange.
        The
        Company’s results may be adversely affected by changes in the political and
        social conditions in the PRC, and by changes in governmental policies with
        respect to laws and regulations, anti-inflationary measures, currency
        conversion, remittances abroad, and rates and methods of taxation, among
        other
        things.
 
 *(d)*
              *Principles
                  of Consolidation*
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries (“the Group”). Significant inter-company transactions have been
        eliminated in consolidation. Investments in which the company has a 20 percent
        to 50 percent voting interest and where the company exercises significant
        influence over the investor are accounted for using the equity
        method.
 
 7
 **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
  The
        Company owned its subsidiaries soon after its inception and continued to
        acquire
        and own the equity interests throughout the reporting periods. The following
        table depicts the identities of the consolidating subsidiaries as of June
        30,
        2007 and 2006 (whichever applicable 2006).
 Name
                    of Company
                
                Place
                    of Incorporation
                
                Date
                    of Incorporation
                
                Beneficiary
                    interest %
                
                Equity
                  Interest
                    %
                
                Registered
                  CapitalGAS
                    Investment China Co., Ltd.
                
                The
                      British
                  Virgin
                    Islands
                
                6/19/2003
                
                100
                
                100
                
                USD
                    10,000,000Sino
                    Gas Construction Limited
                
                The
                      British
                  Virgin
                    Islands
                
                1/9/2007
                
                100
                
                100
                
                USD
                    50,000Pegasus
                    Tel, Inc.
                
                Delaware,
                    U.S.A.
                
                2/19/2002
                
                100
                
                100
                
                USD
                    1,000Beijing
                    Zhong Ran Wei Ye Gas Co., Ltd
                
                PRC
                
                8/29/2001
                
                100
                
                100
                
                RMB
                    94,448,517Ningjin
                    Weiye Gas Co., Ltd
                
                PRC
                
                12/3/2003
                
                100
                
                95
                
                RMB
                    3,000,000Jinzhou
                    Weiye Gas Co., Ltd
                
                PRC
                
                7/19/2004
                
                100
                
                95
                
                RMB
                    5,000,000Xingtang
                    Weiye Gas Co., Ltd
                
                PRC
                
                2/18/2004
                
                100
                
                95
                
                RMB
                    3,000,000Linzhang
                    Weiye Gas Co., Ltd
                
                PRC
                
                7/6/2005
                
                100
                
                85
                
                RMB
                    1,000,000Anping
                    Weiye Gas Co., Ltd
                
                PRC
                
                8/4/2005
                
                100
                
                95
                
                RMB
                    5,000,000Wuqiao
                    Gas Co., Ltd
                
                PRC
                
                6/30/2004
                
                100
                
                95
                
                RMB
                    2,000,000Yutian
                    Zhongran Weiye Gas Co.,Ltd
                
                PRC
                
                12/19/2003
                
                100
                
                90
                
                RMB
                    3,000,000Sihong
                    Weiye Gas Co., Ltd
                
                PRC
                
                12/3/2004
                
                100
                
                95
                
                RMB10,000,000Langfang
                      Development Region Weiye
                  Dangerous
                    Goods Transportation Co., Ltd
                
                PRC
                
                3/22/2005
                
                100
                
                95
                
                RMB
                    1,000,000Peixian
                    Weiye Gas Co., Ltd
                
                PRC
                
                8/22/2005
                
                100
                
                90
                
                RMB
                    5,000,000Sishui
                    Weiye Gas Co., Ltd
                
                PRC
                
                12/22/2004
                
                100
                
                95
                
                RMB
                    3,000,000LongyaoZhongranWeiyeGasCo.,Ltd
                
                PRC
                
                10/13/2005
                
                100
                
                95
                
                RMB
                    3,000,000Shenzhou
                    Weiye Gas Co., Ltd
                
                PRC
                
                12/23/2005
                
                100
                
                95
                
                RMB
                    3,000,000Hengshui
                    Weiye Gas Co., Ltd
                
                PRC
                
                12/20/2005
                
                100
                
                95
                
                RMB
                    3,000,000Changli
                    Weiye Gas Co., Ltd
                
                PRC
                
                12/8/2006
                
                100
                
                95
                
                RMB
                    3,000,000Yuxian
                    Jinli Gas Co., Ltd
                
                PRC
                
                11/8/2005
                
                100
                
                100
                
                RMB
                    9,500,000Zhangjiakou
                    City Xiahuayuan Jinli Gas Co., Ltd.
                
                PRC
                
                9/30/2005
                
                100
                
                100
                
                RMB
                    2,000,000Beijing
                    Chenguang Gas Ltd.
                
                PRC
                
                10/30/2002
                
                100
                
                100
                
                RMB
                    20,000,000Cheng'an
                    County Chenguang Gas Co., Ltd
                
                PRC
                
                1/23/2007
                
                100
                
                100
                
                RMB
                    1,500,000Xinji
                    County Zhongchen Gas Co., Ltd
                
                PRC
                
                2/7/2007
                
                100
                
                100
                
                RMB
                    3,000,000Tianjin
                    Chenguang Gas Co., Ltd
                
                PRC
                
                3/7/2006
                
                90
                
                90
                
                RMB
                    2,000,000
 
 *(e)*
              *Cash
                  and Cash Equivalents*
 
 The
        Company considers all cash and other highly liquid investments with initial
        maturities of three months or less to be cash equivalents.
  8
 
 *(f)*
              *Accounts
                  and Other Receivable*
 
 Accounts
        and other receivable are recorded at net realizable value consisting of the
        carrying amount less an allowance for uncollectible accounts, as needed.
        The
        Company extends unsecured credit to customers in the normal course of business
        and does not accrue interest on trade accounts receivable.
 
 *(g)*
              *Advances
                  to Suppliers*
 
 Advances
        to suppliers represent the cash paid in advance for purchasing raw materials.
        The advances to suppliers are interest free and unsecured.
 
 *(h)*
              *Investments
                  in Equity Securities*
 
 The
        consolidated statement of income includes the Group's share of the
        post-acquisition results of its associate for the year. In the consolidated
        balance sheet, investments in equity securities are stated at the Group's
        share
        of the net assets of the associates plus the premium paid less any discount
        on
        acquisition in so far as it has not already been amortized to the statement
        of
        income, less any identified impairment loss.
 
 *Nominal**Name
                  of*
              *Place*
              
              *Form
                  of*
              
              
              
              *Value
                  of**Associate*
              *of*
              
              *Business*
              
              *Registered*
              
              *Registered*
              
              *Principal**Company*
              *Registration*
              
              *Structure*
              
              *Capital*
              
              *Capital*
              
              *Activities*Beijing
                  Zhongran
                Xiangke
                  Oil Gas
                Technology
                  Co. Ltd
              PRC
              
              Sino-foreign
                  equity joint venture
              
              RMB
                20,000,000
              
              40
              
              Trading
                  of natural gas and gas pipeline
                  construction
 
 Beijing
        Zhongran Xiangke Oil Gas Technology Co. Ltd is the Group's 40% owned joint
        Venture company and is principally engaged in sale of compressed natural
        gas to
        domestic households and industrial around sub-urban areas of Beijing and
        part of
        sub-urban areas in Hebei Province and Tianjin.
 
