U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549









FORM
      10-Q




(Mark
      one)




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




For
      the
      Quarterly Period Ended March 31, 2008




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 x No o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filerx




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act)    Yes o No x




As
      of May
      12, 2008, the Registrant had 26,377,271 shares of common stock
      outstanding.










Sino
      Gas
      International Holdings, Inc.




Table
      of
      Contents




PagePART
                I -
            FINANCIAL
                INFORMATION
            1Item
                1.
            Financial
                Statements
            1Notes
                to Financial Statements (Unaudited)
            7Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            28Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            36Item
                4.
            Controls
                and Procedures
            36PART
                II -
            OTHER
                INFORMATION
            37Item
                1.
            Legal
                Proceedings
            37Item
                1A.
            Risk
                Factors
            37Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            38Item
                3.
            Defaults
                Upon Senior Securities
            38Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            38Item
                5.
            Other
                Information
            38Item
                6.
            Exhibits
            38










**PART
      I - FINANCIAL INFORMATION**




**Item
      1. Financial Statements**


**SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 
 **REVIEWED
        FINANCIAL STATEMENTS**
 **MARCH
        31, 2008 AND DECEMBER 31, 2007**
 **(Stated
        in US dollars)**
  
  SINO
        GAS INTERNATIONAL HOLDINGS, INC.
 
 **CONTENTS**
              **PAGES**INDEPENDENT
                  AUDITOR’S REPORT
              1CONSOLIDATED
                  BALANCE SHEETS
              2 –
                  3CONSOLIDATED
                  STATEMENTS OF INCOME
              4CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS’ EQUITY
              5CONSOLIDATED
                  STATEMENTS OF CASH FLOWS
              6NOTES
                  TO FINANCIAL STATEMENTS
              7 –
                  27
  
  Board
        of
        Directors and Stockholders
 Sino
        Gas
        International Holdings, Inc.
 
 **Report
        of Independent Registered Public Accounting Firm**
 
 We
        have
        reviewed the accompanying consolidated interim balance sheets of Sino Gas
        International Holdings, Inc. as of March 31, 2008 and December 31, 2007,
        and the
        related consolidated statements of income, stockholders’ equity, and cash flows
        for the three-month periods ended March 2008 and 2007. These consolidated
        interim financial statements are the responsibility of the Company's
        management.
 
 We
        conducted our reviews in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        statements 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 consolidated interim financial statements for them to
        be in
        conformity with U.S. generally accepted accounting principles.
 
 South
                  San Francisco, California
              Samuel
                  H. Wong & Co., LLPMay
                  12, 2008
              Certified
                  Public Accountants
  1
 
 **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **AS
        OF MARCH 31, 2008 AND DECEMBER 31, 2007**
 **(Stated
        in US Dollars)**
 
 **3/31/2008**
              
              **12/31/2007****Note****ASSETS**Current
                  AssetsCash
                  & cash equivalents
              
              
              2*(e)*
              
              $
              8,021,212
              
              $
              10,915,590Restricted
                  cash
              
              
              3
              
              
              664,061
              
              
              478,920Notes
                  receivable
              
              
              
              
              
              586,710
              
              
              825,119Accounts
                  receivable
              
              
              2*(f),*4
              
              
              6,162,418
              
              
              7,315,253Inventory
              
              
              
              
              
              246,891
              
              
              207,976Advances
                  to suppliers
              
              
              2*(g)*
              
              
              1,041,556
              
              
              27,372Prepayments
                  and others
              
              
              
              
              
              465,669
              
              
              320,380Other
                  receivables
              
              
              5
              
              
              9,849,587
              
              
              3,100,695Total
                  Current Assets
              
              
              
              
              
              27,038,104
              
              
              23,191,305Non-Current
                  AssetsInvestment
              
              
              2*(h)*
              
              
              2,703,156
              
              
              4,007,310Property,
                  plant & equipment,*net*
              
              
              2*(j),*6
              
              
              26,852,967
              
              
              24,572,565Construction
                  in progress
              
              
              2*(l)*
              
              
              12,830,941
              
              
              11,556,820Intangible
                  assets,*net*
              
              
              2*(k),*7
              
              
              2,112,337
              
              
              2,028,250Total
                  non-current assets
              
              
              
              
              
              44,499,401
              
              
              42,164,945**TOTAL
                  ASSETS**
              
              
              
              
              $
              71,537,505
              
              $
              65,356,250**LIABILITIES
                  & STOCKHOLDERS' EQUITY**Current
                  LiabilitiesBank
                  Loans
              
              
              8
              
              $
              7,120,276
              
              $
              2,734,444Accounts
                  payable
              
              
              
              
              
              1,417,807
              
              
              716,707Other
                  payables
              
              
              9
              
              
              9,715,659
              
              
              10,383,657Unearned
                  revenue
              
              
              2*(m)*
              
              
              640,615
              
              
              312,573Accrued
                  liabilities
              
              
              
              
              
              41,428
              
              
              362,263Total
                  current liabilities
              
              
              
              
              
              18,935,785
              
              
              14,509,644**TOTAL
                  LIABILITIES**
              
              
              
              
              $
              18,935,785
              
              $
              14,509,644
  See
        accompanying notes to financial statements and accountant’s
        report
  2
 
 **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **CONSOLIDATED
        BALANCE SHEETS (Continued)**
 **AS
        OF MARCH 31, 2008 AND DECEMBER 31, 2007**
 **(Stated
        in US Dollars)**
 
 **STOCKHOLDERS'
                  EQUITY**Preferred
                  Stock A US $0.001 par value; 20,000,000 shares authorized; 275,111
                  shares
                  issued and outstanding as of March 31, 2008 and December 31,
                  2007
              
              
              10
              
              $
              275
              
              $
              275Preferred
                  Stock B US $0.001 par value; 5,000,000 shares authorized; 4,971,859
                  shares
                  issued and outstanding as of March 31, 2008 and December 31,
                  2007
              
              
              10
              
              
              4,972
              
              
              4,972Common
                  Stock US $0.001 par value; 250,000,000 shares authorized; 25,282,380
                  shares issued and outstanding as of March 31, 2008 and December
                  31,
                  2007
              
              
              10
              
              
              25,283
              
              
              25,283Additional
                  Paid in Capital
              
              
              
              
              
              35,247,303
              
              
              35,247,303Statutory
                  Reserve
              
              
              
              
              
              3,481,730
              
              
              3,258,201Retained
                  Earnings
              
              
              
              
              
              10,358,228
              
              
              10,432,430Accumulated
                  Other Comprehensive Income
              
              
              
              
              
              3,483,929
              
              
              1,878,142**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              
              
              
              52,601,720
              
              
              50,846,606**TOTAL
                    LIABILITIES AND** STOCKHOLDERS'
                    EQUITY
              
              
              
              
              $
              71,537,505
              
              $
              65,356,250
  See
        accompanying notes to financial statements and accountant’s
        report
  3
 
 **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **CONSOLIDATED
        STATEMENTS OF INCOME**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(Stated
        in US Dollars)**
 
 **3/31/2008**
              
              **3/31/2007**Net
                  SalesRevenues
              
              $
              4,342,117
              
              $
              2,438,227Cost
                  of revenues
              
              
              (2,975,472
              )
              
              (1,837,630
              )Gross
                  Profit
              
              
              1,366,645
              
              
              600,597Operating
                  ExpensesSelling
                  and marketing expenses
              
              
              (181,704
              )
              
              (56,198
              )General
                  & administrative expenses
              
              
              (833,451
              )
              
              (441,374
              )Total
                  operating expenses
              
              
              (1,015,155
              )
              
              (497,572
              )Operating
                  Income/(Loss)
              
              
              351,490
              
              
              103,025Other
                  Income (Expenses)Other
                  income
              
              
              -
              
              
              36,088Other
                  expenses
              
              
              (845
              )
              
              (1,495
              )Interest
                  income
              
              
              33,166
              
              
              -Interest
                  expense
              
              
              (60,467
              )
              
              (5,370
              )Total
                  other income (expense)
              
              
              (28,146
              )
              
              29,223Earnings
                  before tax
              
              
              323,344
              
              
              132,248Income
                  tax
              
              
              (174,017
              )
              
