U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549









FORM
      10-QSB




(Mark
      one)




x
            Quarterly
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934




For
      the
      Quarterly Period Ended September 30, 2007




or




o
            Transition
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934




Commission
      File Number 000-51364







SINO
      GAS
      INTERNATIONAL HOLDINGS, INC.


(Name
      of
      small business issuer in its charter)




Utah
            32-0028823(State
                or other jurisdiction
              of
                incorporation or organization)
            (I.R.S.
                Employer
              Identification
                No.)





No.18
                Zhong Guan Cun Dong St.
              Haidian
                District
              Beijing,
                P. R. China
            100083(Address
                of principal executive offices)
            (Zip
                Code)




Issuer's
      telephone number:  86-10-82600527









Check
      whether the issuer (1) has filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act 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 xNo o




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act). Yes oNo x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act)    Yes oNo x




As
      of
      November 12, 2007, the Registrant had 24,764,122 shares of common stock
      outstanding.








Sino
      Gas
      International Holdings, Inc.




Table
      of
      Contents




PagePART
                I -
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                StatementsNotes
                to Financial Statements (Unaudited)
            6Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            21Item
                3.
            Controls
                and Procedures
            31PART
                II -
            OTHER
                INFORMATION
            33Item
                1.
            Legal
                Proceedings
            33Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            33Item
                3.
            Defaults
                Upon Senior Securities
            33Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            33Item
                5.
            Other
                Information
            33Item
                6.
            Exhibits
            34










PART
      I -
      FINANCIAL INFORMATION




Item
      1. Financial Statements.




**SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 
 **UNAUDITED
        FINANCIAL STATEMENTS**
 **SEPTEMBER
        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
–
                      18
 
 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 September 30, 2007 and December
          31, 2006,
          and the related consolidated statements of income and cash flows for the
          three-month and nine-month periods ended September 30, 2007 and 2006. 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., LLPNovember
                      10, 2007
                  Certified
                      Public Accountants
 1
  **SINO
                    GAS INTERNATIONAL HOLDINGS, INC.****CONSOLIDATED
                    BALANCE SHEETS****AT
                    SEPTEMBER 30, 2007 AND DECEMBER 31, 2006****(Stated
                    in US Dollars)**
 **Notes**
                  
                  **September
                      30,**
                    **2007**
                  
                  **December**
                    **31,
                      2006**ASSETS
                  
                  
                  
                  **(unaudited)**
                  
                  **(audited)**Current
                      assetsCash
                      and cash equivalents
                  
                  
                  
                  
                  $
                  16,474,397
                  
                  $
                  3,638,673Restricted
                      cash
                  
                  
                  
                  
                  
                  172,986
                  
                  
                  3,124,541Notes
                      receivable
                  
                  
                  
                  
                  
                  623,071
                  
                  
                  477,390Accounts
                      receivable
                  
                  
                  
                  
                  
                  6,329,633
                  
                  
                  6,534,740Inventory
                  
                  
                  
                  
                  
                  282,700
                  
                  
                  -Advances
                      to suppliers
                  
                  
                  
                  
                  
                  538,731
                  
                  
                  68,309Prepayments
                      and others
                  
                  
                  
                  
                  
                  118,211
                  
                  
                  141,878Other
                      receivables
                  
                  
                  4
                  
                  
                  1,247,546
                  
                  
                  1,263,800Total
                      current assets
                  
                  
                  
                  
                  $
                  25,787,275
                  
                  $
                  15,249,331*Long
                      term assets*Investments
                      in equity securities
                  
                  
                  5
                  
                  
                  3,131,322
                  
                  
                  2,939,029Plant
                      and equipment, net
                  
                  
                  7
                  
                  
                  20,206,229
                  
                  
                  10,608,530Construction
                      in progress
                  
                  
                  
                  
                  
                  8,959,416
                  
                  
                  4,628,076Intangible
                      assets
                  
                  
                  6
                  
                  
                  354,491
                  
                  
                  457,830Goodwill
                  
                  
                  
                  
                  
                  962,582
                  
                  
                  -TOTAL
                      ASSETS
                  
                  
                  
                  
                  $
                  59,401,315
                  
                  $
                  33,882,796LIABILITIES
                      AND STOCKHOLDERS’ EQUITYCurrent
                      liabilitiesBank
                      Loans
                  
                  
                  
                  
                  $
                  2,660,424
                  
                  $
                  2,430,445Accounts
                      payable
                  
                  
                  
                  
                  
                  3,447,280
                  
                  
                  3,891,388Other
                      payables
                  
                  
                  8
                  
                  
                  5,702,409
                  
                  
                  1,790,500Unearned
                      revenue
                  
                  
                  
                  
                  
                  -
                  
                  
                  37,760Accrued
                      liabilities
                  
                  
                  
                  
                  
                  1,101,586
                  
                  
                  325,922Total
                      current liabilities
                  
                  
                  
                  
                  $
                  12,911,699
                  
                  $
                  8,476,015TOTAL
                      LIABILITIES
                  
                  
                  
                  
                  $
                  12,911,699
                  
                  $
                  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 SEPTEMBER 30, 2007 AND DECEMBER 31,****2006****(Stated
                    in US Dollars)**
 **Notes**
                  
                  **September
                      30,**
                    **2007**
                  
                  **December
                      31, 2006****(unaudited)**
                  
                  **(audited)**STOCKHOLDERS’
                      EQUITYPreferred
                      Stock A US$0.001 par value; 20,000,000 authorized; nil and
                      nil issued and
                      outstanding as of September 30, 2007 and December 31, 2006
                      respectively
                  
                  
                  
                  
                  
                  -
                  
                  
                  -Preferred
                      Stock B US$0.001 par value; 5,000,000 authorized; 4,858,343
                      and 4,023,268
                      issued and outstanding as of September 30, 2007 andDecember
                      31, 2006 respectively
                  
                  
                  3
                  
                  $
                  4,858
                  
                  $
                  4,023Common
                      Stock US$0.001 par value; 250,000,000 authorized; 24,764,122
                      and
                      14,692,647 issued and outstanding as of September 30, 2007
                      andDecember
                      31, 2006 respectively
                  
                  
                  3
                  
                  
                  24,764
                  
                  
                  14,693Additional
                      paid-in-capital
                  
                  
                  3
                  
                  
                  29,212,878
                  
                  
                  12,069,176Statutory
                      reserves
                  
                  
                  
                  
                  
                  2,002,684
                  
                  
                  2,025,022Retained
                      earnings
                  
                  
                  
                  
                  
                  13,435,444
                  
                  
                  10,469,571Accumulated
                      other comprehensive income
                  
                  
                  
                  
                  
                  1,808,988
                  
                  
                  824,296$
                  46,489,616
                  
                  $
                  25,406,781TOTAL
                      LIABILITIES AND STOCKHOLDERS’EQUITY
                  
                  
                  
                  
                  $
                  59,401,315
                  
                  $
                  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 NINE MONTHS****ENDED****SEPTEMBER 30, 2007 AND 2006****(Stated
                    in US Dollars)**
 Nine
                      months ended
                    September
                      30,
                  
                  Three
                      months ended
                    September
                      30,*Notes*
                  