 *(i)*
              *Accounting
                  for the Impairment of Long-Lived
                  Assets*
 
 The
        long-lived assets held and used by the Company are reviewed for impairment
        whenever events or changes in circumstances indicate that the carrying amount
        of
        assets may not be recoverable. It is reasonably possible that these assets
        could
        become impaired as a result of technology or other industry changes.
        Determination of recoverability of assets to be held and used is by comparing
        the carrying amount of an asset to future net undiscounted cash flows to
        be
        generated by the assets.
 
 If
        such
        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
        fair 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.
 
 During
        the reporting periods, there was no impairment loss.
 
 9


**SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
        in US Dollars)**


*(j)*
              *Plant
                  and Equipment*
 
 Plant
        and
        equipment, other than construction in progress, are stated at cost less
        depreciation and amortization and accumulated impairment loss.
 
 Plant
        and
        equipment are carried at cost less accumulated depreciation. Depreciation
        is
        provided over their estimated useful lives, using the straight-line method.
        Estimated useful lives of the plant and equipment are as follows:
 
 Gas
                  Pipelines
              25
                  yearsMotor
                  Vehicles
              10
                  yearsMachinery
                  & Equipment
              20
                  yearsBuildings
              25
                  yearsLeasehold
                  Improvements
              25
                  yearsOffice
                  Equipment
              8
                  years
 
 The
        cost
        and related accumulated depreciation of assets sold or otherwise retired
        are
        eliminated from the accounts and any gain or loss is included in the statement
        of income. The cost of maintenance and repairs is charged to income as incurred,
        whereas significant renewals and betterments are capitalized.
 
 *(k)*
              *Intangible
                  Assets*
 
 Intangible
        assets, are stated at cost less amortization and accumulated impairment loss.
        Amortization is provided over their estimated useful lives, using the
        straight-line method. Estimated useful lives of the intangibles are as follows:
 
 Land
                  use rights
              40
                  - 50 yearsFranchises
              30
                  yearsOther
                  intangibles
              3
                  years
 
 *(l)*
              *Construction
                  in progress*
 
 Construction
        in progress represents the cost of constructing pipelines and is stated at
        cost.
        Costs comprise direct and indirect incremental costs of acquisition or
        construction. Completed items are transferred from construction in progress
        to
        the gas pipelines of fixed assets when they are ready for their intended
        use.
        The major cost of construction relates to construction materials, direct
        labor
        wages and other overhead. Construction of pipeline, through which to distribute
        natural gas, is one of the Group’s principal businesses. The Group builds city
        main pipeline network and branch pipeline network to make gas connection
        to
        resident users, industrial, and commercial users, with the objective of
        generating revenue on gas connection and gas usage fees collected from these
        customers. As at June 30, 2007, the pipelines under construction include
        mainly
        the projects in several cities of Hebei and Jiangsu province, and in Beijing.
        These projects, once completed, will significantly increase the gas supply
        capacity. Capital commitments in respect of these projects amounted to
        approximately $4 million at June 30, 2007 *.*
 
 10
 **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
 
 *(m)*
              *Unearned
                  Revenue*
 
 Unearned
        revenue represents prepayments by customers for gas purchases and advance
        payments on construction and installation of pipeline contracts. The Company
        records such prepayment as unearned revenue when the payments are
        received.
 
 *(n)*
              *Financial
                  Instruments*
 
 The
        carrying amounts of all financial instruments approximate fair value. The
        carrying amounts of cash, accounts receivable, accounts payable and accrued
        liabilities approximate fair value due to the short-term nature of these
        items.
        The carrying amounts of borrowings approximate the fair value based on the
        Company’s expected borrowing rate for debt with similar remaining maturities and
        comparable risk.
 
 *(o)*
              *Foreign
                  Currency Translation*
 
 The
        accompanying consolidated financial statements are presented in United States
        dollars. The functional currency of the Company is the Renminbi (RMB). The
        consolidated financial statements are translated into United States dollars
        from
        RMB at year-end exchange rates as to assets and liabilities and average exchange
        rates as to revenues and expenses. Capital accounts are translated at their
        historical exchange rates when the capital transactions occurred.
  **2007**
              
              **2006**Months
                  end RMB : US$ exchange rate
              
              
              7.6248
              
              
              7.8175Average
                  monthly RMB : US$ exchange rate
              
              
              7.7230
              
              
              7.9819
 
 The
        RMB
        is not freely convertible into foreign currency and all foreign exchange
        transactions must take place through authorized institutions. No representation
        is made that the RMB amounts could have been, or could be, converted into
        US$ at
        the rates used in translation.
 
 *(p)*
              *Revenue
                  Recognition*
 
 Revenue
        is recognized when services are rendered to customers when a formal arrangement
        exists, the price is fixed or determinable, the delivery is completed, no
        other
        significant obligations of the Company exist and collectibility is reasonably
        assured. Payments received before all of the relevant criteria for revenue
        recognition are satisfied are recorded as unearned revenue.
 
 Net
        sales
        consist of gas and connection fee revenue. Cost of sales includes gas and
        connection cost.
 
 Gas
        connection revenue is recognized when the outcome of a contract can be estimated
        reliably and the stage of completion at the balance sheet date can be measured
        reliably.
 
 Sales
        of
        natural gas are recognized when goods are delivered and title has
        passed.
 
 11
 
 *(q)*
                *Other
                    Income*
 
 Other
        income represents the Group’s share of post- acquisition results of its
        investment in equity securities for the year.
 
 *(r)*
              *Income
                  Taxes*
 
 Deferred
        income taxes are recognized for the tax consequences in future years of
        differences between the tax bases of assets and liabilities and their financial
        reporting amounts at each period end based on enacted tax laws and statutory
        tax
        rates applicable to the periods in which the differences are expected to
        affect
        taxable income. Valuation allowances are established when necessary to reduce
        deferred tax assets to the amount expected to be realized. As of June 30,
        2007,
        there was no significant book to tax differences.
 
 Pursuant
        to the tax laws of PRC, general enterprises are subject to income tax at
        an
        effective rate of 33%. Beijing Gas is in the natural gas industry whose
        development is encouraged by the government. According to the income tax
        regulation, any company engaged in the natural gas industry enjoys a favorable
        tax rate. Also, Beijing Gas is exempt from corporate income tax for its first
        two years and is then entitled to a 50% tax reduction for the succeeding
        three
        years. The Company’s first profitable tax year was 2003. Accordingly, the
        Company’s income is subject to a reduced tax rate of 7.5%. From 2008 onwards,
        the Company’s income is subject to a reduced tax rate of 9%. Subsidiaries of
        Beijing Gas are subject to the effective rate of 33%.
 