              (16,865
              )Net
                  income
              
              $
              149,327
              
              $
              115,383Earnings
                  per shareBasic
              
              
              0.009
              
              
              0.008Diluted
              
              
              0.007
              
              
              0.004Weighted
                  Average Shares OutstandingBasic
              
              
              17,165,894
              
              
              14,730,597Diluted
              
              
              22,017,096
              
              
              28,724,652
 
 See
        accompanying notes to financial statements and accountant’s
        report
  4
 
 **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **CONSOLIDATED** **STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **AS
        OF MARCH 31, 2008 AND DECEMBER 31, 2007**
 **(Stated
        in US Dollars)**
 **Common
                    Stock**
                
                
                
                
                
                **Accumulated****Preferred
                    Stock A**
                
                **Preferred
                    Stock B**
                
                **Common
                    Stock**
                
                **Additional**
                
                
                
                
                
                **Other****Shares**
                
                
                
                **Shares**
                
                
                
                **Shares**
                
                
                
                **Paid
                    in**
                
                **Statutory**
                
                **Retained**
                
                **Comprehensive****Outstanding**
                
                **Amount**
                
                **Outstanding**
                
                **Amount**
                
                **Outstanding**
                
                **Amount**
                
                **Capital**
                
                **Reserve**
                
                **Earnings**
                
                **Income**
                
                **Total**Balance,
                    January 1, 2007
                
                
                -
                
                
                -
                
                
                4,023,268
                
                
                4,023
                
                
                14,693,186
                
                
                14,694
                
                
                18,488,040
                
                
                2,025,022
                
                
                3,958,239
                
                
                824,296
                
                
                25,314,314Net
                    Income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,707,370
                
                
                
                
                
                7,707,370Issue
                    of stock and warrant
                
                
                275,111
                
                
                275
                
                
                948,591
                
                
                949
                
                
                10,589,194
                
                
                10,589
                
                
                16,759,263
                
                
                
                
                
                
                
                
                
                
                
                16,771,076Appropriations
                    of Retained Earnings
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,233,179
                
                
                (1,233,179
                )
                
                
                
                
                -Foreign
                    Currency Translation Adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,053,846
                
                
                1,053,846Balance,
                    December 31, 2007
                
                
                275,111
                
                
                275
                
                
                4,971,859
                
                
                4,972
                
                
                25,282,380
                
                
                25,283
                
                
                35,247,303
                
                
                3,258,201
                
                
                10,432,430
                
                
                1,878,142
                
                
                50,846,606Balance,
                    January 1, 2008
                
                
                275,111
                
                
                275
                
                
                4,971,859
                
                
                4,972
                
                
                25,282,380
                
                
                25,283
                
                
                35,247,303
                
                
                3,258,201
                
                
                10,432,430
                
                
                1,878,142
                
                
                50,846,606Net
                    Income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                149,327
                
                
                
                
                
                149,327Issue
                    of stock and warrant
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Appropriations
                    of Retained Earnings
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                223,529
                
                
                (223,529
                )
                
                
                
                
                -Foreign
                    Currency Translation Adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,605,787
                
                
                1,605,787Balance,
                    March 31, 2008
                
                
                275,111
                
                
                275
                
                
                4,971,859
                
                
                4,972
                
                
                25,282,380
                
                
                25,283
                
                
                35,247,303
                
                
                3,481,730
                
                
                10,358,228
                
                
                3,483,929
                
                
                52,601,720
  **Accumulated
                    Comprehensive Income****12/31/2007**
                
                **3/31/2008**
                
                **Total**Comprehensive
                    IncomeNet
                    Income
                
                
                7,707,370
                
                
                149,327
                
                
                7,856,697Comprehensive
                    Other IncomeForeign
                    Currency Translation Adjustment
                
                
                1,053,846
                
                
                1,605,787
                
                
                2,659,6338,761,216
                
                
                1,755,114
                
                
                10,516,330
  See
        accompanying notes to financial statements and accountant’s
        report
  5
 
 **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **CONSOLIDATED** **STATEMENTS OF CASH FLOWS**
 **FOR
        THE** **THREE
        MONTHS** **ENDED MARCH 31, 2008 AND 2007**
 **(Stated
        in US Dollars)**
 
 **3/31/2008**
              
              **3/31/2007****Cash
                  flow from operating activities**Net
                  Income
              
              $
              149,327
              
              $
              115,383Depreciation
                  expense
              
              
              640,248
              
              
              38,844Amortization
                  expense
              
              
              29,532
              
              
              -Invested
                  in restricted time deposits
              
              
              (185,141
              )
              
              3,124,541Decrease/(increase)
                  in accounts receivable
              
              
              (5,357,649
              )
              
              310,419Increase
                  in inventory
              
              
              (38,915
              )
              
              -Increase
                  in prepaid expenses
              
              
              (831,430
              )
              
              -Increase
                  in accounts payable
              
              
              (287,733
              )
              
              3,023,295Cash
                  sourced/(used) in operating activities
              
              
              (5,881,761
              )
              
              6,612,482**Cash
                  flows from investing activities**Cash
                  received for investment sales proceeds
              
              
              1,304,154
              
              
              **-**Cash
                  paid for investment and acquisition
              
              
              -
              
              
              (930,801
              )Purchase
                  of property, plant & equipment
              
              
              (2,920,649
              )
              
              (3,320,688
              )Purchase
                  of intangible assets
              
              
              (113,620
              )
              
              (172,210
              )Increase
                  in construction in progress
              
              
              (1,274,121
              )
              
              (1,345,436
              )Cash
                  souced/(used) in investing activities
              
              
              (3,004,236
              )
              
              (5,769,135
              )**Cash
                  flows from financing activities**Proceeds
                  from bank borrowings
              
              
              4,385,832
              
              
              (2,430,445
              )Cash
                  sourced/(used) in financing activities
              
              
              4,385,832
              
              
              (2,430,445
              )**Net
                  Increase/(Decrease) in Cash & Cash Equivalents for the
                  Year**
              
              
              (4,500,165
              )
              
              (1,587,098
              )**Effect
                  of Currency Translation on cash and cash
                  equivalents**
              
              
              1,605,787
              
              
              293,589**Cash
                  & Cash Equivalents - Beginning of Year**
              
              $
              10,915,590
              
              $
              3,638,673**Cash
                  & Cash Equivalents - End of Year**
              
              $
              8,021,212
              
              $
              2,345,164Supplementary
                  cash flow informationInterest
                  received
              
              $
              33,166
              
              $
              94,653Interest
                  paid
              
              
              60,467
              
              
              43,617Income
                  tax paid
              
              
              -
              
              
              16,865
 
 See
        accompanying notes to financial statements and accountant’s
        report
  6
  **SINO
        GAS INTERNATIONAL HOLDINGS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 
 **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 14,361,646 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. (Legal acquirer,
        accounting acquiree) and the historical financial statements of Gas Investment
        China Co. Ltd. (Legal acquiree, accounting acquirer)
 
 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 24 natural
        gas distribution systems serving approximately 87,500 residential and five
        commercial and industrial customers. The Company’s facilities include
        approximately 700 kilometers of pipeline and delivery networks (including
        delivery trucks) 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.
  7
  
 **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.
  8
  
 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 March
        31,
        2008 and December 31, 2007 (whichever applicable 2007).
 Name
                    of Company
                
                Place
                    of Incorporation
                
                Date
                    of Incorporation
                
                Beneficiary
                    interest %
                
                Equity
                    Interest %
                
                Registered
                  CapitalGAS
                    Investment China Co., Ltd.
                
                
                The
                    British Virgin Islands
                
                
                6/19/2003
                
                
                100
                
                
                100
                
                
                USD
                  10,000,000Sino
                    Gas Construction Limited
                
                
                The
                    British Virgin Islands
                
                
                1/9/2007
                
                
                100
                
                
                100
                
                
                USD
                  50,000Sino
                    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
                    150,000,000Peixian
                    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
                
                
                1/30/2007
                
                
                100
                
                
                100
                
                
                RMB3,000,000Changli
                    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
                  2,000,000
  9
 
 Jinzhou
                  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
              
              
              3/21/2007
              
              
              100
              
              
              100
              
              
              RMB
                3,000,000Langfang
                  Development Region Weiye dangerous 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
              
              
              6/14/2007
              
              
              100
              
              
              100
              
              
              RMB
                2,000,000Luquan
                  Chenguang Gas Co., Ltd
              
              
              PRC
              
              
              4/27/2007
              
              
              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
                3,000,000
  10
 
 Guannan
                  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
  *(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
        equity method of accounting was used to account for the Company’s investment in
        equity securities for which the Company did not have controlling equity
        interest. Non controlling equity interest for the Company is typically a
        position of less than 50% beneficial ownership.
 