                  2007
                  
                  2006
                  
                  2007
                  
                  2006Net
                      revenues
                  
                  
                  
                  
                  $
                  10,886,612
                  
                  $
                  4,971,156
                  
                  $
                  5,652,240
                  
                  $
                  3,471,616Cost
                      of revenues
                  
                  
                  
                  
                  
                  (5,696,918
                  )
                  
                  (1,849,128
                  )
                  
                  (1,965,085
                  )
                  
                  (865,641
                  )Gross
                      profit
                  
                  
                  
                  
                  
                  5,189,694
                  
                  
                  3,122,028
                  
                  
                  3,687,155
                  
                  
                  2,605,975Operating
                      expensesSelling
                      and marketing expenses
                  
                  
                  
                  
                  
                  (376,233
                  )
                  
                  (66,497
                  )
                  
                  (176,739
                  )
                  
                  (39,673
                  )General
                      and administrative expenses
                  
                  
                  
                  
                  
                  (1,310,811
                  )
                  
                  (693,973
                  )
                  
                  (621,952
                  )
                  
                  (440,154
                  )Income
                      from continuing operations
                  
                  
                  
                  
                  $
                  3,502,650
                  
                  $
                  2,361,558
                  
                  $
                  2,888,464
                  
                  $
                  2,126,148Finance
                      costs, net
                  
                  
                  
                  
                  
                  11,527
                  
                  
                  (2,169
                  )
                  
                  (22,023
                  )
                  
                  973Other
                      income
                  
                  
                  
                  
                  
                  9,046
                  
                  
                  13,205
                  
                  
                  (2,735
                  )
                  
                  -Other
                      expenses
                  
                  
                  
                  
                  
                  (13,197
                  )
                  
                  (159
                  )
                  
                  (1,220
                  )
                  
                  (30,417
                  )Income
                      before taxation
                  
                  
                  
                  
                  $
                  3,510,026
                  
                  $
                  2,372,435
                  
                  $
                  2,862,486
                  
                  $
                  2,096,704Income
                      tax
                  
                  
                  9
                  
                  
                  (255,230
                  )
                  
                  (183,755
                  )
                  
                  (227,887
                  )
                  
                  (166,168
                  )Net
                      income
                  
                  
                  
                  
                  $
                  3,254,796
                  
                  $
                  2,188,680
                  
                  $
                  2,634,599
                  
                  $
                  1,930,536Net
                      income per share,Basic
                  
                  
                  
                  
                  $
                  0.21
                  
                  $
                  0.15
                  
                  $
                  0.15
                  
                  $
                  0.13Diluted
                  
                  
                  
                  
                  $
                  0.17
                  
                  $
                  0.15
                  
                  $
                  0.12
                  
                  $
                  0.13Weighted
                      average shares outstandingof
                      common stock,Basic
                  
                  
                  
                  
                  
                  15,779,750
                  
                  
                  14,361,646
                  
                  
                  17,889,867
                  
                  
                  14,361,646Diluted
                  
                  
                  
                  
                  
                  19,573,911
                  
                  
                  14,361,646
                  
                  
                  21,856,124
                  
                  
                  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 NINE-MONTHS AND THREE-MONTHS ENDED SEPTEMBER 30, 2007 AND
                    2006****(Stated
                    in US Dollars)**
  Nine
                      months ended
                    September
                      30,
                  
                  Three
                      months ended
                    September
                      30,**2007**
                  
                  **2006**
                  
                  **2007**
                  
                  **2006****Cash
                      Flows from Operating Activities**Net
                      income
                  
                  $
                  3,254,796
                  
                  $
                  2,188,680
                  
                  $
                  2,634,599
                  
                  $
                  1,930,538Depreciation
                      and Amortization
                  
                  
                  1,544,072
                  
                  
                  799,780
                  
                  
                  847,619
                  
                  
                  734,626(Increase)/decrease
                      in accounts and other receivables
                  
                  
                  (371,075
                  )
                  
                  (34,644
                  )
                  
                  259,352
                  
                  
                  (2,596,984
                  )(Increase)
                      in inventories
                  
                  
                  (282,700
                  )
                  
                  -
                  
                  
                  (225,010
                  )
                  
                  12,899Increase/(decrease)
                      in accounts and other payables
                  
                  
                  4,140,130
                  
                  
                  526,407
                  
                  
                  1,186,313
                  
                  
                  1,435,096Net
                      cash provided by operating activities
                  
                  $
                  **8,350,798**
                  
                  $
                  **3,480,223**
                  
                  $
                  **4,702,873**
                  
                  $
                  **1,516,175****Cash
                      Flows from Investing Activities**Purchase
                      of plant and equipment
                  
                  $
                  (10,938,911
                  )
                  $
                  (1,042,371
                  )
                  $
                  (6,205,268
                  )
                  $
                  1,075,041Restricted
                      Cash
                  
                  
                  2,951,555
                  
                  
                  -
                  
                  
                  (172,986
                  )
                  
                  -Payment
                      for the construction in progress
                  
                  
                  (4,331,340
                  )
                  
                  (2,727,284
                  )
                  
                  (1,514,904
                  )
                  
                  (2,727,284
                  )Payment
                      of cost of intangible assets
                  
                  
                  (852,243
                  )
                  
                  (11,141
                  )
                  
                  (1,159,406
                  )
                  
                  (5,463
                  )Acquisition
                      of subsidiaries
                  
                  
                  (192,293
                  )
                  
                  (254,474
                  )
                  
                  (19,126
                  )
                  
                  (226,620
                  )Increase
                      in minority interest
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Net
                      Cash Used in Investing Activities
                  
                  $
                  **(13,363,232**
                  **)**
                  $
                  **(4,035,270**
                  **)**
                  $
                  **(9,071,690**
                  **)**
                  $
                  **(1,884,326**
                  **)****Cash
                      Flows from Financing Activities**Repayment
                      of Bank borrowings
                  
                  
                  229,979
                  
                  
                  -
                  
                  
                  37,404
                  
                  
                  -Dividend
                      Paid
                  
                  
                  (521,121
                  )
                  
                  -
                  
                  
                  (521,121
                  )
                  
                  -Issue
                      of share capital
                  
                  
                  17,154,609
                  
                  
                  5,246,891
                  
                  
                  14,566,850
                  
                  
                  5,246,891Net
                      Cash Provided by Financing Activities
                  
                  $
                  **16,863,467**
                  
                  
                  **5,246,891**
                  
                  $
                  **14,083,133**
                  
                  $
                  **5,246,891****Net
                      in Cash & Cash Equivalents Sourced/(Used)**
                  
                  $
                  11,851,033
                  
                  $
                  4,691,844
                  
                  $
                  9,714,316
                  
                  $
                  4,878,740Effect
                      of foreign currency translation on Cash & Cash
                      equivalents
                  
                  
                  984,691
                  
                  
                  65,268
                  
                  
                  106,442
                  
                  
                  (244,085
                  )**Cash
                      & Cash Equivalents at Beginning of Period**
                  