 *(s)*
              *Advertising*
 
 The
        Group
        expensed all advertising costs as incurred
 
 *(t)*
              *Concentration
                  of Credit Risk*
 
 Concentration
        of credit risk is limited to accounts receivable and is subject to the financial
        conditions of major customers. The Company does not require collateral or
        other
        security to support accounts receivable. The Company conducts periodic reviews
        of its clients’ financial condition and customers’ payment practices to minimize
        collection risk on accounts receivable.
 
 *(u)*
              *Retirement
                  Benefits*
 
 Retirement
        benefits in the form of contributions under defined contribution retirement
        plans to the relevant authorities are charged to the statements of income
        as
        incurred.
  12
  **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
 (v)
              *Statutory
                  Surplus Reserves*
 
 As
        stipulated by the Company Law of the People's Republic of China (PRC) as
        applicable to Chinese companies with foreign ownership, net income after
        taxation can only be distributed as dividends after appropriation has been
        made
        for the following:
 
 i.
              Making
                  up cumulative prior years' losses, if
                  any;
 ii.
              Allocations
                  to the "Statutory surplus reserve" of at least 10% of income after
                  tax, as
                  determined under PRC accounting rules and regulations, until the
                  fund
                  amounts to 50% of the Company's registered
                  capital;
 iii.
              Allocations
                  of 5-10% of income after tax, as determined under PRC accounting
                  rules and
                  regulations, to the Company's "Statutory common welfare fund",
                  which is
                  established for the purpose of providing employee facilities and
                  other
                  collective benefits to the Company's employees; and
 iv.
              Allocations
                  to the discretionary surplus reserve, if approved in the shareholders'
                  general meeting.
 
 *(w)*
              *Statement
                  of Cash Flows*
 
 In
        accordance with Statement of SFAS 95, “Statement of Cash Flows”, cash flows from
        the Company’s operations is calculated based upon the local currencies. As a
        result, amounts related to assets and liabilities reported on the statement
        of
        cash flows will not necessarily agree with changes in the corresponding balances
        on the balance sheet.
  *(y)*
              *Comprehensive
                  Income*
 
 Comprehensive
        income is defined to include all changes in equity except those resulting
        from
        investments by owners and distributions to owners. Among other disclosures,
        all
        items that are required to be recognized under current accounting standards
        as
        components of comprehensive income are required to be reported in a financial
        statement that is presented with the same prominence as other consolidated
        financial statements. The Company’s current component of other comprehensive
        income is the foreign currency translation adjustment.
  13
  **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
 *(z)*
              *Recent
                  Accounting Pronouncements*
  In
        July
        2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an
        Interpretation of FASB Statement No. 109, which clarifies the accounting
        for
        uncertainty in tax positions. This Interpretation requires that the Company
        recognizes in its consolidated financial statements the impact of a tax position
        if that position is more likely than not of being sustained on audit, based
        on
        the technical merits of the position. The provisions of FIN 48 are effective
        for
        the Company on January 1, 2007, with the cumulative effect of the change
        in
        accounting principle, if any, recorded as an adjustment to opening retained
        earnings.
  In
        September 2006, the FASB issued SFAS 157, Fair Value Measurements, which
        defines
        fair value, establishes a framework for measuring fair value in generally
        accepted accounting principles, and expands disclosures about fair value
        measurements. SFAS 157 applies under other accounting pronouncements that
        require or permit fair value measurements, where fair value is the relevant
        measurement attribute. The standard does not require any new fair value
        measurements. SFAS 157 is effective for financial statements issued for fiscal
        years beginning after November 15, 2007, and interim periods within those
        fiscal
        years.
 
 In
        September 2006, the SEC issued SAB No. 108, which provides guidance on the
        process of quantifying financial statement misstatements. In SAB No. 108,
        the
        SEC staff establishes an approach that requires quantification of financial
        statement errors, under both the iron-curtain and the roll-over methods,
        based
        on the effects of the error on each of the Company’s financial statements and
        the related financial statement disclosures. SAB No.108 is generally effective
        for annual financial statements in the first fiscal year ending after November
        15, 2006. The transition provisions of SAB No. 108 permits existing public
        companies to record the cumulative effect in the first year ending after
        November 15, 2006 by recording correcting adjustments to the carrying values
        of
        assets and liabilities as of the beginning of that year with the offsetting
        adjustment recorded to the opening balance of retained earnings.
 
 The
        management of the Company does not anticipate that the adoption of these
        three
        standards will have a material impact on these consolidated financial
        statements.
 
 **3.**  **CAPITALIZATION**
 
 Pursuant
        to an agreement entered into between the Company and Vision Opportunity Master
        Fund, Limited (the Investor) dated May 15, 2007, the Company agreed to modify
        the Series B Convertible Preferred Stock Purchase Agreement of September
        7, 2006
        which included the Series J Warrant to purchase 1,993,355 shares of common
        stock
        on or before September 7, 2007. The modification, in fact, created a new
        financing plan to the effect that (a) the original Series J warrant of 1,094,891
        shares to be purchased on May 15, 2007 at a price of $2,74; (b) a new Series
        J
        Warrant to purchase 898,464 shares on or before September 7, 2007 at a price
        of
        $3.01 and (c) a new Series E Warrant to purchase 1,094,891 shares on or before
        May 15, 2012 at a price of $3.01.
 
 As
        of
        June 30, 2007, the Company has received net proceeds of $2,587,759 for the
        issuance of 1,094,891 shares at $2.74 as a result of the exercise of Series
        J
        Warrant.
 
 14
  **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED JUNE 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
 Gross
                      Proceeds: 1,094,381 shares at $2.74
                  
                  $
                  3,000,001*Less**:*Issuance Cost and Expenses
                  
                  
                  412,242Net
                      Proceeds:
                  
                  $
                  2,587,759
  Pursuant
        to Series B Convertible Preferred Stock Purchase Agreements dated September
        7,
        2006 and October 20, 2006, the Company agreed to issue warrant to each Series
        B
        Preferred Stock investor to purchase shares of common stock for a term of
        one
        year from the closing date.
 
 Series
                  of Warrant
              
              Number
                  of Shares
              
              Exercise
                  PriceSeries
                  A
              
              
              3,387,446
              
              $
              3.84Series
                  B
              
              
              1,693,723
              
              
              5.48Series
                  C
              
              
              3,083,588
              
              
              4.22Series
                  D
              
              
              1,541,794
              
              
              6.03Series
                  E
              
              
              1,094,891
              
              
              3.01Series
                  J
              
              
              1,989,697
              
              
              3.0112,790,139
 
 15
 
 **Item
        2.**  **Management’s
        Discussion and Analysis**
 
 The
        following discussion and analysis of the consolidated financial condition
        and
        results of operations of Sino Gas International Holdings, Inc. (“we,” “us” or
        the “Company”) should be read in conjunction with the consolidated financial
        statements and related notes appearing elsewhere in this quarterly report.
        Because we conduct our operations through our subsidiary Beijing Zhong Ran
        Wei
        Ye Gas Co., Ltd. (“Beijing Gas”) and the subsidiaries of Beijing Gas in the
        People’s Republic of China (the “PRC”), the following discussion focuses on the
        operations of those companies.
 