 The
        consolidated statement of income includes the Company's share of the
        post-acquisition results of the investment’s performance for the year. In the
        consolidated balance sheet, investments in equity securities are stated at
        the
        Company's share of the net assets of the investments plus any potential premium,
        or less discounts paid at the time of acquisition, and less any identified
        impairment loss.
 
 Beijing
        Zhongran Xiangke Oil Gas Technology Co. Ltd is the Company’s 40% owned
        investment and is principally engaged in sale of compressed natural gas to
        domestic households and industrial firms around the suburbs of Beijing as
        well
        as the suburban areas of the Hebei Province and Tianjin.
  11
  
 Name
                  of
                Associate
                Company
              
              Place
                of
                Registration
              
              Form
                  of
                Business
                Structure
              
              Registered
                Capital
              
              Nominal
                Value
                  of
                Registered
                Capital
              
              Principal
                ActivitiesBeijing
                  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
 
 The
        Company did not record any goodwill when it acquired its equity position
        in
        Xiangke. Accordingly, in accordance with SFAS 142, the Company has not taken
        an
        amortization expense of goodwill during the time it has carried a 40% stake
        in
        Xiangke.
  *(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.
 
 *(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
  12
 
 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 of March 31, 2008, the pipelines under construction include
        mainly
        the projects in Beijing. These projects, once completed, will significantly
        increase the gas supply capacity.
  *(m)* *Unearned
        Revenue*
 
 Unearned
        revenue represents prepayments by customers for gas purchases and advance
        payments on construction and installation of pipeline contracts. The Company
        records such prepayment as unearned revenue when the payments are
        received.
 
 *(n)* *Financial
        Instruments*
 
 The
        carrying amounts of all financial instruments approximate fair value. The
        carrying amounts of cash, accounts receivable, accounts payable and accrued
        liabilities approximate fair value due to the short-term nature of these
        items.
        The carrying amounts of borrowings approximate the fair value based on the
        Company’s expected borrowing rate for debt with similar remaining maturities and
        comparable risk.
  13
 
 *(o)* *Foreign
        Currency Translation*
 
 The
        accompanying consolidated financial statements are presented in United States
        dollars. The functional currency of the Company is the Renminbi (RMB). The
        consolidated financial statements are translated into United States dollars
        from
        RMB at March 31, 2008 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.
  **3/31/2008**
              
              **12/31/2007**Years
                  end RMB : US$ exchange rate
              
              
              7.0222
              
              
              7.3141Average
                  yearly RMB : US$ exchange rate
              
              
              7.1757
              
              
              7.6172
 
 The
        RMB
        is not freely convertible into foreign currency and all foreign exchange
        transactions must take place through authorized institutions. No representation
        is made that the RMB amounts could have been, or could be, converted into
        US$ at
        the rates used in translation.
 
 *(p)* *Revenue
        Recognition*
 
 Revenue
        is recognized when services are rendered to customers when a formal arrangement
        exists, the price is fixed or determinable, the delivery is completed, no
        other
        significant obligations of the Company exist and collectability 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 include 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.
 
 *(q)* *Investment
        Income*
 
 Investment
        income represents the Group’s share of post-acquisition results of its
        investment in equity securities for the year.
  14
  *(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 December
        31,
        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 25%.
  *(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.
 **
 *(v)* *Statutory
        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;
  15
  iii.
              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.
 
 *(y)* *Recent
        Accounting Pronouncements*
  In
        December 2007, the Financial Accounting Standards Board issued FASB Statement
        No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R
        provides additional guidance on improving the relevance, representational
        faithfulness, and comparability of the financial information that a reporting
        entity provides in its financial reports about a business combination and
        its
        effects. This Statement applies prospectively to business combinations for
        which the acquisition date is on or after the beginning of the first annual
        reporting period beginning on or after December 15, 2008. The Company
        believes there will be no material impact on its financial statements upon
        adoption of this standard.
 
 In
        December 2007, the Financial Accounting Standards Board issued FASB Statement
        No. 160, *Noncontrolling
        Interests in Consolidated Financial Statements—an amendment of ARB No. 51* (“SFAS
        160”). SFAS 160 amends ARB No. 51 to establish accounting and reporting
        standards for the noncontrolling interest in a subsidiary and for the
        deconsolidation of a subsidiary. This Statement is effective for fiscal
        years and interim periods within those fiscal years, beginning on or after
        December 15, 2008. The Company believes there will be no material impact on
        its financial statements upon adoption of this standard.
  16
  *(Z)* *Earnings
        Per Share*
 
 Basic
        earnings per share is computed on the basis of the weighted average number
        of
        shares of common stock outstanding during the period. Diluted earnings per
        share
        is computed on the basis of the weighted average number of shares of common
        stock plus the effect of dilutive potential common shares outstanding during
        the
        period using the treasury stock method for warrants and the as-if method
        for
        convertible securities. Dilutive potential common shares include outstanding
        warrants, and convertible preferred stock.
 
 **3.**  **RESTRICTED
        CASH**
  Restricted
        Cash represents compensating balances held at banks to partially secure banking
        facilities in the form of loans and notes payable. The imposed restrictions
        dictate that funds cannot be withdrawn when there are outstanding loans and
        notes payable, and the funds are only allowed to be used to settle bank
        indebtedness. The funds deposited as compensating balances are interest bearing.
        The amount of cash restricted varies based on the Bank’s credit policy at the
        time that the Company requests for increase or extension of credit
        facilities.
 
 **4.
        ACCOUNTS RECEIVABLE**
  For
        natural gas sales, it is due when the gas is sold. Normally, most of them
        are
        settled by prepayments from the customers.
 
 In
        general for construction projects, deposits of 30% of total contract sum
        are
        received from client when the project commences. Second payment of 30% is
        received after the construction is completed for around 6 months. The final
        sum
        of the remaining portion normally acts as retention money for quality warranty
        to the developer. The retention money would be received by the company after
        the
        1 year warranty period.
 The
          phrase “receivables are due within one year of aging” means the receivable that
          are within one year of aging.
 
 The
        “amounts are not due within one year” are mostly retention money from
        construction sales that are based on contracts. The continued demand from
        the
        natural gas sales from them also help assure the amount could be collected.
        No
        experience of wholly-unsettled accounts receivable in the year March 31,
        2008
        and December 31, 2007
 
 Trade
        accounts receivable are recorded at the invoiced amount, net of allowances
        for
        doubtful accounts and sales returns. The allowance for doubtful accounts
        is the
        Company’s best estimate of the amount of probable credit losses in the Company’s
        existing accounts receivable. The Company determines the allowance based
        on
        historical write-off experience, customer specific facts and economic
        conditions. Bad debt expense is included in the general and administrative
        expenses.
 