                  
                  3,638,673
                  
                  
                  571,194
                  
                  
                  6,653,639
                  
                  
                  693,651**Cash
                      & Cash Equivalents at End of Period**
                  
                  $
                  16,474,397
                  
                  $
                  5,328,306
                  
                  $
                  16,474,397
                  
                  $
                  5,328,306
  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 SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
   **1.**  **ORGANIZATION
          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 SEPTEMBER 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 SEPTEMBER 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 September
          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
                      10,000,000The
                      BritishSino
                      Gas Construction Limited
                  
                  Virgin
                      Islands
                  
                  1/9/2007
                  
                  100
                  
                  100
                  
                  USD
                      50,000Sino
                      Gas Investment Development Limited
                  
                  The
                      British Virgin Islands
                  
                  1/9/2007
                  
                  100
                  
                  100
                  
                  USD
                      50,000Beijing
                      Zhong Ran Wei Ye Gas Co., Ltd
                  
                  PRC
                  
                  8/29/2001
                  
                  100
                  
                  100
                  
                  RMB
                      112,000,000Peixian
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  8/22/2005
                  
                  100
                  
                  90
                  
                  RMB
                      5,000,000Sihong
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  12/3/2004
                  
                  100
                  
                  95
                  
                  RMB
                      10,000,000Wuhe
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  
                  
                  100
                  
                  100
                  
                  RMB
                      3,000,000Changli
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  12/8/2006
                  
                  100
                  
                  100
                  
                  RMB
                      3,000,000Yutian
                      Zhongran Weiye Gas Co., Ltd
                  
                  PRC
                  
                  12/19/2003
                  
                  100
                  
                  90
                  
                  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
                      2,000,000Wuqiao
                      Gas Co., Ltd
                  
                  PRC
                  
                  6/30/2004
                  
                  100
                  
                  95
                  
                  RMB
                      2,000,000Jinzhou
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  7/19/2004
                  
                  100
                  
                  95
                  
                  RMB
                      5,000,000Shenzhou
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  12/23/2005
                  
                  100
                  
                  95
                  
                  RMB
                      3,000,000Ningjin
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  12/3/2003
                  
                  100
                  
                  95
                  
                  RMB
                      3,000,000Linzhang
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  7/6/2005
                  
                  100
                  
                  85
                  
                  RMB
                      1,000,000Hengshui
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  12/20/2005
                  
                  100
                  
                  100
                  
                  RMB
                      3,000,000Longyao
                      Zhongran Weiye Gas Co., Ltd
                  
                  PRC
                  
                  10/13/2005
                  
                  100
                  
                  95
                  
                  RMB
                      3,000,000Xingtang
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  2/18/2004
                  
                  100
                  
                  95
                  
                  RMB
                      3,000,000Gucheng
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  
                  
                  100
                  
                  100
                  
                  RMB
                      3,000,000Langfang
                        Development Region WeiyeDangerous
                      Goods Transportation Co., Ltd
                  
                  PRC
                  
                  3/22/2005
                  
                  100
                  
                  95
                  
                  RMB
                      1,000,000Beijing
                      Chenguang Gas Ltd.
                  
                  PRC
                  
                  10/30/2002
                  
                  100
                  
                  100
                  
                  RMB
                      20,000,000Xinji
                      Zhongchen Gas Co., Ltd
                  
                  PRC
                  
                  2/7/2007
                  
                  100
                  
                  100
                  
                  RMB
                      3,000,000Shijiazhuang
                      Chenguang Gas Co., Ltd
                  
                  PRC
                  
                  
                  
                  100
                  
                  100
                  
                  RMB
                      2,000,000Luquan
                      Chenguang Gas Co., Ltd
                  
                  PRC
                  
                  
                  
                  100
                  
                  100
                  
                  RMB
                      2,000,000Chenan
                      Chenguang Gas Co., Ltd
                  
                  PRC
                  
                  1/23/2007
                  
                  100
                  
                  100
                  
                  RMB
                      1,500,000Nangong
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  6/25/2007
                  
                  100
                  
                  100
                  
                  RMB
                      3,000,000Sishui
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  12/22/2004
                  
                  100
                  
                  95
                  
                  RMB
                      3,000,000Guannan
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  6/19/2003
                  
                  100
                  
                  100
                  
                  RMB
                      9,510,000Sixian
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  9/3/2007
                  
                  100
                  
                  100
                  
                  RMB
                      3,000,000Baishan
                      Weiye Gas Co., Ltd
                  
                  PRC
                  
                  7/13/1007
                  
                  100
                  
                  100
                  
                  RMB
                      15,000,000
 8
  **SINO
            GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
 *(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.
  *(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 SEPTEMBER 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 September 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.
 10
  **SINO
          GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
          in US Dollars)**
 *(a)*
              *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.
 
 *(b)*
              *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.
 
 *(c)*
              *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.
 **9/30/2007**
                
                **12/312006**
                
                **9/30/2006**Months
                    end RMB : US$ exchange rate
                7.5176
                
                7.8175
                
                7.91679Average
                    monthly RMB : US$ exchange rate
                7.67578
                
                7.9819
                
                8.01830
 
 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 .
 
 *(d)*
              *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
  **SINO
            GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
 *(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 September
          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 SEPTEMBER 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.
  *(x)*
                *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 SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
 
 *(y)*  *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**
 
 On
          September 7, 2007, the Company entered into a Securities Purchase Agreement
          with
          a number of accredited investors providing for the sale to the investors
          of a
          total of 8,340,762 shares of the Company’s common stock at $2.25 per share for
          an aggregate purchase price of $18,766,721.05. The following table depicts
          consummation of the transaction on September 13, 2007 with respect to the
          gross
          and net proceeds of this share transaction:
 Gross
                      Proceeds: Sale of 8,340,762 common shares at $2.25 per share
                  
                  $
                  18,766,721.05*Less**:*Compensation
                      paid to Vision for cancellation of E&JWarrants
                      of
                      1,988,698 and 1,094,891 totaling 3,083,589shares
                      respectively
                  
                  
                  3,016,721.2515,749,999.80*Less**:*Placement
                      Agent Fees; Expenses of this issue
                  
                  
                  1,957,132.99Net
                      Proceeds
                  
                  $
                  13,792,866.81
 14
  **SINO
            GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
  As
          part
          of the financing, the Company has simplified its capital structure by canceling
          or repurchasing some its outstanding warrants from the holders. As consideration
          for the purchase of the Series A, B and D warrants and the cancellation
          of the
          Series E & J warrants, the Company will pay to the prior investors $3.5
          million in cash, issue a warrant for the purchase of 271,074 common shares,
          and
          issue 770,897 shares of Series B preferred stock. In exchange of the prior
          investors waivering their right to receive shares of Series B preferred
          stock
          under anti-dilution provisions of the relevant stock purchase agreement,
          the
          Company agreed to issue to them 700,000 additional shares of Series B preferred
          stock.
 
 The
          above-mentioned 770,897 and 700,000 shares of Series B preferred stock
          have in
          fact been issued to the related prior investors at $0.001 par value per
          share
          during September 2007.
 