 FORWARD-LOOKING
        INFORMATION
 
 This
        Management's Discussion and Analysis (“MD&A”) includes “forward-looking
        statements.” All statements, other than statements of historical fact, included
        in this MD&A regarding the Company's financial position, business strategy
        and plans and objectives of management of the Company for future operations
        are
        forward-looking statements. These forward-looking statements rely on a number
        of
        assumptions concerning future events and are subject to a number of
        uncertainties and other factors, many of which are outside of the Company's
        control, that could cause actual results to materially differ from those
        predicted by such statements. While we believe that the assumptions concerning
        future events are reasonable, we caution that there are inherent risks and
        difficulties in making these predictions, especially those arising out of
        our
        limited operating history, any failure on our part to compete effectively,
        any
        inability we might have to fund our future capital expenditures and our possible
        inability to control our growth.
 
 **Overview**
 
 As
        measured by net revenue, net income, and the other categories of performance
        set
        forth below, our business enjoyed significant growth during the three- and
        six-month periods ended June 30, 2007.
  16
  ·
              Net
                  revenue increased 232% to $2,796,145 for the three months ended
                  June 30,
                  2007 as compared to $841,276 for the same period in 2006. Net revenue
                  increased 249% to $5,234,372 for the six months ended June 30,
                  2007 as
                  compared to $1,499,540 for the same period in
                  2006.
  ·
              Net
                  income increased 95% to $504,814 during the three month period
                  ended June
                  30, 2007 from $248,001 in the same period in 2006. Net income increased
                  140% to $620,197 during the six month period ended June 30, 2007
                  from
                  $258,142 in the same period in 2006.
 
 Due
        to
        the seasonal nature of our business, the second quarter of the calendar year
        is
        not traditionally our strongest. Construction of pipelines and gas stations
        begins again during this quarter, after being largely inactive in the preceding
        quarter due to the cold weather in the northern PRC, where most of our
        operations are located. The bulk of the revenue from these operations, however,
        is not generated until later in the year, when further stages of the
        construction process have been completed. Given this seasonal pattern,
        management believes that our strong growth in the second quarter, as measured
        by
        net revenue and the other metrics described below, may continue and lead
        to
        potentially stronger growth, by the same metrics, during the second half
        of
        2007.
 
 The
        stronger performance during the quarter ended June 30, 2007 as compared with
        the
        same period last year is due to our strategic acquisitions and new construction
        at existing project locations, which have resulted in a larger customer base.
        During the three months ended June 30, 2007, we constructed natural gas pipeline
        connections to 4,336 residential households, as compared to 1,094 new household
        connections during the same period in 2006. As of June 30, 2007, our
        distribution network included approximately 70,000 connected users, compared
        with 25,000 connected users one year earlier.
 
 **RESULTS
        OF OPERATIONS**
 
 ***Three
        Months Ended June 30, 2007 Compared to Three Months Ended June 30,
        2006***
 
 **Net
        Revenue**
 
 We
        generate revenue from two sources: connection fees for constructing connections
        to our natural gas distribution network, and sales of natural gas. Total
        net
        revenue for the three months ended June 30, 2007 was $2,796,145, compared
        to
        $841,276 for the same period in 2006, representing an increase of 232%. The
        increase was due to increases in new connections of customers to our gas
        distribution network and in the number of customers purchasing natural gas.
        During this period, we connected 4,336 new residential households to our
        gas
        distribution network, resulting in total connection fees of $1,349,377. Gas
        sales during the period amounted to 4,500,880 cubic meters, or $1,425,609.




17




The following table summarizes our net revenue during the
      periods indicated:




(
                  $
                  thousand)
              For
                  the 3 months ended June 30,2007
              
              2006
              ChangeUS$
              %
              
              US$
              %
              %Total
                  Revenue
              2,796.1
              100%
              
              841.3
              100%
              232%Connection
                  Fees
              1,349.4
              48%
              
              239.8
              29%
              463%Gas
                  Sales
              1,425.6
              51%
              
              601.5
              71%
              137%Others
              21.1
              1%
              
              
              
              N/A
  ***Connection
        fees***
  Connection
        fees during the quarter ended June 30, 2007 were $1,349,377, representing
        an
        increase of more than 460% from $239,797 in the same quarter last year.
        Connection fees accounted for approximately 50% of total revenue during the
        quarter, compared with approximately 28.5% for the same period in 2006.
 
 Excluding
        Beijing Chenguang Gas Co., Ltd. (“Beijing Chenguang”), which we acquired in
        January 2007, connection fees from our previously existing operating locations
        were $1,126,000, which includes new connections for 3,949 households. Connection
        fees during the quarter were relatively low compared with prior periods,
        as our
        connection operations were principally focused on last year’s remaining projects
        and early development of some newer projects.
 
 Beijing
        Chenguang connected 387 new household users in the three months ended June
        30,
        2007, which contributed $223,400 to our total connection fees. The higher
        connection fees per household for Beijing Chenguang are due to the development
        of a luxury residential area, Dongfang Taiyangcheng, which resulted in
        significantly higher connection fees than for typical residential
        areas.
 
 All
        connection fees during the second quarter of 2007 came from our residential
        customers.
 
 The
        table
        below provides information about our four largest customers for connection
        fees
        during the quarter ended June 30, 2007:
 **Residential
                    Projects**
                
                **Connected**
                  **Households**
                
                **Connection**
                  **Fees
                    ($ in Thousands)**Jiangsu
                    Peixian Datun
                
                2,500
                
                756Beijing
                    Chenguang Dongfang Taiyangcheng
                
                76
                
                64Hebei
                    Xinhe Longyuan
                
                225
                
                58Anhui
                    Wuhe
                
                200
                
                54
  18
  ***Gas
        sales***
 
 We
        sold
        4,508,800 cubic meters of natural gas to our customers during the quarter
        ended
        June 30, 2007, contributing $1,425,609, or 51% of total net revenue. In
        comparison, gas sold in the same quarter of 2006 totaled 2,000,000 cubic
        meters,
        contributing $601,500, or 71.5%, of net revenue. Gas sales increased $824,109,
        or 137%, from the same period one year ago. Gas sales in the quarter ended
        June
        30, 2007 were generated by our previously existing projects, which, excluding
        the recently-acquired Beijing Chenguang, generated $352,900 in gas sales,
        an
        increase of 57% from the same period one year ago. Beijing Chengguang generated
        $471,200 in gas sales. Of the gas sold by Beijing Chengguang, gas sold to
        residential customers amounted to $66,000 and gas sold to industrial customers
        amounted to $405,200.
 