 Outstanding
        account balances are reviewed individually for collectibles. Account balances
        are charged off against the allowance after all means of collection have
        been
        exhausted and the potential for recovery is considered remote. To date, the
        Company has not charged off any balances as it has yet to exhaust all means
        of
        collection. The Company does not have any off-balance-sheet credit exposure
        to
        its customers, except for outstanding notes receivable discounted with banks
        that are subject to recourse for non-payment.
  17
 
 The
        credit and billing policy is that, for the residential customer, we collect
        prepayment from customers; for the industrial customers, we settle the payment
        based on the contract terms signed, from 10 days to one month; for the
        construction business, we collect the payment from customer based on the
        percentage of the construction progress. The risk that business faces from
        inability to collect account is Operation risk in industrial
        customers.
  Accounts
        Receivable
 
 3/31/2008
              
              12/31/2007Gross
                  accounts receivable
              
              $
              6,193,385
              
              $
              7,352,013Allowance
                  for bad debt
              
              
              30,967
              
              
              (36,760
              )Net
                  accounts receivable
              
              $
              6,162,418
              
              $
              7,315,253
  Allowance
        for Bad Debt
 
 3/31/2008
              
              12/31/2007Beginning
                  balance
              
              $
              36,760
              
              $
              32,838Addition
              
              
              19,939
              
              
              26,909Less
                  - write off
              
              
              (25,732
              )
              
              (22,987
              )Ending
                  balance
              
              $
              30,967
              
              $
              36,760
  Accounts
        Receivable Aging Report
 
 3/31/2008
              
              12/31/200730
                  Days
              
              $
              4,681,398
              
              $
              5,557,17230-60
                  Days
              
              
              1,021,345
              
              
              1,212,41360-90
                  Days
              
              
              23,157
              
              
              8,74790-180
                  Days
              
              
              171,660
              
              
              -180-360
                  Days
              
              
              257,490
              
              
              27,489>360
                  Days
              
              
              7,368
              
              
              509,433Total
              
              $
              6,162,418
              
              $
              7,315,254
  18
  The
        followings are the largest ten accounts receivable as of March 31,
        2008
 
 Peixian
                  jiangnan development Co., Ltd
              
              $
              290,507Beijing
                  xuancheng Construction Co., Ltd
              
              
              297,881Jiangshu
                  honghu farm Co., Ltd
              
              
              301,558Sihong
                  jinwan construction Co., Ltd
              
              
              323,545Xuzhou
                  shenyuan real property Co., Ltd
              
              
              351,048Guannan
                  construction Co., Ltd
              
              
              359,716Lianyun
                  port development Co., Ltd
              
              
              372,533Huabei
                  oil management machine Co., Ltd
              
              
              412,549Shanghai
                  datun energy Co., Ltd
              
              
              604,771Hebei
                  zhonggang steel development Co., Ltd
              
              
              892,056Total
              
              $
              4,206,164
  **5.
        OTHER RECEIVABLES**
 
 The
        followings are the ten largest other receivables as of March 31,
        2008
  **Other
        receivables**
 
 3/31/2008Beijing
                  yanfang construction Co., Ltd.
              
              $
              15,434Xisanzhuang
                  Co., Ltd.
              
              
              21,423Shenzhen
                  shenqi investment Co., Ltd.
              
              
              23,732Peixuan
                  construction service department
              
              
              28,481Beijing
                  zhongshi investment Co., Ltd.
              
              
              42,722Shangjianzhong
              
              
              327,533China
                  gas investment Co., Ltd.
              
              
              333,939Tianjin
                  feite zhixun service Co., Ltd.
              
              
              356,014Baishan
                  zhaiwu service Co., Ltd.
              
              
              1,968,852Baoding
                  city management Co., Ltd.
              
              
              4,272,165Total
              
              $
              7,390,295
  19
 
 **6.**  **PROPERTY,
        PLANT AND EQUIPMENT**
 
 Property,
        Plant and Equipment consist of the following as of March 31, 2008 and December
        31, 2007
 
 03/31/08
              
              12/31/07At
                  CostGas
                  Pipelines
              
              $
              20,925,765
              
              $
              18,885,735Motor
                  Vehicles
              
              
              5,351,869
              
              
              4,874,686Machinery
                  & Equipment
              
              
              867,089
              
              
              885,998Buildings
              
              
              1,748,881
              
              
              1,405,639Leasehold
                  Improvements
              
              
              72,036
              
              
              68,942Office
                  Equipment
              
              
              181,345
              
              
              105,336Total
              
              $
              29,146,985
              
              $
              26,226,336Less:
                  Accumulated Depreciation
              
              
              (2,294,018
              )
              
              (1,653,771
              )Property,
                  Plant and Equipment, net
              
              $
              26,852,967
              
              $
              24,572,565
 
 03/31/08
              
              12/31/07Accumulated
                  DepreciationGas
                  Pipelines
              
              $
              1,074,075
              
              $
              591,419Motor
                  Vehicles
              
              
              821,796
              
              
              687,354Machinery
                  & Equipment
              
              
              170,595
              
              
              161,703Buildings
              
              
              131,312
              
              
              128,514Leasehold
                  Improvements
              
              
              38,269
              
              
              34,070Office
                  Equipment
              
              
              57,971
              
              
              50,711Total
              
              $
              2,294,018
              
              $
              1,653,771
  Depreciation
        expense included in the consolidated statements of income for the period
        ended
        March 31, 2008 was $640,247.
  20
 
 **7.**  **INTANGIBLE
        ASSETS**
 
 Intangible
        assets consist of the following as of March 31, 2008 and December 31,
        2007:
 
 03/31/08
              
              12/31/07At
                  CostLand
                  use rights
              
              $
              471,747
              
              $
              452,345Franchises
              
              
              384,495
              
              
              359,464Goodwill
              
              
              1,627,140
              
              
              1,562,202Other
              
              
              13,813
              
              
              9,563Total
              
              $
              2,497,195
              
              $
              2,383,574Less:
                  Accumulated Amortization
              
              
              (384,858
              )
              
              (355,324
              )Intangible
                  Assets, net
              
              $
              2,112,337
              
              $
              2,028,250
  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.
 
 **8.
        SHORT-TERM BANK LOANS**
 
 Short-term
        bank loans are as follows:
 
 3/31/2008
              
              12/31/2007Loans
                  from China Renmin Bank Co.,Ltd.
                Interest
                  rate at 7.22% per annual plus 10% fluctuation market rate
              
              $
              2,848,110
              
              $
              2,734,444Loans
                  from Huashang Bank Co., Ltd.
              
              
              4,272,166
              
              
              -Total
              
              $
              7,120,276
              
              $
              2,734,444
  Interest
        expenses for the short-term bank loans were $57,877 and $55,405 for the three
        months ended March 31, 2008, and the twelve months ended December 31,
        2007.
  21
  **9.** **** **OTHER
        PAYABLES**
 
 Other
        payables at March 31, 2008 and December 31, 2007 consist of the
        following:
 
 3/31/2008
              
              12/31/2007Employees’
                  welfare payables
              
              $
              218,637
              
              $
              176,236Amount
                  due to employees
              
              
              30,061
              
              
              150,711Tax
                  payable
              
              
              243,439
              
              
              922,620Other
                  Payable
              
              
              9,223,522
              
              
              9,134,090Total
              
              $
              9,715,659
              
              $
              10,383,657
 
 All
        the
        amounts due to employees are unsecured, interest free, and have no fixed repayment
        terms.
 
 The
        followings are the ten largest other payables as of March 31, 2008:
 
 Beijing
                  chengguang Co., Ltd.
              
              $
              19,833Caiyou
                  erchuang transportation Co.
              
              
              25,674Education
                  department Co., Ltd.
              
              
              38,528Labor
                  union department
              
              
              60,757Heshuchun
              
              
              71,203Beijing
                  qianshi technology development Co.
              
              
              78,602Social
                  insurance Co., Ltd.
              
              
              117,263Employee
                  training program Co., Ltd.
              
              
              411,860Chenguang
                  weizhong consultant Co., Ltd.
              
              
              427,217Baishan
                  natural gas Co., Ltd
              
              
              4,010,447Total
              
              $
              5,261,384
  **10.    CAPITAL
        STOCK**
 
 The
        authorized capital stock consists of (i) 250,000,000 shares of common stock,
        par
        value $0.001 per share, of which there are 25,282,380 shares issued and
        outstanding, and (ii) 100,000,000 shares of preferred stock, par value $0.001
        per share. The preferred stock consists of (i) series A convertible preferred
        stock, of which 20,000,000 shares have been authorized and 275,111 shares
        are
        issued and outstanding; and (ii) series B convertible preferred stock, of
        which
        5,000,000 shares have been authorized and 4,971,859 shares are issued and
        outstanding.
  22
  
 The
        following is a summary of the material terms of its capital stock. This summary
        is subject to and qualified in its entirety by its Articles of Incorporation,
        as
        amended and corrected, certificates of designations for its series A and
        series
        B convertible preferred stock, its by-laws and by the applicable provisions
        of
        Utah law.
 