 As
          a
          result of the above recapitalization plan, the Company has cancelled most
          of its
          outstanding warrants and clarified its capital structure without dilution
          of its
          equity base.
  **4.**  **OTHER
          RECEIVABLES**
 
 Other
          receivables at September 30, 2007 consist of the following:
 **9/30/2007**
                  
                  **12/31/2006**Deposits
                      and prepayments
                  
                  $
                  1,134,309
                  
                  $
                  543,013Amounts
                      due from employees
                  
                  
                  113,237
                  
                  
                  86,464Sundry
                      receivables
                  
                  
                  -
                  
                  
                  634,323$
                  1,247,546
                  
                  $
                  1,263,800
  Amounts
          due from employees are advances for business traveling and purchases of
          consumables. All the amounts due from
          employees/shareholders are unsecured, interest free, and have no fixed
          repayment
          terms.
  **5.**  **INVESTMENTS IN EQUITY SECURITIES**
  **9/30/2007**
                  
                  **12/31/2006**As
                      at January 1
                  
                  $
                  2,939,029
                  
                  $
                  2,443,378Changes
                      due to foreign currency translation
                  
                  
                  192,293
                  
                  
                  495,651As
                      of September 30 / December 31
                  
                  $
                  3,131,322
                  
                  $
                  2,939,029
  15
  **SINO
            GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
 
 
 **6.**  **INTANGIBLE
          ASSETS**
 
 Intangible
          assets consist of the following as of September 30, 2007:
 **9/30/2007**
                  
                  **12/31/2006***At
                      Cost*Land
                      use rights
                  
                  $
                  121,445
                  
                  $
                  112,565Franchises
                  
                  
                  355,256
                  
                  
                  336,318Other
                      intangibles
                  
                  
                  169,676
                  
                  
                  8,947646,377*Less**:
                      Accumulated amortization*
                  
                  
                  (291,886
                  )$
                  354,491
                  
                  $
                  457,830
 
 The
          Group
          operates as a local natural gas distributor in a city or county, known
          as an
          operation location, under an exclusive franchise agreement between the
          Group and
          the local government or entities in charge of gas utility. Franchises are
          the
          rights to develop sites in Anping and Jinzhou in China. They are stated
          at cost
          less accumulated depreciation.
  **7.**  **PLANT
          AND EQUIPMENT, NET**
 
 Plant
          and
          Equipment consist of the following as of September 30, 2007:
 **9/30/2007**
                  
                  **12/31/2006***At
                      Cost*Gas
                      Pipelines
                  
                  $
                  14,632,670
                  
                  $
                  8,255,231Motor
                      Vehicles
                  
                  
                  4,428,483
                  
                  
                  2,204,621Machinery
                      & Equipment
                  
                  
                  862,857
                  
                  
                  273,943Buildings
                  
                  
                  1,363,667
                  
                  
                  89,799Leasehold
                      Improvements
                  
                  
                  384,358
                  
                  
                  47,543Office
                      Equipment
                  
                  
                  158,633
                  
                  
                  67,774$
                  21,830,668
                  
                  $
                  10,938,911*Less**:
                      Accumulated depreciation*
                  
                  
                  (1,624,439
                  )
                  
                  (330,381
                  )$
                  20,206,229
                  
                  $
                  10,608,530
  16
  **SINO
            GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
 
 **8.**  **OTHER
          PAYABLES**
 
 Other
          payables at September 30, 2007 consist of the following:
 **9/30/2007**
                  
                  **12/31/2006**Employees’
                      welfare payables
                  
                  $
                  132,688
                  
                  $
                  56,584Amount
                      due to employees
                  
                  
                  -
                  
                  
                  11,360Contract
                      payable
                  
                  
                  4,743,936
                  
                  
                  -Tax
                      payable
                  
                  
                  -
                  
                  
                  1,089,804Loan
                      from an unrelated company – Beijing Qian Shi Li
                  
                  
                  246,350
                  
                  
                  -Loan
                      from an unrelated company – Qinghua Yangguang
                  
                  
                  13,302
                  
                  
                  -Loan
                      from an unrelated company – Chenguang Weizhong
                  
                  
                  399,064Sundry
                      payables
                  
                  
                  167,069
                  
                  
                  632,752$
                  5,702,409
                  
                  $
                  1,790,500
 
 All
          the
          amounts due to employees are unsecured, interest free, and have no fixed
          repayment terms. Loans from Beijing Qian Shi Li Technology Development
          Co.,Ltd
          (Qian Shi Li), Qinghua Yangguang and Chenguang Weizhong are unsecured,
          interest
          free, and have no fixed repayment terms.
  **9.**  **INCOME
          TAX**
 
 In
          accordance with the relevant tax laws and regulations of PRC, the corporation
          income tax rate is 33%. However, in accordance with the relevant taxation
          laws
          in the PRC, the Group is eligible for tax concessions and was exempted
          from part
          of the PRC income taxes for the year.
 
 The
          following table accounts for the differences between the actual tax provision
          and the amounts obtained by applying the applicable PRC corporation income
          tax
          rate of 33% to income before taxes for the nine months ended September
          30,
  **9/30/2007**
                  
                  **12/31/2006**Income
                      before taxation
                  
                  $
                  3,510,026
                  
                  $
                  2,372,435Provision
                      for income taxes at PRC income tax rate
                  
                  
                  1,158,309
                  
                  
                  782,904Effect
                      of tax exemption granted to the Group
                  
                  
                  (903,079
                  )
                  
                  (599,149
                  )Income
                      tax
                  
                  $
                  255,230
                  
                  $
                  183,755
  17
  **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006**
 **(Stated
            in US Dollars)**
 **10.**  **SEGMENT
          INFORMATION**
 
 The
          Company has contracted with customers usually in two revenue segments
          altogether, one is for the construction and installation of gas facilities
          and
          another one is the subsequent sales of gas to that customers through the
          gas
          facilities the Company constructs. However, the respective gas facilities
          contracts and gas supply contracts have separately provided for the basis
          of
          revenue recognition and distinctive from each other for the relevant
          cost-and-revenue to be incurred and hence separate calculation and subsequent
          payment of fees for respective business without any interdependence on
          each
          other in this respect.
 
 For
          management purposes, the company is currently organized into two major
          operating
          divisions - gas pipeline construction (installation of gas facilities)
          and sales
          of piped gas. These principal operating activities are the basis on which
          the
          Company reports its primary segment information.
 *2007*
                  
                  *Gas
                      pipeline*
                  
                  *Sales
                      of**construction*
                  
                  *piped
                      gas*
                  
                  *Consolidated*Turnover
                  
                  $
                  5,997,716
                  
                  
                  4,888,896
                  
                  
                  10,886,612Cost
                      of sales
                  
                  
                  (1,348,258
                  )
                  
                  (4,348,660
                  )
                  
                  (5,696,918
                  )Segment
                      result
                  
                  $
                  4,649,458
                  
                  
                  540,236
                  
                  
                  5,189,694
 *2006*
                  
                  *Gas
                      pipeline*
                  
                  *Sales
                      of**construction*
                  
                  *piped
                      gas*
                  
                  *Consolidated*Turnover
                  
                  $
                  3,104,605
                  
                  
                  1,866,551
                  
                  
                  4,971,156Cost
                      of sales
                  
                  
                  (469,824
                  )
                  
                  (1,379,304
                  )
                  
                  (1,849,128
                  )Segment
                      result
                  
                  $
                  2,634,781
                  
                  
                  487,247
                  
                  
                  3,122,028
  The
          Company's operations are located in the PRC. All revenue is from customers
          in
          the PRC. All of the Company’s assets are located in the PRC. Sales of piped gas
          and gas pipeline construction are carried out in the PRC. Accordingly,
          no
          analysis of the Company's sales and assets by geographical market is
          presented.