 The
        following table summarizes our gas sales during the periods
        indicated:
 
 ($
                  thousand)
              For
                  the 3 months ended June 30,2007
              2006Gas
                  Sales
              US$
              %
              US$
              %Industrial
                  users
              708.2
              50%
              365.4
              61%Residential
                  users
              342.0
              24%
              108.1
              18%Others
              375.4
              26%
              128.0
              21%Total
              1,425.6
              100%
              601.5
              100%
 
 We
        sell
        natural gas to industrial, residential, and commercial customers. During
        the
        three months ended June 30, 2007, sales to industrial customers generated
        $708,200 of natural gas sales, sales to residential customers generated
        $342,000, and sales to commercial customers generated $375,400. These sales
        represent increases in sales to industrial customers of 93.8%, to residential
        customers of 216.4%, and to commercial customers of 193.3%, compared with
        sales
        to such customers of $365,400, $108,100, and $128,000, respectively, in the
        same
        quarter of 2006.
 
 The
        table
        below provides information about our three largest customers for natural
        gas
        (all of which are industrial customers that supply gas to residential
        developments):
 **Residential
                    Projects**
                
                **Gas
                    Sales**
                  **(M****3****)**
                
                **Gas
                    Sales**
                  **($1,000)**Hebei
                    Zhonggang
                
                2,001
                
                599Hebei
                    Tangshan Changsheng
                
                275
                
                81.7Langfang
                    Elite
                
                99.5
                
                27.4
  19
 
 The
        average price of gas sold to these industrial customers was $0.31 per cubic
        meter. Hebei Zhonggang is currently our largest industrial user, with daily
        gas
        consumption exceeding 20,000 cubic meters, or approximately 30% of our total
        daily gas consumption. Residential customers pay gas fees using a prepaid
“smart
        card.”
 
 ***Other
        Revenue***
 
 During
        the three months ended June 30, 2007, we also generated $21,159 in revenue
        from
        the lease of our natural gas delivery and storage facilities through our
        subsidiary Beijing Chenguang.
 
 **Cost
        of Revenue**
  Our
        cost
        of revenue, which includes cost of connection fees and cost of natural gas
        sales, was $1,809,800 for the three month period ended June 30, 2007. (This
        figure does not include the payment of local taxes of approximately $84,200,
        which were later refunded to us.)
 
 The
        table
        below sets forth our cost of revenues for the periods indicated:
 
 ($
                  thousands)
              For
                  the 3 months ended June 30,2007
              2006US$
              %
              US$
              %Cost
                  of Sales
              1,809.8
              100%
              463.8
              100%Connection
                  Cost
              431.8
              24%
              33.5
              7%Gas
                  Cost
              1,378
              76%
              430.3
              93%
 
 *Cost
        of Connections*
  Our
        cost
        of connection fees during the quarter ended June 30, 2007 was $431,800 or
        24% of
        total cost of revenue. By comparison, the cost of connection fees during
        the
        same quarter of 2006 was $33,500, or 7.22% of total cost of revenue. The
        significant increase in cost of connection fees is due to both the expansion
        of
        our operations and the increased cost of gas station maintenance resulting
        from
        the development of our gas stations.
 
 Cost
        of
        connection fees includes depreciation of major pipelines, the cost of courtyard
        pipelines, valves, gas meters, and installation and maintenance fees.
 
 *Cost
        of Natural Gas Sales*
  The
        cost
        of natural gas sales increased 220% from the quarter ended June 30, 2006,
        when
        it was $430,300 and 92.78% of total cost of revenue, to the quarter ended
        June
        30, 2007, when it was $1,378,000 and 76% of total cost of revenue. This
        increase, which outpaced the 137% increase in sales of natural gas during
        the
        same interval, is largely due to the addition of gas delivery trucks acquired
        for approximately RMB 12 million ($1.58 million), the depreciation of which
        added to our cost of natural gas sales. We believe that the impact of that
        depreciation will be gradually reduced as our business and customer base
        grow.
  20
 
 The
        cost
        of natural gas sales includes the purchase and transportation of natural
        gas and
        depreciation of delivery trucks. The purchase price that gas distributors
        pay
        for natural gas, which is determined by the PRC government, is approximately
        RMB
        1.6 to 1.9 ($0.21 to $0.25) per cubic meter. Langfang Development Zone Wei
        Ye
        Dangerous Goods Transportation Co. Ltd, one of our subsidiaries, is responsible
        for our gas transportation, and transportation cost per cubic meter is
        relatively constant at RMB 0.55 ($0.072) per cubic meter. Management believes
        that this transportation cost per cubic meter is likely to remain constant
        in
        spite of the increased depreciation costs from the newly purchased vehicles
        described above, because the vehicles will allow delivery of additional natural
        gas to customers sufficient to offset those costs
 
 Our
        biggest natural gas supplier is the North China Oil Field Fourth Oil Extraction
        Plant of Petro China Company, with whom we signed a ten-year gas supply
        agreement in 2003. We purchased 3,387,600 cubic meters  of
        natural gas from Petro China at the price of RMB 1.55 ($0.204) per cubic
        meter.
        At the beginning of each year in the ten-year contract period, we negotiate
        with
        Petro China on the price and supply amount according to market conditions.
        In
        2007, Petro China will supply a total of 10 million cubic meters of natural
        gas
        at RMB 1.55 ($0.204) per cubic meter between April 1 and October 31 and RMB
        1.65
        ($0.217) per cubic meter during the rest of the year.
 
 **Gross
        Profit**
 
 During
        the quarter ended June 30, 2007, gross profit was $965,200, an increase of
        approximately 130% from the same quarter of 2006. Gross profit from connection
        fees increased 345% to $917,600, from $206,000 in the same quarter of 2006.
        Gross profit from gas sales was $47,600, as compared to $171,100 in the same
        quarter of 2006.
 
 Gross
        margin for connection fees for the quarter ended June 30, 2007 was 68%. Because
        we typically recognize most of our connection fees in the fourth quarter,
        we
        believe it is likely that gross margins for connection fees will return to
        previous levels of 70% to 75% in the second half of 2007. Gross margin for
        sales
        of natural gas was 3.4% during the quarter ended June 30, 2007, compared
        with 6%
        in the same quarter of 2006 due to the relatively higher depreciation levels
        described above. Management also believes that this margin is likely to return
        to previous higher levels of approximately 10% as we distribute gas to an
        increasing number of gas users connected to our distribution networks.
 
 **Selling
        and marketing expenses**
 
 Our
        selling expenses in the quarter ended June 30, 2007 were $143,300 and equaled
        approximately 5% of our net sales, compared with $16,622 and less than 2%
        of net
        sales in the second quarter of 2006. This substantial increase was principally
        due to increases in marketing-related fees, including travel and
        communications.
  21
  **General
        and administrative expenses**
 
 General
        and administrative expenses were $247,500 for the three months ended June
        30,
        2007, or 81% higher than $136,677 in the same period one year ago. The increase
        is largely due to the increase in the number of operating subsidiaries we
        own,
        from 13 to 20, leading to increases in salary, social insurance, traveling
        expenses and other expenses. The increase is also due in part to increased
        depreciation relating to new assets described above.
 