 Common
        Stock
 
 The
        Company is authorized to issue 250,000,000 shares of common stock, with a
        par
        value of $0.001. There are 25,282,380 shares of common stock issued and
        outstanding as of March 31, 2008. All shares of common stock have one vote
        per
        share on all matters including election of directors, without provision for
        cumulative voting. The common stock is not redeemable and has no conversion
        or
        preemptive rights. The common stock currently outstanding is validly issued,
        fully paid and non-assessable. In the event of liquidation of the company,
        the
        holders of common stock will share equally in any balance of the company's
        assets available for distribution to them after satisfaction of creditors
        and
        preferred shareholders, if any. The holders of common stock are entitled
        to
        equal dividends and distributions per share with respect to the common stock
        when, as and if, declared by the board of directors from funds legally
        available.
 
 Preferred
        Stock
 
 In
        addition to the 250,000,000 shares of common stock, The Company is authorized
        to
        issue 100,000,000 shares of preferred stock, with a par value of $0.001 per
        share. Shares of the preferred stock may be issued from time to time in one
        or
        more classes or series, each of which class or series shall have such
        distinctive designation or title as shall be fixed by the board of directors
        prior to the issuance.
 
 On
        August
        30, 2006, the Company’s board of directors designated 20,000,000 shares of its
        authorized $0.001 par value per share preferred stock as series A convertible
        preferred stock and 5,000,000 shares of its preferred stock as series B
        convertible preferred stock. On August 31, 2006, the Company filed certificates
        of designations for the series A and series B convertible preferred stock
        with
        the Office of the Secretary of State of Utah. On September 6, 2006, the board
        of
        directors amended the designations of the Series B convertible preferred
        stock
        and the Company filed an amended certificate of designations for the Series
        B
        convertible preferred stock with the Office of the Secretary of State of
        Utah.
        The board of directors created the series A convertible preferred stock to
        allow
        the Company to consummate the share exchange transaction with the Gas (BVI)
        Shareholders and the series B convertible preferred stock in connection with
        its
        private financing transactions, although the Company does not have sufficient
        unissued authorized common stock to allow for a complete conversion. Each
        of the
        shares of series A convertible preferred stock was automatically converted
        into
        one share of its common stock upon the effectiveness of its reverse stock-split
        on November 17, 2006. Therefore, as of December 31, 2006, the Company has
        no
        shares of series A convertible preferred stock issued and
        outstanding.
  23
  Conversion
 
 The
        Company issued 14,361,646 of its common shares upon the automatic conversion
        of
        its series A convertible preferred shares after the 304.44-for-1 reverse
        stock-split on November 17, 2006. The Company no longer has any series A
        convertible preferred shares outstanding.
 
 Each
        share of the series B convertible preferred stock will become convertible
        into
        common stock, at the option of its holder after the 304.44-for-1 reverse
        stock-split, based on the then applicable conversion rate, which is initially
        one share of series B convertible preferred stock for one share of common
        stock.
 
 **Total
        Capitalization**
 
 The
        Following table depicts an analysis of total capitalization for the issuance
        of Preferred
        Stock A, Preferred Stock B, Common Stock, and the related additional Paid
        in
        Capital as of March 31, 2008:
 
 **Preferred
                  Stock A**
              
              **Preferred
                  Stock B**
              
              **Common
                  Stock****Name of Shareholder**
              
              **Number of**
                **Shares
                  Outstanding**
              
              **Capital**
              
              **Number of**
                **Shares**
                **Outstanding**
              
              **Capital**
              
              **Number of**
                **Shares**
                **Outstanding**
              
              **Capital**
              
              **Additional**
                **Paid in**
                **Capital**
              
              **% of Equity**
                **Holdings**Private
                  Investor
              
              
              275,111
              
              
              275
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,210,213
              
              
              0.90
              %Investor
                  Relations firm
              
              
              -
              
              
              -
              
              
              4,971,859
              
              
              4,972
              
              
              -
              
              
              -
              
              
              6,994,270
              
              
              16.29
              %Management
                  / Insider
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              12,653,661
              
              
              12,654
              
              
              4,252,959
              
              
              41.45
              %Investor
                  - 1st Round Raising
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5,628,722
              
              
              5,629
              
              
              2,997,371
              
              
              18.44
              %*Less:*Cost of Stock Issuance
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (412,241
              )
              
              -Investor
                  - 2nd Round Raising
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,999,997
              
              
              7,000
              
              
              15,743,000
              
              
              22.93
              %*Less:*Cost of Stock Issuance
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,957,133
              )
              
              -Beneficial
                  Conversion Feature
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,418,864
              
              
              -275,111
              
              
              275
              
              
              4,971,859
              
              
              4,972
              
              
              25,282,380
              
              
              25,283
              
              
              35,247,303
              
              
              100.00
              %
  24
  
 **11.**  **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.
 
 **3/31/2008
        Balance Sheet Segment Report**
 
 Gas Distribution
              
              Gas pipeline
                  Installation
              
              Others
              
              TotalAssetsCurrent
                  Assets
              
              $
              14,147,456
              
              $
              4,688,771
              
              $
              8,201,877
              
              $
              27,038,104Non-Current
                  Assets
              
              
              11,194,047
              
              
              33,305,354
              
              
              -
              
              
              44,499,401Total
                  Assets
              
              $
              25,341,503
              
              $
              37,994,125
              
              $
              8,201,877
              
              $
              71,537,505LiabilitiesCurrent
                  Liabilities
              
              
              1,604,946
              
              
              17,175,131
              
              
              155,709
              
              
              18,935,786Total
                  Liabilities
              
              $
              1,604,946
              
              $
              17,175,131
              
              $
              155,709
              
              $
              18,935,786Net
                  Assets
              
              $
              23,736,557
              
              $
              20,818,994
              
              $
              8,046,168
              
              $
              52,601,719
  25
 
 **3/31/2008
        Income Statement Segment Report**
 
 Gas Distribution
              
              Gas pipeline
                  Installation
              
              Others
              
              TotalSales
                  Revenue
              
              $
              2,987,419
              
              $
              1,354,698
              
              $
              -
              
              $
              4,342,117Cost
                  of Revenue
              
              
              (2,545,638
              )
              
              (429,834
              )
              
              -
              
              
              (2,975,472
              )Gross
                  Profit
              
              
              441,781
              
              
              924,864
              
              
              -
              
              
              1,366,645Operating
                  Expense
              
              
              (232,194
              )
              
              (493,412
              )
              
              (289,548
              )
              
              (1,015,155
              )Other
                  Income
              
              
              (18,061
              )
              
              (38,380
              )
              
              28,295
              
              
              (28,146
              )Earnings
                  before tax
              
              
              191,526
              
              
              393,071
              
              
              (261,253
              )
              
              323,344Income
                  tax
              
              
              (55,685
              )
              
              (118,332
              )
              
              -
              
              
              (174,017
              )Net
                  Income
              
              $
              135,841
              
              $
              274,739
              
              $
              (261,253
              )
              $
              149,327
  **Balance
        Sheet Segment Report**
 **As
        of December 31, 2007**
 
 Gas
                  Distribution
              
              Gas
                  pipeline Installation
              
              Others
              
              TotalAssetsCurrent
                  Assets
              
              
              11,509,765
              
              
              3,814,583
              
              
              7,866,957
              
              
              23,191,305Non-Current
                  Assets
              
              
              10,606,803
              
              
              31,558,142
              
              
              -
              
              
              42,164,945Total
                  Assets
              
              
              22,116,568
              
              
              35,372,725
              
              
              7,866,957
              
              
              65,356,250LiabilitiesCurrent
                  Liabilities
              
              
              1,228,727
              
              
              13,149,074
              
              
              131,843
              
              
              14,509,644Total
                  Liabilities
              
              
              1,228,727
              
              
              13,149,074
              
              
              131,843
              
              
              14,509,644Net
                  Assets
              
              
              20,887,841
              
              
              22,223,651
              
              
              7,735,114
              
              
              50,846,606
  26
  **Income
        Statement Segment Report**
 **For
        the three months ended March 31, 2007**
 
 Gas Distribution
              
              Gas pipeline
                  Installation
              
              Others
              
              TotalSales
                  Revenue
              
              $
              1,822,891
              
              $
              615,336
              
              $
              -
              
              $
              2,438,227Cost
                  of Revenue
              
              
              (1,713,412
              )
              
              (124,218
              )
              
              -
              
              
              (1,837,630
              )Gross
                  Profit
              
              
              109,479
              
              
              491,118
              
              
              -
              
              
              600,597Operating
                  Expense
              
              
              (89,563
              )
              
              (408,009
              )
              
              -
              
              
              (497,572
              )Other
                  Income
              
              
              23,963
              
              
              5,260
              
              
              -
              
              
              29,223Earnings
                  before tax
              
              
              43,879
              
              
              88,369
              
              
              -
              
              
              132,248Income
                  tax
              
              
              (3,036
              )
              
              (13,829
              )
              
              -
              
              
              (16,865
              )Net
                  Income
              
              $
              40,843
              
              $
              74,540
              
              $
              -
              
              $
              115,383
 
 
 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.
  No
        other
        measures of segment profit or loss and assets have been provided or reviewed
        by
        the company's chief operating decision maker.
  27




**Item
      2.****Management’s
      Discussion and Analysis**





The
      following discussion of our financial condition and results of operations should
      be read in conjunction with our consolidated financial statements and the notes
      to those financial statements appearing elsewhere in this Form 10-Q. This
      discussion contains forward-looking statements that involve significant risks
      and uncertainties. As a result of many factors, such as those set forth
      elsewhere in this Form 10-Q, our actual results may differ materially from
      those
      anticipated in these forward-looking statements.