18




**Item
        2.****Management’s
        Discussion and Analysis**
 
 **For
        the three months ended September 30, 2007**
 
 **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 nine-month
          periods ended September 30, 2007. The
          third
          quarter is traditionally a strong season for the company, as the company
          begins
          to earn most of its connection fees of the year through the year end with
          the
          completion of gas pipeline construction.
 
 Construction
        of pipelines and gas stations usually begins during late first quarter and
        early
        second quarter, after being largely inactive in the first 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.
 
 For
        the
        three months ended September 30, 2007, net sales increased 63% to $5,652,240
        compared to same period last year. Net profit increased 36% to 2,634,599
        during
        the same three months ended September 30,2007 compare to same period last
        year.
 
 For
        the
        first nine months of the year, net sales increased 119% to $10,886,612 compared
        to same period last year. Net profit increased nearly 50% to $3,254,796 during
        the same nine months ended September 30, 2007 compared to the same period
        last
        year.
 
 The
        strong performance was due to our strategic acquisitions and new construction
        at
        existing project locations. During the nine months ended Sep 30, 2007, we
        constructed natural gas pipelines connected to 21,629 residential households,
        as
        compared to 12,010 new household connections during the same period in 2006.
        As
        of Sep 30, 2007, our distribution network included 69,860 connected users,
        compared to 35,707 connected users one year earlier.
 
 **RESULTS
        OF OPERATIONS**
 ***Three
        Months Ended Sep 30, 2007 Compared to Three Months Ended Sep 30,
        2006***
 
 **Net
        Revenues**
 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 September 30, 2007 was $5,652,240 ,
        compared to $3,471,616 for the same period in 2006, representing an increase
        of
        63%. The increase was due to new customers connecting to our gas distribution
        network and new customers purchasing our natural gas. During this period,
        we
        connected 15,043 new
        residential households to our gas distribution network, resulting in total
        connection fees of $4,011,844. Gas sales during the period amounted to 6.45
        million cubic meters, or $ 1.64
        million.
 
 In
        comparison, during the same period one year ago, we connected 10,500 new
        residential households to our gas distribution network, resulting in total
        connection fees of $2,745,948. Gas sales during the period amounted to 2.69
        million cubic meters, or $0.73 million.
  The
        following table summarizes our net revenue during the periods
        indicated:
 For
                    the three months ended Sep 302007
                
                2006
                
                Change(
                      $
                      thousand)
                
                US$
                
                %
                
                US$
                
                %
                
                %Total
                    Revenue
                
                
                5,652.2
                
                
                100
                %
                
                3,471.6
                
                
                100
                %
                
                63
                %Connection
                    Fees
                
                
                4,011.8
                
                
                71
                %
                
                2,745.9
                
                
                79
                %
                
                46
                %Gas
                    Sales
                
                
                1,640.4
                
                
                29
                %
                
                725.7
                
                
                21
                %
                
                126
                %


21


***Connection
      fees***




Connection
      fees during three months ended Sep 30, 2007 were $ 4,011,844, representing an increase of 46% from $2,745,948 for the same period last year.
      Connection fees accounted for approximately70% of total revenue during the
      period, compared with approximately 79% for the same period in
      2006.





We
      had
      connected a total of 15,043 new residential households during the three months
      ended September 30, 2007 in the twenty-four cities where we have developed
      or
      acquired gas distribution network. During
      the three months ended September 30, 2007, Peixian Weiye Gas Co., Ltd (Peixian
      Weiye), one of our subsidiaries, located in Peixian, Jiangsu Province, had
      connected 5,990 new residential households, generating $2 million connection
      fees.





In
      July,
      Sino Gas, through Peixian Weiye, signed agreement with Shanghai Datun Energy
      Co., Ltd., one of our major customers in Pei Xian to connect additional 6,000
      households, the second phase of connecting a total of 18,000 new households
      for
      the customer.





In
      July
      2007, we
      established a new subsidiary, Baishan
      Zhong Ran We Ye Gas Co., Ltd. ('Baishan Gas'), in
      Baishan City, Jilin Province, and
      acquired all of the operating assets of Baishan Gas Co., Ltd. ('Baishan'),
      a
      local gas operator,. Since then , we have developed 6,100 new residential
      households by the end of September 30, 2007, generating $1.1 million connection
      fees.





Beijing
      Chenguang Gas Co., Ltd. (“Beijing Chenguang”), acquired in January 2007,
      connected 1,350 new residential households in the three months ended September
      30, 2007, resulting in approximately $413,500 to our total connection fees.





***Gas
      sales***





We
      sold
      approximately 6.45 million cubic meters of natural gas to our customers during
      the three months ended September 30, 2007, accounting for roughly $1.64 million,
      or 15% of total net revenue. In comparison, gas sold in the three months ended
      September 30, 2006 totaled 2.69 million cubic meters, accounting for $0.73
      million, or 6.7%, of net revenue. Gas sales increased $0.9 million, or 126%,
      from the same period one year ago.





Among
      the
      total gas sales, industrial users accounted for $0.83 million, residential
      users
      accounted for $0.39 million. The rest, most of which was sold through other
      gas
      distributors, accounted for $0.43 million. In
      comparison, during the three months ended September 30, 2006, industrial users
      accounted for $0.49 million gas sales, residential users accounted for $0.1066
      million and others accounted for $0.128 million.





Gas
      sales
      from industrial users increased 70% percent, as we developed one new industrial
      user and two of our industrial users increased their gas consumption.





**Cost
      of Revenue**




Our
      cost
      of revenue, which includes cost of connections and cost of natural gas sales,
      was $ 1,965,085 for
      the
      three months ended September 30, 2007.





The
      table
      below sets forth our cost of revenues for the periods indicated:


For
                  the three months ended September 30,2007
              
              2006($
                  thousands)
              
              US$
              
              %
              
              US$
              
              %Cost
                  of Revenue
              
              
              1,965.1
              
              
              100
              %
              
              865.6
              
              
              100
              %Connection
                  Cost
              
              
              707.7
              
              
              36
              %
              
              405.6
              
              
              47
              %Gas
                  Cost
              
              
              1,257.4
              
              
              64
              %
              
              460
              
              
              53
              %




22


*Cost
      of Connections*




Our
      cost
      of connections during the three months ended September 30, 2007 was $0.7
      million, or 36% of total cost of revenue. By comparison, the cost of connections
      during the three months of 2006 was $0.4 million, or 47% of total cost of
      revenue.





Cost
      of
      connection increased around 74% from the same period one year ago, 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 173% to $1.26 million during the three months
      ended September 30, 2007 from the same period in 2006, when it was $0.46 million
      and 53% of total cost of revenue. This increase, which outpaced the 126%
      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.