 As
        a
        percentage of net sales, general and administrative expenses equaled 8.8%
        of our
        net sales in the second quarter of 2007, compared with 16.3% in the same
        period
        one year ago. The reduction in general and administrative expenses relative
        to
        net sales is, we believe, due to economies of scale that have been achieved
        by
        the expansions of our business described above.
 
 **Income
        from Continuing Operations**
 
 Income
        from continuing operations in the second quarter of 2007 was $511,161,
        representing an increase of $287,000, or 128%, from $224,177 in the same
        period
        last year. The increase in Income from continuing operations is due primarily
        to
        the increase in net sales described above.
 
 **Income
        Tax**
 
 For
        2007,
        the income tax rate applicable to Beijing Gas, the main subsidiary of Sino
        Gas
        in China, is 7.5%. Beijing Gas is classified as a foreign high-tech enterprise
        by the tax regulatory authority, and therefore has enjoyed a favorable tax
        rate
        for the past five years, with an income tax rate of zero in 2004 and 2005
        and
        7.5% from 2005 to 2007.
  The
        income tax rate of our subsidiaries is 33%, except for Beijing Chenguang,
        which
        has also been classified as a foreign high-tech enterprise and is subject
        to the
        favorable income tax rate of 7.5% from 2006 to 2008.
  The
        income tax accrued during the three month period ended June 30, 2007 was
        $10,478, lower than the $16,584 accrued during the same period in 2006, due
        to a
        refund of 2005 taxes from the tax bureau.
 
 **Net
        Income**
 
 Net
        income in the second quarter of 2007 was $504,814, representing an increase
        of
        104% from $248,001 in the same period in 2006. The increase can be attributed
        to
        the continuous growth of our existing markets and the acquisition of Beijing
        Chenguang. Due to the seasonal nature of our business, management believes
        it is
        likely that net income will increase substantially in the second half of
        2007.
  22
  *Six
        Months Ended June 30, 2007 Compared to
        Six Months Ended June 30, 2006*
  **Net
        Revenue:**
 
 Total
        net
        revenue for the six-month period ended June 30, 2007 was $5,234,372,
        representing an increase of 249% from $1,499,540 for the same period in 2006.
        The increase was due to the increase of new connections and gas users. During
        this period, we added 6,586 new residential households, resulting in total
        connection fees of $1,964,713. Gas sales amounted to 11,734,384 cubic meters,
        or
        $3,248,500.
 
 The
        following table summarizes our net revenue for the periods
        indicated:
 
 $
                  thousand
              Six
                  Months Ended June30, 2007
              Six
                  Months Ended June 30, 2006
              ChangeUS$
              %
                  of Net Revenue
              US$
              %
                  of Net Revenue
              %Net
                  Revenue
              5,234.3
              100%
              1,499.5
              100
              249%Connection
                  Fees
              1,964.7
              37.5%
              358.6
              23.9%
              448%Gas
                  Sales
              3,248.5
              62%
              1,140.9
              76.1%
              185%Others
              21.1
              0.5%
              
              
              N/A
  ***Connection
        Fees***
 
 Connection
        fees during the six month period ended June 30, 2007 were $1,964,713,
        representing an increase of more than 440% from $358,657 for the same period
        in
        2006. Connection fees accounted for approximately 38% of total net revenue
        during the six month period ended June 30, 2007, compared to 24% for the
        same
        period in 2006.
 
 Excluding
        Beijing Chenguang, which we acquired in January of this year, connection
        fees
        during the six month period ended June 30, 2007 were approximately $1,491,347,
        resulting from the connection of 5,099 new residential households to our
        gas
        distribution network, as compared to $358,657 for the same period in 2006,
        resulting from the connection of 1,560 new residential households.
 
 Beijing
        Chenguang connected 1,487 new residential households during the six months
        ended
        June 30, 2007, which contributed approximately $473,366 to our total connection
        fees. All of our connection fees for the six month period ended June 30,
        2007
        were from the connection of residential customers.
 
 The
        table
        below provides information about our four most significant customers for
        connection fees during the six months ended June 30, 2007:
  **Residential
                    Projects**
                
                **Connected**
                  **Households**
                
                **Connection**
                  **Fees
                    ($ in Thousands)**Jiangsu
                    Peixian Datun
                
                2,780
                
                756.3Shijiangzhuang
                    Jinshi
                
                660
                
                161.7Hebei
                    Dinghua
                
                438
                
                107.8Beijing
                    Ying Group
                
                417
                
                103.5
  23
 
 ***Gas
        sales***
 
 Gas
        sales
        to our customers were $3,248,500 (for 11,734,384 cubic meters of natural
        gas)
        during the six month period ended June 30, 2007, representing 62%, of total
        net
        revenue for that period. Gas sales during the six month period ended June
        30,
        2006 were $1,140,883 (for 3,900,637 cubic meters), representing 76% of the
        total
        net revenue. Gas sales increased $2,107,617, or 185%, from the same period
        in
        2006, due to our previously existing projects (excluding Beijing Chenguang),
        which generated $1,1912,744 in gas sales, an increase of 68% from the same
        period in 2006. Beijing Chenguang sold 5,097,431 cubic meters, or $1,335,756,
        of
        gas during the period, of which sales to residential customers amounted to
        $169,871 and sales to industrial customers amounted to $1,174,885.
 
 The
        table
        below summarizes our gas sales for the periods indicated:
 
 ($’s
                  in thousands)
              For
                  the Six Month Period ended June 302007
              2006Gas
                  Sales
              US$
              %
              US$
              %Main
                  Industrial users
              803.5
              25%
              194.6
              17%Residential
                  users
              1,149.8
              35%
              829.7
              73%Others
                  industrial and commercial
              1,295.2
              40%
              116.5
              10%Total
              3,248.5
              100%
              1,140.8
              100%
 
 For
        the
        six months ended June 30, 2007, sales of natural gas to industrial customers
        were $1,149,756, sales to residential customers were $803,515, and sales
        to
        commercial and industrial customers were $3,248,500. In comparison, during
        the
        six month period ended June 30, 2006, we had natural gas sales of $829,706
        to
        industrial customers, $194,628 to residential customers and $116,548 to
        commercial and other users.
  The
        table
        below lists our three largest natural gas customers during the six months
        ended
        June 30, 2007, all of which are industrial customers:
 **Residential
                    Projects**
                
                **Gas
                    Sales**
                  **(M3)**
                
                **Gas
                    Sales**
                  **($1,000)**Hebei
                    Zhonggang
                
                3,332,813
                
                992,035Hebei
                    Sanhe yanshen
                
                2,834,132
                
                756,793Shunxin
                    Yangguang
                
                847,523
                
                203,757Tangshan
                    Changsheng
                
                436,232
                
                130,286
  24
  Hebei
        Zhonggang was our largest industrial customer, with daily gas consumption
        in
        excess of 20,000 cubic meters. Residential customers purchase gas using a
        prepaid “smart card.”
 