**Economic
      & Industrial Trend**





We
      generate revenue from two sources: connection fees for constructing connections
      to our natural gas distribution network, and sales of natural gas. Our
      connection activities are closely related to the development of real estate
      industry in our targeting cities in China, given the fact that almost all of
      our
      connection fees are from new residential apartments. Natural gas facilities
      in
      new apartments are often required by local governments, who aim to promote
      the
      use of natural gas to improve local residents’ life quality.





We
      have
      experienced high growth of our connection activities since inception of our
      business, thanks to Chinese real estate boom in the past five years. We see
      no
      major factors that will change the trend of real estate industry in the coming
      year. Therefore we expect to continue to see growth of household connections,
      especially in small-to-medium sized cities where the real estate market is
      at an
      early developing stage.





If
      Chinese real estate market does slow down in the future, our connection business
      would be negatively affected as a result of fewer new household connections.





Our
      gas
      users are composed of industrial and residential users. Gas sales from
      residential users are much less affected by economic and industrial factors
      and
      would maintain stable growth in the future, due to the increasing pool of our
      residential customers. Gas sales from industrial users is subject to the
      operating performance of the end industrial user and development of new users.
      Gas sales to our industrial users have increased 70% during 2007, as we
      developed one new user and two of our existing users have expanded their
      production capacity. Our biggest industrial user, Hebei Zhong Gang Co. Ltd,
      is
      increasing production capacity, which is expected to increase our daily gas
      sales from 30,000 cubic meters to 45,000 cubic meters in 2008. As we develop
      into more cities, we expect to add one to two industrial users in the coming
      year.





**Material
      Opportunities**





The
      gas
      distribution market is quite fragmented in the small (population less than
      100,000)-to-medium (population between 100,000 to 300,000) sized cities. We
      have
      been in active talks with potential project targets. The size of the projects
      varies from small cities, like the ones we have, to medium-sized cities. For
      small city markets, many of them are still untapped or undeveloped. The
      development of these markets are generally considered major growth components
      of
      the company.





Regarding
      medium-sized or large cities, most of them have already been developed by large
      distributors or are still operated by state-owned companies. Acquisition
      opportunities exist for those still run by state-owned companies, as the central
      government encourages suppliers to turn them into privately-owned companies.
      The
      acquisition of these markets would have material impact on the company,
      increasing the company’s assets and revenues significantly. The company needs to
      raise money to fund these acquisitions.


28


**Material
      Challenges**





There
      are
      vast number of small-to-medium sized cities left undeveloped, but the
      competition is intense, as there are many small new players in the market
      attracted by the profitability and growth potential of the business. Meanwhile,
      from time to time, we are also facing competitions from stronger competitors,
      as
      large city markets are getting saturated and our competitors are beginning
      to
      expand into smaller cities.





We
      are
      facing limited opportunities in developing into first-tier cities in China,
      as
      most of them have already been taken by other large gas distributors, such
      as
      Xin’ao Gas Co. Ltd (largest in China) in the past decade.





Still,
      potential users in small and medium-sized cities need to be educated by the
      benefits of natural gas. It takes some time for them to get to know how natural
      gas can improve the quality of life. This is especially true for new markets,
      where there is no use of natural gas. Small cities tend to be more reluctant
      for
      use of new energies than large cities where residents depend more on coal,
      rather than natural gas.





China’s
      energy market is highly regulated by the government, with regard to purchase
      price and sale price of natural gas. Whenever there is an adjustment to purchase
      price by the government, gas distributors would increase the sale price
      correspondingly, subject to a public hearing and government approval. The
      increase of natural gas price in China is lagging behind that in the
      international markets, which has soared in the past year. The Chinese government
      has seldom adjusted natural gas and we can not rule out the possibilities of
      increase of natural gas price by the government in the future. Even though
      we
      can adjust the sale price accordingly after the increase of purchase price,
      passing the increase to end users. However, it would make natural gas more
      expensive, as compared to other alternative energies. Thus this increase of
      price will deter our business development.





**Risks
      in Short-Term and Long-Term**





In
      each
      of the cities we are developing and aiming to develop, the real estate market
      is
      the major factor that impacts us. Most of our residential customers are the
      new
      home buyers. If the real estate market turns downward, the demands for new
      homes
      would decrease, resulting in fewer natural gas connections, and thus negatively
      impacting our business.





To
      reduce
      the company’s heavy dependence on connection fees, the company is looking at
      opportunities to diversify its business by expanding into related areas, such
      as
      pipeline and gas station business. However, we do not expect to develop into
      those areas in large scale any time soon and it may take some time for those
      business to become our major business.





**Liquidity
      and Capital Resources**





Natural
      gas distribution is a typical capital-intensive industry, which requires a
      large
      amount of capital for the construction of pipelines and gas stations, purchase
      of transportation vehicles etc. while the investment would be paid back in
      the
      following year with increasing new household connections. Under the organic
      growth model (growth by the Company without outside funding), the Company can
      develop new city projects by using the money generated from existing cities.
      The
      Company would be constrained by inadequate capital when developing into bigger
      cities or making Merger &Acquisition activities, under which situation the
      company needs to raise money to finance its business
      expansion.





***Three
      Months Ended March 31, 2008 Compared to Three Months Ended Mar 31,
      2007***





During
      the three months ended March 31, 2008, our company achieved strong increases
      in
      financial and operational results. Our net revenues and gross profit were
      $4,342,117 and $1,366,645, respectively, representing an increase of 78.09%
      and
      127.55%, respectively, from those of the same period in the previous year.
      Our
      operating income in 2008 was $351,490, representing an increase of 241.17%
      from
      2007.


29





For
                the 3 months ended
              March
                31,2008
            
            2007
            
            ChangeUS$
            
            US$%Net
                Revenues
            
            
            4,342,117
            
            
            2,438,227
            
            
            78.09
            %Gross
                Profit
            
            
            1,366,645
            
            
            600,597
            
            
            127.55
            %Operating
                Income
            
            
            351,490
            
            
            103,025
            
            
            241.17
            %Net
                Income
            
            
            149,327
            
            
            115,383
            
            
            29.42
            %Gross
                Margin
            
            
            3.15
            %
            
            24.63
            %Net
                Margin
            
            
            3.44
            %
            
            4.73
            %





**Net
      Revenues**





We
      generate revenues from two sources: connection fees for constructing connections
      to our natural gas distribution network, and sales of natural gas.





Total
      net
      revenues for the three months ended March 31, 2008 were $4,342,117, compared
      to
      $2,438,227 for the same period in 2007, representing an increase of 78.09%.
      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
      4,590 new residential households to our gas distribution network, resulting
      in
      total connection fees of $1,345,698. Gas sales during the same period amounted
      to 9.45 million cubic meters, or $2,987,419. In comparison, we connected 2,260
      new residential households to our gas distribution network in 2007, resulting
      in
      total connection fees of $615,336. Gas sales during the period amounted to
      6.32
      million cubic meters, or $1,822,891.