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 set 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 Hazardous
      Goods Transportation Co. Ltd, one of our subsidiaries, is responsible for our
      gas transportation, and transportation cost per cubic meter is relatively stable
      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
      in sufficient numbers to offset those costs





**Gross
      Profit**


For
                  the three months ended September 30,2007
              
              2006($
                  thousand)
              
              US$
              
              %
              
              US$
              
              %Gross
                  Profit
              
              
              3,687
              
              
              100
              %
              
              2,606
              
              
              100
              %Connection
              
              
              3,304
              
              
              90
              %
              
              2,340
              
              
              90
              %Gas
              
              
              383
              
              
              10
              %
              
              266
              
              
              10
              %




23




During
      the three months ended Sep 30, 2007, gross profit was $3.69 million, an increase
      of approximately 40% from the same period of 2006. Gross profit from connection
      fees is $3.3 million for the three months ended September 30, 2007, accounting
      for 90% of total gross profit. In comparison, gross profit from connection
      fees
      was $2.34 million for the three months ended September 30, 2006, accounting
      for
      90% of total gross profit. Gross profit from gas sales was $0.38 million,
      compared to $0.27 million in the same period of 2006.





Gross
      margin during the three months ended September 30, 2007 is 65%, compared to
      75%
      during the three months ended September 30, 2006. Gross margin for connection
      fees for the third quarter of 2007 was 82%, as compared to 85% for the same
      quarter of 2006.





The
      decrease of connection gross margin are because we built gas distribution
      infrastructure which can be used for 25-30 years by the total potential
      residential households in our operating cities and now only a small proportion
      of residential households have been connected. As a result, the depreciation
      under the cost of connection is relatively higher.





Gross
      margin for sales of natural gas was 23% during the same period, compared with
      37% in the same period of 2006. The decrease was due to the relatively higher
      depreciation for delivery trucks described above.





**Sale
      and marketing expenses**





Our
      sale
      and marketing expenses in the three months ended September 30, 2007 were
      $176,700 and approximately 3.13% of our net sales, compared with $39,700 ,
      or
      1.14% of net sales in the same period of 2006. This increase of sale and
      marketing expenses was principally due to increases in marketing-related fees,
      including travel and communications resulting from expansion of our
      business.




24




**General
      and administrative expenses**





General
      and administrative expenses were $0.62 million for the three months ended
      September 30, 2007, which was 41% higher than $0.44 million for the same period
      last year. The increase was largely due to the increase in the number of
      operating subsidiaries we own, from 13 to 26, which led to increases in salary,
      social insurance, traveling expenses and other expenses. The increase was also
      due in part to increased depreciation relating to new assets described
      above.





General
      and administrative expenses equaled 11% of our net sales in the three months
      ended September 30, 2007, compared with 13% in the same period one year ago.
      The
      reduction in general and administrative expenses relative to net sales was
      due
      to economies of scale as a result of the expansions of our business 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 is expected to be 15%, the standard
      rate for foreign high-tech enterprises.




The
      income tax rate of our subsidiaries is 18-33%, except for Beijing Chenguang
      and
      Beijing Gas, because Beijing Chenguang has also been classified as a foreign
      high-tech enterprise and is subject to a favorable income tax rate of 7.5%
      from
      2006 to 2008.




**Net
      Income**





Net
      income in the nine months ended September 30, 2007 was $2.63 million,
      representing an increase of 37% from $1.93 million in the same period in 2006.
      The increase can be attributed to the continuous growth of our existing markets
      and the acquisitions we have made. Due to the seasonal nature of our business,
      management believes it is likely that net income will continue to increase
      substantially in the fourth quarter of 2007.




Net
      profit margin is 47%, compared with 56% for the same period one year
      ago.





***Nine
      Months Ended Sep 30, 2007 Compared to Nine Months Ended Sep 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 nine months ended Sep 30, 2007 was $ 10,886,612 ,
      compared to $ 4,971,156 for the
      same period in 2006, representing an increase of 119 %. The increase was due
      to
      new customers connecting to our gas distribution network and new customers
      purchasing our natural gas. During this period, we connected 21,629 new
      residential households to our gas distribution network, resulting in total
      connection fees of $ 5,997,716 .
      Gas
      sales during the same period amounted to 18.18 million cubic meters, or
      $ 4,888,896.
      In comparison, during the same period one
      year
      ago, we connected 12,010 new
      residential households to our gas distribution network, resulting in total
      connection fees of $ 3,104,605 .
      Gas
      sales during the period amounted to 6.81 million cubic meters, or $ 1,866,551.




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




25




For
                  the nine months ended Sep 302007
              
              2006
              
              Change(
                  $
                  thousand)
              
              US$
              
              %
              
              US$
              
              %
              
              %Total
                  Revenue
              
              
              10,886.6
              
              
              100
              %
              
              4,971.2
              
              
              100
              %
              
              119
              %Connection
                  Fees
              
              
              5,977.7
              
              
              55
              %
              
              3,104.6
              
              
              62
              %
              
              93
              %Gas
                  Sales
              
              
              4,888.9
              
              
              45
              %
              
              1,866.6
              
              
              38
              %
              
              162
              %
  ***Connection
      fees***




Connection
      fees during nine months ended Sep 30, 2007 were $ 5,997,71 ,
      representing an increase of more than 93% from $ 3,104,605 for the
      same period last year. Connection fees accounted for approximately 55% of total
      revenue during the period, compared with approximately 62% for the same period
      in 2006.





We
      had
      connected a total of 21,629 new residential households during the first nine
      months of the year in the twenty-four cities where we have developed or acquired
      gas distribution network. During
      the nine months ended September 30, 2007, Peixian Weiye Gas Co., Ltd (Peixian
      Weiye), one of our subsidiaries, located in Peixian, Jiangsu Province, had
      connected 9,154 new residential households, generating $2.8 million connection
      fees.





In
      July,
      Sino Gas, through Peixian Weiye, signed agreement with Shanghai Datun Energy
      Co., Ltd., one of our major customers in Pei Xian to connect additional 6,000
      households, the second phase of connecting a total of 18,000 new households
      for
      the customer.





In
      July
      2007, we
      established a new subsidiary, Baishan
      Zhong Ran We Ye Gas Co., Ltd. ('Baishan Gas'), in
      Baishan City, Jilin Province and
      acquired all of the operating assets of Baishan Gas Co., Ltd. ('Baishan'),
      a
      local gas operator. Since then, we have developed 6,100 residential households
      by the end of September 30, 2007, generating $1.1 million connections fees.





Beijing
      Chenguang Gas Co., Ltd. (“Beijing Chenguang”), acquired in January 2007,
      connected 2,837 new residential households in the nine months ended September
      30, 2007, which accounted for $886,900 for total connection fees.





All
      the
      connections fees we have earned are from residential households during the
      first
      nine months of the year. Below is a list of our top five customers with respect
      to connections fees:




1)
            Shanghai
                Datun Energy Co., Ltd in Peixian, Jiangsu Province. During the nine
                months
                ended September 30, 2007, we had connected 8,780 new residential
                households, generating connection fees of $2.74 million.