 ***Other
        Revenue***
 
 We
        have
        revenue of $21,159 from the lease of our delivery and storage facilities
        through
        our subsidiary Beijing Chenguang.
 
 **Cost
        of Revenue**
 
 Our
        cost
        of revenue, which includes cost of connection fees and cost of natural gas
        sales, was $ 3,647,501 for the
        six month period ended June 30, 2007. Cost of connection fees was $556,262
        and
        cost of natural gas sales was $3,091,239 during the period.
 
 The
        table
        below summarizes our cost of revenue during the periods indicated:
 
 For
                  the Six Month Period ended June 302007
              2006US$
              %
              US$
              %Cost
                  of revenue
              3,647,501
              100%
              983,487
              100%Connection
                  Cost
              556,262
              15.3%
              64,215
              7%Gas
                  Cost
              3,091,239
              84.7%
              919,272
              93%
 
 *Cost
        of Connections*
 
 Cost
        of
        connection fees during the six month period ended June 30, 2007 was $556,262,
        which represented 15.3% of our total cost of revenue during the period. Cost
        of
        connection fees during the six month period ended June 30, 2006 was $33,500,
        which represented 7.22% of the total cost of revenue during that period.
        The
        significant increase in cost of connection fees is due to both the expansion
        of
        our operations and the increased cost of gas station maintenance resulting
        from
        the development of our gas stations.
 
 Cost
        of
        connection fees includes depreciation of major pipelines, the cost of courtyard
        pipelines, valves, gas meters, and installation and maintenance fees.
  25
  *Cost
        of Natural Gas Sales*
 
 The
        cost
        of natural gas sales in the six month period ended June 30, 2007 was $3,091,239,
        which represented 84.7% of the total cost of revenue during the period. The
        cost
        of natural gas sales for the six month period ended June 30, 2006 was $919,272,
        which represented 93% of the total cost of revenue during that period. Cost
        of
        natural gas sales increased 236% from the six month period ended June 30,
        2006.
        This increase, which outpaced the 185% increase in sales of natural gas during
        the same interval, is largely due depreciation on gas delivery trucks that
        we
        purchased for approximately RMB 12 million ($1.58 million). We believe that
        the
        impact of that depreciation will be gradually reduced as our business and
        customer base grow.
 
 The
        cost
        of natural gas sales includes the purchase and transportation of natural
        gas and
        depreciation of delivery trucks. The purchase price that gas distributors
        pay
        for natural gas, which is determined by the PRC government, is approximately
        RMB
        1.6 to 1.9 ($0.21 to $0.25) per cubic meter. Langfang Development Zone Wei
        Ye
        Dangerous Goods Transportation Co. Ltd, one of our subsidiaries, is responsible
        for our gas transportation, and transportation cost per cubic meter is
        relatively constant at RMB 0.55 ($0.072) per cubic meter. Management believes
        that this transportation cost per cubic meter is likely to remain constant
        in
        spite of the increased depreciation costs from the newly purchased vehicles
        described above, because the vehicles will allow delivery of additional natural
        gas to customers sufficient to offset those costs.
 
 Our
        biggest natural gas supplier is the North China Oil Field Fourth Oil Extraction
        Plant of Petro China Company, with whom we signed a ten-year gas supply
        agreement in 2003. We purchased 3,387,600 cubic meters  of
        natural gas from Petro China at the price of RMB 1.55 ($0.204) per cubic
        meter.
        At the beginning of each year in the ten-year contract period, we negotiate
        with
        Petro China on the price and supply amount according to market conditions.
        In
        2007, Petro China will supply a total of 10 million cubic meters of natural
        gas
        at RMB 1.55 ($0.204) per cubic meter between April 1 and October 31 and RMB
        1.65
        ($0.217) per cubic meter during the rest of the year.
 
 **Gross
        Profit**
  Gross
        profit for the six month period ended June 30, 2007 was $1,502,539, representing
        an increase of approximately 130% from $516,053 for the same period in
        2006.
  Gross
        profit from connection fees increased nearly 380% to $1,408,451, from $294,441
        the same period in 2006. Gross profit from gas sales was $157,261, as compared
        to $221,611 for the same period in 2006. Gross margin from gas sales was
        4.8%
        during the six month period ended June 30, 2007. Management believes it is
        likely that this number will increase as we acquire additional
        users.
 
 **Selling
        and Marketing Expenses**
 
 Selling
        and marketing expenses in the six month period ended June 30, 2007 were
        $199,494, compared with $26,825 in the six month period ended June 30, 2006.
        Selling expenses equaled 4% of our net sales for the six month period ended
        June
        30, 2007 compared to 2% for the same period for the prior year. The increase
        was
        primarily due to the increase in the salaries, social insurance, traveling
        fees
        and communication fees of the marketing department.
  26
  **General
        and administrative expenses**
 
 General
        and administrative expenses were $688,859 for the six months ended June 30,
        2007, compared to $253,820 for the same period in 2006, representing an increase
        of 171%. General and administrative expenses equaled 13% of our net sales,
        compared with 17 % for the same period in 2006. The increase is largely due
        to
        the increase in the number of operating subsidiaries we own, from 13 to 20,
        leading to increases in salary, social insurance, traveling expenses and
        other
        expenses. The increase is also due in part to increased depreciation relating
        to
        new assets described above.
 
 **Income
        from Continuing Operations**
 
 Income
        from continuing operations for the six month period ended June 30, 2007 was
        $614,186, an increase of $378,777, or 161%, from $235,409 for the same period
        in
        2006.
 
 **Income
        Tax**
 
 For
        2007,
        the income tax rate applicable to Beijing Gas, the main subsidiary of Sino
        Gas
        in China, is 7.5%. Beijing Gas is classified as a foreign high-tech enterprise
        by the tax regulatory authority, and therefore has enjoyed a favorable tax
        rate
        for the past five years, with an income tax rate of zero in 2004 and 2005
        and
        7.5% from 2005 to 2007.
 
 The
        income tax rate of our subsidiaries is 33%, except for Beijing Chenguang,
        which
        has also been classified as a foreign high-tech enterprise and is subject
        to the
        favorable income tax rate of 7.5% from 2006 to 2008.
 
 The
        income tax accrued during the six month period ended June 30, 2007 was $27,343,
        compared to $17,587 for the six month period ended June 30, 2006.
 
 **Net
        Income**
 
 Net
        income for the six month period ended June 30, 2007 was $620,197, compared
        to
        $258.142 for the same period in 2006, representing an increase of 140%. The
        increase can be attributed to the continuous growth of our existing markets
        and
        the acquisition of Beijing Chenguang. Due to the seasonal nature of our
        business, management believes it is likely that net income will increase
        substantially in the remaining quarters of 2007.
 