For the 3 months ended December 31,2008
                
                2007
                
                Change(In
                    $ million)
                
                US$
                
                %
                
                US$
                
                %
                
                %Net
                    Revenues
                
                
                4.34
                
                
                100
                %
                
                2.44
                
                
                100
                %
                
                78.09
                %Connection
                    Fees
                
                
                1.35
                
                
                31
                %
                
                0.62
                
                
                25
                %
                
                120.16
                %Gas
                    Sales
                
                
                2.99
                
                
                69
                %
                
                1.82
                
                
                75
                %
                
                63.88
                %





Connection
      Fees





Connection
      fees during the three months ended March 31, 2008 were $1.35 million,
      representing an increase of 120.16% over the same period of 2007, accounting
      for
      31% of the total net revenue compared with approximately 25% for the same period
      in 2007. With
      regard to the source of connection fees, 100% of total connection fees came
      from
      the development of new residential users. We connected 4,590 residential users during
      the three months ended March 31, 2008 ,
      an
      increase of approximately 120.16% from 2007.


For the 3 months ended March 31,(in
                US$ millions)
            
            2008
            
            2007
            
            ChangeUS$
            
            %
            
            US$
            
            %
            
            %Connection
                Fees
            
            
            1.35
            
            
            100
            %
            
            0.62
            
            
            100
            %
            
            120.16
            %Residential
                Users
            
            
            1.35
            
            
            100
            %
            
            0.62
            
            
            100
            %
            
            120.16
            %Industrial
                Users
            
            
            0.00
            
            
            0
            %
            
            0.00
            
            
            0
            %
            
            0
            %





Such
      substantial increase was primarily attributable to the following two
      aspects.


30




First
      of
      all, we tried our best to develop more residential customers in those cities
      of
      which we have obtained franchise of natural gas distribution systems. Our
      invested projects in
      the
      three months ended March
      31,
      2008 connected 4050
      new
      residential households in the three months ended March 31, 2008, resulting
      in
      approximately $1,208,600 to our total connection fees. In comparison, during
      the
      same period of 2007, we connected 1,125 new
      residential households to our gas distribution network, resulting in total
      connection fees of $ 615,336 .





Secondly,
      Quality projects merger was
      judged to be another important factor in our good performance. Beijing Chenguang
      Gas Co., Ltd. (“Beijing Chenguang”), acquired in January 2007, connected 540 new
      residential households in the three months ended March 31, 2008, resulting
      in
      approximately $ 0.146 million
      to our total connection fees.





The
      table
      below is a breakdown of our top five customers by connection fees:





Customers
            
            Connection Fees:
              ($ million)Beijing
                Xinchengyuanjing Real Estate Development Co. Ltd
            
            
            0.2748Tangshan
                Shunda Real Estate Development Co.
            
            
            0.2776Zaoqiang
                Taihe Real Estate Development Co.
            
            
            0.223Baishan
                Jiacheng Real Estate Development Co.
            
            
            0.0557Su
                Qian Run Cheng Development Co., Ltd.
            
            
            0.0418





Due
      to
      seasonality effects, the first quarter is usually a weak season for gas
      distribution companies in China in terms of recognition of revenue from
      connection fees. Construction projects are stopped because of cold weather
      and
      the Chinese New Year holiday. New construction projects are begun only in the
      latter part of the quarter, and only a small portion of connection fees are
      achieved in this quarter.





Gas
      Sales





In
      terms
      of volume, we sold 9.45 million cubic meters of natural gas during
      the three months ended March 31, 2008 ,
      compared with 6.32 million cubic meters in 2007. In terms of value, gas sales
      were $2.99 million during
      the three months ended March 31, 2008 ,
      accounting for 69% of total net revenue in 2008, representing
      an increase of 63.88% over the year 2007. Gas
      sales
      to residential increased 16.51% from $0.55 million in 2007 to $0.64 million
      in
      2008. Gas sales to industrial users increased 100.25%, from $0.44 million in
      2007 to $0.89 million in 2008. Gas sales to commercial users increased 75.70%,
      from $0.83 million in 2007 to $1.47 million in 2008.





For the 3 months ended March 31,2008
            
            2007
            
            Change($
                million)
            
            US$
            
            %
            
            US$
            
            %
            
            %Gas
                Sales
            
            
            2.99
            
            
            100
            %
            
            1.82
            
            
            100
            %
            
            63.88
            %Residential
                Users
            
            
            0.64
            
            
            22
            %
            
            0.55
            
            
            25
            %
            
            16.51
            %Industrial
                Users
            
            
            0.89
            
            
            36
            %
            
            0.44
            
            
            24
            %
            
            100.25
            %Commercial
                Users
            
            
            1.47
            
            
            42
            %
            
            0.83
            
            
            50
            %
            
            75.70
            %





Such
      substantial increase was primarily attributable to the following two
      aspects.





First
      of
      all, our invested projects maintained steady and rapid development. During
      the three months ended March
      31,
      2008 ,
      4.3299
      million cubic meters of gas were sold, resulting in approximately $1.504
      million, 74.76% of our total gas sales. In comparison, during the same period
      of
      last year, 6.22 million cubic meters of gas were sold, resulting in
      approximately $1.8 million.


31





Secondly,
      Quality projects merger was
      judged to be another important factor in our good performance. Beijing Chenguang
      Gas Co., Ltd. (“Beijing Chenguang”), acquired in January 2007, sold 5.1168
      million cubic meters of gas during the three months ended March 31 2008,
      resulting in approximately $1.4834 million, 49.66% of our total gas
      sales.





The
      table
      below is a breakdown of our major industrial customers for gas consumption
      in
      the first quarter of 2008.





**Residential
                Customers**
            
            Gas Usage
              (million
              cubic
              meters)
            
            Gas Usage
              ($ million)Hebei
                Zhonggang Steel Co., Ltd.
            
            
            1.9407
            
            
            0.6294Tangshan
                Changsheng Ceramic Factory
            
            
            0.1721
            
            
            0.0541Elite
                (Langfang) Textile Corporation
            
            
            0.0992
            
            
            0.0298The
                First Machine Factory of Huabei Petrol Bureau
            
            
            0.391
            
            
            0.128Hebei
                Jihengyuan Group Ltd.
            
            
            0.1021
            
            
            0.0428





Gas
      sales
      of $0.6294 million were contributed by a single industrial project, Hebei
      Zhonggang Steel Co., Ltd. (“Hebei Zhonggang”), which started to use gas at the
      beginning of 2006. The gas consumption of Hebei Zhonggang has increased to
      1.9407 million cubic meters during
      the three months ended
      March 31, 2008 from 1.3 million cubic meters in 2007.





As
      mentioned above, due to seasonality factors of our business, gas sales accounted
      for a relatively lower percentage of our total sales, though gas sales in
      absolute value remained relative stable throughout the year. Sales from
      industrial users are nearly more than 60% higher than that from residential
      users, due to much larger consumption of natural gas by industrial users.
      As our customer base grows, gas sales from residential users would increase
      gradually.





**Cost
      of Revenues**





Cost
      of
      revenues for
      the
      three months ended March 31, 2008, which includes cost of connection and cost
      of
      gas sales was
      $2.98 million, an increase of 61.92%, from $1.84 million in the same period
      of
      2007.





For the 3 months ended March 31,2008
            
            2007
            
            Change($
                million)
            
            US$
            
            %
            
            US$
            
            %
            
            %Cost
                of Revenues
            
            
            2.98
            
            
            100
            %
            
            1.84
            
            
            100
            %
            
            61.92
            %Connection
                Cost
            
            
            0.43
            
            
            14
            %
            
            0.12
            
            
            7
            %
            
            246.03
            %Gas
                Cost
            
            
            2.55
            
            
            86
            %
            
            1.71
            
            
            93
            %
            
            48.57
            %





Cost
      of Connection




Our
      cost
      of connection during the three months ended March 31, 2008 was $0.43 million,
      or
      14% of total cost of revenues. By comparison, the cost of connection during
      the
      same period of 2007 was $0.12 million, or 7% of total cost of
      revenue.





Cost
      of
      connection increased around 246.03% from the same period in 2007, mainly due
      to
      the increased cost of gas station maintenance resulting from the development
      of
      our gas stations and increase of revenues from connection fees. Increase of
      revenues from connection fees raised nearly 120% from the same period in 2007.