2)
            Shijiazhuang
                Jinshe Real Estate Co.,Ltd in Shijiazhuang, Hebei Province. During
                the
                nine months ended September 30, 2007, we had connected 834 new residential
                households, generating connection fees of $282,400.


3)
            Baishan
                Kaixia Real Estaate Co., Ltd in Baishan, Jilin Province. During the
                nine
                months ended September 30, 2007, we had connected 1,250 new residential
                households, generating connection fees of $228,400.


4)
            Baishan
                Jiahe Real Estate Co., Ltd in Baishan, Jilin Province. During the
                nine
                months ended September 30, 2007, we had connected 1,156 new residential
                households, generating connection fees of $210,900.


5)
            Hebei
                Dihua Real Estate Co., Ltd in Luquan, Hebei Province. During the
                nine
                months ended September 30, 2007, we had connected 642 new residential
                households, generating connection fees of $158,700.





26




***Gas
      sales***





We
      sold
      approximately 18.2 million cubic meters of natural gas to our customers during
      the nine months ended September 30, 2007, accounting for roughly $4.9 million,
      or 45% of total net revenue. In comparison, gas sold in the first nine months
      of
      2006 totaled 6.8 million cubic meters, accounting for $1.86 million, or 38%,
      of
      net revenue. Gas sales increased $3 million, or 162%, from the same period
      one
      year ago.





Among
      the
      total gas sales, industrial users accounted for $1.98 million, residential
      users
      accounted for $1.19 million. The rest, most of which was sold through other
      gas
      distributors, accounted for $1.72 million.





In
      comparison, during the nine months ended September 30, 2006, industrial users
      accounted for $1.3 million gas sales, residential users accounted for $307,000
      and others accounted for $243,600.





Gas
      sales
      from industrial users increased 52% percent, as we developed one new industrial
      users and two of our industrial users increased their gas consumption. We had
      four industrial users as of September 30, 2007, as compared to three as of
      September 30, 2006.





The
      following table summarizes our gas sales during the periods
      indicated:


For
                    the Nine months ended September 302007
                
                2006($
                    thousand)
                
                US$
                
                %
                
                US$
                
                %Gas
                    SalesIndustrial
                    users
                
                
                1,975.9
                
                
                40
                %
                
                1,315.9
                
                
                71
                %Residential
                    users
                
                
                1,189.1
                
                
                25
                %
                
                307.1
                
                
                16
                %Others
                
                
                1,723.9
                
                
                35
                %
                
                243.6
                
                
                13
                %Total
                
                
                4,888.9
                
                
                100
                %
                
                1,866.6
                
                
                100
                %


The
      four
      industrial users account for 40% of our total gas sales. The daily gas
      consumption of industrial users is far higher than that of the residential
      households, as the gas is heavily used for industrial production.





The
      table
      below provides information about our industrial users for natural
      gas:




**Industrial
                Projects**
            
            **Gas Sales**
              **(1000
                M3)**
            
            **Gas Sales**
              **($1,000)**Hebei
                Zhonggang
            
            
            5,376.2
            
            
            1,611.6Hebei
                Tangshan Changsheng
            
            
            712.2
            
            
            212.3North
                China Petro First Machinery
            
            
            423.6
            
            
            112.3Langfang
                Elite
            
            
            142.4
            
            
            39.7





For
      the
      nine months ended September 30, 2007, gas sales from Hebei Zhonggang is
      $1.6million, 45% higher than $1.1 million during the same period one year ago,
      as the company increased its production. We just completed the second phase
      construction of gas distribution infrastructure for Hebei Zhonggang, which
      will
      increase our gas supply capacity from 30,000 cubic meters per day to 50,000
      cubic meters. Gas sales from Hebei Tangshan Changsheng is $212,3 00, slightly
      higher than $210,400 in the same period one year ago.




27


Langfang
      Elite began to use gas from April this year and North China Petro First
      Machinery began to use gas from June this year.





**Cost
      of Revenue**




Our
      cost
      of revenue, which includes cost of connection and cost of natural gas sales,
      was
      $ 5,696,918 for
      the
      nine months ended September 30, 2007.





The
      table
      below sets forth our cost of revenues for the periods indicated:


For
                  the Nine months ended September 30,2007
              
              2006($
                  thousands)
              
              US$
              
              %
              
              US$
              
              %Cost
                  of Revenue
              
              
              5,697.0
              
              
              100
              %
              
              1,849.1
              
              
              100
              %Connection
                  Cost
              
              
              1,348.3
              
              
              24
              %
              
              469.8
              
              
              25
              %Gas
                  Cost
              
              
              4,348.7
              
              
              76
              %
              
              1,379.3
              
              
              75
              %




*Cost
      of Connections*




Our
      cost
      of connection during the nine months ended September 30, 2007 was $1.35 million,
      or 24% of total cost of revenue. By comparison, the cost of connection during
      the nine months of 2006 was $0.47 million, or 25% of total cost of revenue.





Cost
      of
      connection increased around 187% from the same period one year ago, 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 215% from the nine months ended September 30,
      2006, when it was $1.38 million and 75% of total cost of revenue. This increase,
      which outpaced the 162% 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.


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 set 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 Hazardous
      Goods Transportation Co. Ltd, one of our subsidiaries, is responsible for our
      gas transportation, and transportation cost per cubic meter is relatively stable
      at RMB 0.55 ($0.072) per cubic meter. Management believes that this
      transportation cost per cubic meter is likely to remain stable 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 new
      customers in sufficient numbers to offset those costs




28


For
      the
      nine months ended September 30, 2007, we have purchased a total of 9.75
      million cubic meters of natural gas, about 75% of which were purchased from North
      China Oil Field Fourth Oil Extraction Plant of Petro China in the form of CNG
      (Compressed Natural Gas).





We
      signed
      a ten-year gas supply agreement in 2003. 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**


For
                  the nine months ended September 30,2007
              
              2006($
                  thousand)
              
              US$
              
              %
              
              US$
              
              %Gross
                  Profit
              
              
              5,190
              
              
              100
              %
              
              3,122
              
              
              100
              %Connection
              
              
              4,650
              
              
              90
              %
              
              2,635
              
              
              84
              %Gas
              
              
              540
              
              
              10
              %
              
              487
              
              
              16
              %


During
      the nine months ended Sep 30, 2007, gross profit was $5.19 million, an increase
      of approximately 66% from the same period of 2006. Gross profit from connection
      fees is $4.65 million for the first nine months of 2007, accounting for 90%
      of
      total gross profit. In comparison, gross profit from connection fees was $2.63
      million for the first nine months of 2006, accounting for 85% of total gross
      profit. Gross profit from gas sales was $0.54 million, compared to $0.49 million
      in the same period of 2006.





Gross
      margin during the nine months ended September 30, 2007 is 47.7%, compared to
      62.8% during the nine months ended September 30, 2006. Gross margin for
      connection fees for the first nine months of 2007 was 77.5%, compared to 84.9%
      for the first nine months of 2006.





The
      decrease of connection gross margin are mainly because we built gas distribution
      infrastructure which can be used for 25-30 years by the total potential
      residential households in our operating cities and now only a small proportion
      of residential households have been connected. As a result, the depreciation
      under the cost of connection is relatively higher. As we develop more households
      in the cities, the margin will be improved.