 **Liquidity
        and Capital Resources**
 
 As
        of
        June 30, 2007, cash and cash equivalents were $6.65 million, an increase
        of
        $3.01 million from $3.64 million as of December 31, 2006, due to the increase
        in
        cash flow from operating and financing activities, partly offset by our
        investment activities.
  27
  For
        the
        first six months of 2007, cash flow from operations was $3.65 million, as
        compared to $530,000 in the same period one year ago.
 
 There
        was
        a large increase in cash flow from financing activities during the first
        six
        months of 2007, as we raised $3 million in gross proceeds from our existing
        investors in May, 2007 through the exercise of warrants and we took out a
        one
        year loan in the amount of RMB 20 million (approximately $2.63 million),
        accruing interest at an adjustable rate (currently 6.0225% per year), with
        interest payable quarterly, from Industrial Bank, Beijing Branch. We used
        these
        funds for the development of new projects and acquisitions. During the quarter
        ended March 30, 2007, we repaid an RMB 20 million short-term loan from Shenzhen
        Development Bank.
 
 Net
        cash
        outflow from investing activities for the six months ended June 30, 2007
        was
        $4,225,967, representing an increase of $2.58 million from the same period
        last
        year, due to acquisitions and the connection of new users to our distribution
        networks.
 
 **Accounts
        Receivable**
 
 Accounts
        receivable as of June 30, 2007 were $5,064,400, representing a decrease of
        $1,407,300 from $6,534,700 as of December 31, 2006. This decrease is primarily
        due to our seasonal business cycle, in which many accounts receivable are
        recorded upon completion of construction projects in the fourth quarter,
        and are
        collected in the second quarter of the following year. The term of most of
        our
        accounts receivable is one year. As of the end of the second quarter, 90%
        of
        accounts receivable dated from 2005 had been collected, and the remainder
        were
        primarily warranty payments. A warranty payment is the final payment that
        a
        customer makes for a construction project. It consists of the final 10% of
        the
        total project cost, and it becomes payable one year after construction has
        been
        completed, provided that no significant problems with the construction have
        arisen during the year. Management believes that we are likely to collect
        most
        of the outstanding warranty payments from 2005 in the third quarter of 2007.
 
 Because
        several important ongoing construction projects are scheduled for completion
        in
        the second half of 2007, we expect our accounts receivable to increase during
        that time.
 
 **Fixed
        assets:**
 
 Fixed
        assets as of June 30, 2007 were $14.6 million, an increase of $4 million
        from
        $10.6 million as of the end of fiscal 2006. The increase is primarily due
        to the
        acquisitions of fixed assets, most of which are pipelines, of Beijing
        Chengguang, valued at RMB 2,731,800. We also purchased containers used for
        gas
        delivery at a purchase price $409,700 during the quarter.
  28
  **Accounts
        Payable**
 
 Accounts
        payable as of June 30, 2007 were $6.79 million, an increase of $2.9 million
        from
        the end of 2006. This increase is due primarily to our acquisition of Beijing
        Chenguang, in connection with which we are scheduled to make an additional
        payment of $2.09 million.
 
 **Item
        3.**  **Controls
        and Procedures**
 
 At
        the
        conclusion of the quarter ended June 30, 2007, we carried out an evaluation,
        under the supervision and with the participation of our management, including
        our Chairman and Chief Executive Officer and Chief Financial Officer, of
        the
        effectiveness of the design and operation of our disclosure controls and
        procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
        Act.
        Based on this evaluation, our officers concluded that, as of June 30, 2007,
        our
        disclosure controls and procedures were effective and adequately designed
        to
        ensure that the information required to be disclosed by us in the reports
        we
        submit under the Exchange Act is recorded, processed, summarized and reported
        reliably and within the time periods specified in the applicable rules and
        forms
        and that such information is accumulated and communicated to our chief executive
        officer and chief financial officer in a manner that allows for timely decisions
        regarding required disclosure.
 
 In
        the
        course of our evaluation, we did not discover any change in our internal
        control
        over financial reporting that has materially affected or is reasonably likely
        to
        materially affect our internal control over financial reporting.
  **PART
        II**
 
 **Item
        2. Unregistered Sales of Securities**
 
 Please
        see the first paragraph under Item 5 of this report, which is incorporated
        into
        this Item by reference.
 
 **Item
        5. Other Information**
 
 On
        May
        15, 2007, we entered into a warrant exercise agreement with Vision Opportunity
        Master Fund, Ltd. (“Vision”), a holder of our Series J Warrants, pursuant to
        which, on the same date, Vision exercised Series J Warrants to purchase
        1,094,891 shares of our common stock at a purchase price of $2.74 per share.
        In
        consideration of, and in order to provide incentive for, this exercise, which
        provided us with gross proceeds of $3,000,001, we issued to Vision Series
        E
        Warrants, with substantially the same terms as the exercised Series J Warrants,
        to purchase 1,094,891 shares of our common stock at a purchase price of $3.01
        per share. At the same time, pursuant to our engagement agreement with Kuhns
        Brothers Securities, Inc., we issued to Kuhns Brothers, as a placement agent
        fee, Series G Warrants, with substantially the same terms as the exercised
        Series J Warrants, to purchase 109,489 shares of our common stock, or 10%
        of the
        shares issued to Vision.
  29
  Copies
        of
        the warrant exercise agreement, Series E Warrant and Series G Warrant are
        attached as exhibits to this report.
 
 On
        April
        12, 2007, we terminated our engagement agreement with Kuhns
        Brothers.
 
 **Item
        6.**  **Exhibits.**
 
 Exhibit
        List
  No.
              
              Description
 
 3.1
              
              Amended
                  Articles of Incorporation.
 
 3.2
              
              Amended Bylaws.
                  (1)
 
 4.1
              
              Series
                  E Warrant.
 
 4.2
              
              Series
                  G Warrant.
 
 10.1
              
              Warrant
                  Exercise Agreement between the Company and Vision Opportunity Master
                  Fund,
                  Ltd.
 
 31.1
              
              Certification
                  of Yuchuan Liu pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
                  as
                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
 
 31.2
              
              Certification
                  of Fang Chen pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
 
 32.1
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of the Sarbanes-Oxley Act of
                  2002.
 
 (1)
        Incorporated by reference to the Registrant’s Current Report on Form 8-K filed
        with the Securities and Exchange Commission on September 13, 2006.
  30
  **SIGNATURES**
 
 In
        accordance with the requirements of the Securities Exchange Act of 1934,
        as
        amended, the registrant has caused this report to be signed on its behalf
        by the
        undersigned, thereunto duly authorized.
  **SINO
                  GAS INTERNATIONAL HOLDINGS, INC.**Date:
                  August 17, 2007
              *By:*
              */s/
                  Chen Fang**Chen
                  Fang**Director
                  and Chief Financial Officer*
  31