Gross
      margin for sales of natural gas was 11% during the same period, compared with
      26% during the same period of 2006, due to the relatively higher depreciation
      for delivery trucks described above.





Sale
      and
      marketing expenses





Our
      sale
      and marketing expenses in the nine months ended September 30, 2007 were $376.2
      thousand and approximately 3.45% of our net sales, compared with $66,500 and
      less than 1.34% of net sales during the same period of 2006. This increase
      of
      sale and marketing expenses was principally due to increases in
      marketing-related fees, including travel and communications resulted from
      expansion of our business.




29


**General
      and administrative expenses**





General
      and administrative expenses were $1.31 million for the nine months ended
      September 30, 2007, which was 90% higher than $0.69 million for the same period
      last year. The increase was largely due to the increase in the number of
      operating subsidiaries we own, from 13 to 26, which led to increases in salary,
      social insurance, traveling expenses and other expenses. The increase was also
      due in part to increased depreciation relating to new assets described
      above.





General
      and administrative expenses equaled 12% of our net sales in the first nine
      months of 2007, compared with 13.6% in the same period one year ago. The
      reduction in general and administrative expenses relative to net sales was
      due
      to economies of scale as a result of the expansions of our business 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 is expected to be 15%, the standard
      rate for foreign high-tech enterprises.




The
      income tax rate of our subsidiaries is 18-33%, except for Beijing Chenguang
      and
      Beijing Gas.. Beijing Chenguang 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.




**Net
      Income**





Net
      income in the nine months ended September 30, 2007 was $3.25 million,
      representing an increase of 48.71% from $2.19 million in the same period in
      2006. The increase can be attributed to the continued growth of our existing
      markets and the acquisitions we have made. Due to the seasonal nature of our
      business, management believes it is likely that net income will continue to
      increase substantially in the fourth quarter of 2007.




Net
      profit margin is 30%, compared with 44% for the same period last
      year.





**Liquidity
      and Capital Resources**





As
      of
      September 30, 2007, cash and cash equivalents were $16.47 million, an increase
      of $12.84 million from $3.64 million as of December 31, 2006 which was due
      to
      the increase in cash flow from operating and financing activities, partly offset
      by our investment activities.




We
      have
      the following major financing activities during the first nine months of the
      year: we completed equity financing of $18.77 million in September, 2007 and
      the
      net proceeds of the financing for the company is $13.79 million; in May we
      received $3 million in gross proceeds and $2.3 million in net proceeds from
      the
      exercise of warrants by investors; we
      took
      out a one year loan in the amount of RMB 20 million (approximately $2.6
      million), accruing interest at an adjustable rate (currently at 6.0225% per
      year), with interest payable quarterly, from Industrial Bank, Beijing Branch;
      during the quarter ended March 30, 2007, we repaid an RMB 20 million
      (approximately $2.6 million) short-term loan from Shenzhen Development
      Bank.




30


We
      used
      the funds raised for acquisitions and project developments. During the first
      nine months of 2007, we have paid out about $8 million for investment and
      acquisition, including $2.5 million for the acquisition of Beijing Chenguang,
      $2
      million for investment in Baishan city, $1 million for investment in Guannan
      city and $2.5 million for investment and acquisitions of 9 other small city
      projects.





Cash
      flow
      from operating activities during the nine months ended September 30, 2007 is
      $8.35 million, an increase of $4.87 million from the end of 2006.





**Accounts
      Receivable**





Accounts
      receivable as of September 30, 2007 were $6.33 million, representing a decrease
      of $0.2 million from $6.53 million 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,
      accounts receivable dated from 2006 had been mostly 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.


As
      we
      expect to see a relative large number of connections completed during the fourth
      quarter, account receivable is expected to rise sharply during the fourth
      quarter.





Notes
      Receivable


Notes
      receivable of $0.62 million as of September 30, 2007 is the Note issued by
      Hebei
      Zhonggang for its use of gas. The Note will be duly honored by
      bank.




**Other
      Payables**





Other
      payables as of September 30, 2007 were $5.7 million, an increase of $3.9 million
      from the end of 2006. This increase is due to our acquisition of Beijing
      Chenguang, in connection with which we are scheduled to make an additional
      payment of $0.93 million. Also, the
      former operator of Baishan city gas distribution system we acquired in July
      transferred its fixed assets valued at around $3.7 million to our
      company.





**Item
      3. Controls and Procedures.**





a)  *Evaluation
      of Disclosure Controls.* Yuchuan
      Liu, our Chief Executive Officer and Fang Chen, our Principal Accounting Officer
      evaluated the effectiveness of our disclosure controls and procedures as of
      the
      end of our third fiscal quarter 2007 pursuant to Rule 13a-15(b) of the
      Securities and Exchange Act. Disclosure controls and procedures are controls
      and
      other procedures that are designed to ensure that information required to be
      disclosed by us in the reports that we file or submit under the Exchange Act
      is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by us in the reports that we file under the Exchange
      Act is accumulated and communicated to our management, as appropriate to allow
      timely decisions regarding required disclosure. Based on his evaluation, Yuchuan
      Liu and Fang Chen concluded that our disclosure controls and procedures were
      effective as of September 30, 2007.





It
      should
      be noted that any system of controls, however well designed and operated, can
      provide only reasonable, and not absolute, assurance that the objectives of
      the
      system are met. In addition, the design of any control system is based in part
      upon certain assumptions about the likelihood of future events. Because of
      these
      and other inherent limitations of control systems, there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions.


31




(b)  *Changes
      in internal control over financial reporting.* There
      have been no changes in our internal control over financial reporting that
      occurred during the last fiscal quarter that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting. Our management team will continue to evaluate our internal control
      over financial reporting in 2007 as we implement our Sarbanes Oxley
      testing.


32


PART
      II -
      OTHER INFORMATION


Item
      1. Legal Proceedings





None





Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds





On
      September 7, 2007, Sino Gas International Holdings, Inc. (the “Company”) entered
      into a Securities Purchase Agreement with a number of institutional investors
      (the “Investors”) providing for the sale to the Investors of a total of
      8,340,762 shares of the Company’s Common Stock (the “Shares”) for an aggregate
      purchase price of $18,766,700 (or $2.25 per Share). For reference, please see
      8-K report filed by the Company on September 10, 2007.





Item
      3. Defaults Upon Senior Securities





None





Item
      4. Submission of Matters to a Vote of Security Holders.





None





Item
      5. Other Information.





None


33


Item
      6.  Exhibits




The
      following exhibits are hereby filed as part of this Quarterly Report on Form
      10-QSB.




ExhibitNumber:
            
            Description31.1
            
            Certification
                of Chief Executive Officer under Section 302 of the Sarbanes-Oxley
                Act of
                2002.31.2
            
            Certification
                of Principal Accounting Officer under Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certifications
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 135033.2
            
            Certification
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 1350




34





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant certifies that it has duly caused this Annual Report on
      Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly
      authorized, in Beijing, on November 16, 2007.




**SINO
                  GAS INTERNATIONAL HOLDINGS, INC.**By:
              /s/ Yuchuan
                LiuYuchuan
                  LiuChairman
                  and Chief Executive Officer




35