32




Cost
      of
      connection includes depreciation of major pipelines, the cost of courtyard
      pipelines, valves, gas meters, and installation and maintenance
      fees.





Considering
      the city's overall planning and the long-term interests of our company, the
      capacity of the gas pipeline network we designed to distribute gas for a city
      usually greatly exceeded the number of households we served at the very
      beginning, which makes the cost of connection, specifically the depreciation
      of fixed assets and maintenance cost greatly
      increase. However, with
      connection of more households to the gas pipeline, the average cost to each
      household will be gradually reduced.





Cost
      of Gas Sales




The
      cost
      of gas sales increased 48.57% to $2.55 million during the three months ended
      March 31, 2008 from the same period in 2007, when it was $1.71 million. This
      increase is largely due to the increase of gas sales which increased
      63.86%.





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 CNY 1.6 to 1.9 ($0.22 to $0.26) per cubic
      meter. We signed a ten-year gas supply agreement in
      2003.
      It is tentatively prescrib ed
      that
      every year Petro China supplied a total of 10 million cubic meters of natural
      gas at CNY 1.55 ($0.212) per cubic meter between April 1 and October 31 and
      CNY
      1.65 ($0.226) per cubic meter during the rest of the year. 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.





The
      table
      below details our major gas suppliers in three months ended March 31,
      2008:





Gas
                Supplier
            
            Gas Purchase
              (million cubic
              meters)
            
            Gas Purchase
              ($ million)North
                China Oil Field Fourth Oil Extraction Plant of Petro China
            
            
            1.84
            
            
            0.41Tianjin
                Dagang Oilfield Transportation Co., Ltd.
            
            
            0.35
            
            
            0.09Henan
                Zhong Yuan Green Energy High-Tech Co., Ltd.
            
            
            0.15
            
            
            0.06Hebei
                Natural Gas Co. Ltd
            
            
            0.33
            
            
            0.07





**Gross
      Profit**





Gross
      income increased from $0.6 million in 2007 to $1.37 million for
      2008.





For the 3 months ended March 31,2008
            
            2007
            
            Change($
                million)
            
            US$
            
            %
            
            US$
            
            %
            
            %Gross
                Profit
            
            
            1.37
            
            
            100
            %
            
            0.60
            
            
            100
            %
            
            127.55
            %Connection
            
            
            0.92
            
            
            67
            %
            
            0.49
            
            
            82
            %
            
            88.52
            %Gas
            
            
            0.44
            
            
            33
            %
            
            0.11
            
            
            18
            %
            
            303.53
            %





During
      the three months ended Mar 31, 2008, gross profit was $1.37 million, an increase
      of approximately 127.55% from the same period of 2007. Gross profit from
      connection fees is $0.92 million for the first three months of 2007, accounting
      for 67% of total gross profit. In comparison, gross profit from connection
      fees
      was $0.49 million for the three months of 2007, accounting for 82% of total
      gross profit. Gross profit from gas sales was $0.44 million, accounting for
      33%
      of total gross profit, compared to $0.11 million, 18% of total gross profit
      in
      the same period of 2007.


33





Decrease
      of gross margin for connection is attributable to the increase of cost for
      connection fees. We believe that the gross margin for connection will greatly
      increase if the number of households we developed meets the capacity of pipeline
      network. Increase of gross margin for gas sales is attributable to the fact
      that
      the growth rate of gas sales is larger than the growth rate of cost of gas
      sales. We believe that the gross margin for gas sales will increase with a
      more
      considerable amount of gas consumption.





**Selling
      and Marketing Expenses**





Our
      selling and marketing expenses in the three months ended Mar 31, 2008 were
      $181,700 and approximately 4.18% of our net revenues, compared with
      $56 ô 190,
      or
      2.3 % of net revenues in the same period of 2007.





In
      2007,
      we acquired Beijing Chenguang which owns four subsidiaries and Guannan Weiye,
      and we incorporated five new subsidiaries. The expansion of our company led
      to
      greatly increased staff salary, social insurance cost, travel and communications
      cost, and depreciation
      of fixed assets, which
      are
      attributable to increase of selling and marketing expenses.





**General
      and Administrative Expenses**





General
      and administrative expenses were $0.83 million for the three months ended Mar
      31, 2008, which was 88.83% higher than $0.44 million for the same period last
      year.





The
      increase was largely due to our new 6 subsidiaries incorporated in the second
      half of 2007, which led to increases in salary, social insurance, traveling
      expenses and other expenses. The new subsidiaries will definitely bring income
      of long-term. Nevertheless, the expenses from business operation occur
      simultaneously. Therefore, a good expense to revenue ration was unable to be
      achieved currently. The increase was also due in part to largely increased
      depreciation relating to new assets described above. We believe an
      upward trend in general and administrative expenses is inevitable in
      2008.





**Operating
      Income**





The
      operating income for the three months ended Mar31, 2008 was $0.35 million,
      representing an increase of 241.74%, compared to the operating income of $0.1
      million in 2007.





Our
      company enjoyed a satisfying performance due to a prominent increase in revenues
      and a faster revenues growth than general and administrative expenses
      growth.





**Income
      tax**




Income
      tax was $0.17 million for
      the
      three months ended Mar 31, 2008 ,
      compared to $0.01 million in 2007. The reason of increased income tax expense
      is
      due to the increase of tax rate from 7.5% to 25% as prepayment.





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 7.5% from 2005 to 2007.
      The
      income tax rate is expected to be 15% in 2008, the standard rate for foreign
      high-tech enterprises.




The
      income tax rate of our subsidiaries is 20-25%, 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.


34




**Net
      Income**





Net
      income in the three months ended Mar 31, 2008 was $0.15 million, representing
      an
      increase of 29% from $0.12 million in the same period in 2007. The increase
      can
      be attributed to the continued growth of our existing markets and the
      acquisitions we have made.





**Cash
      and cash equivalents**





Cash
      sourced in financing activities during the three months ended Mar 31, 2008
      is
      $4.39 million.


In
      January of 2008, Beijing Gas, the main subsidiary of Sino Gas in China, took
      out
      a loan in the amount of CNY 30 million (approximately $4.18 million), accruing
      interest at an adjustable rate (currently at 20% per year), with interest
      payable quarterly, from Chinese Mercantile Bank.





Cash
      used
      in operating activities during the three months ended Mar 31, 2008 is $5.88
      million, which is due to our effective management of accounts
      receivable.





Cash
      used
      in investing activities during the three months ended Mar 31, 2008 is $3.00
      million. We used the funds raised for project developments.





**Accounts
      Receivable**





Accounts
      receivable during the three months as of March 31, 2008 were $6.16 million,
      representing a decrease of $1.15 million from $7.31 million in 2007. The
      decrease was due to the fact that we
      attach
      great importance to the management and control of accounts
      receivable.





Our
      account receivable is expected to gradually decrease during the first six months
      of 2008 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 March in 2008, accounts
      receivable dated from 2006 had been mostly collected, and the remainder were
      primarily warranty payments of 2007. 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.





**Notes
      Receivable**




Notes
      receivable of $0.58 million as of March 31, 2008 is the Note issued by Hebei
      Zhonggang for its use of gas. The Note is risk-free and will be duly honored
      by
      bank at the due date.




**Inventory**




Inventory
      of $0.24 million as of March 31, 2008 was comprised of the spare parts of
      Maintenance equipment stored for Langfang Development Zone Wei Ye Hazardous
      Goods Transportation Co. Ltd., steel gas storage tanks, and natural
      gas.





**Prepayments**




Prepayments
      of $1.04 million as of March 31, 2008 were consisting entirely of the
      prepayments for gas purchasing in accordance with the purchase and sale contract
      we signed with the gas suppliers.





**Deferred
      and Prepaid Expense**





The
      amount of $0.4656 million of car insurance, parking fee and prepaid rent will
      be
      amortized in one year.


35





**Other
      Receivable**





Other
      receivable of $9.8496 million includes the payment to Chenguang, expenses due
      to
      the internal business activities, employees’ borrowing, the funds for business
      turnover and payments of other business activities.





**Long-term
      Assets**





Long
      term
      investment: we invested Beijing Zhongran Xiangke Co. Ltd with $2.70 million
      for
      40% equity in the long term run.


Fixed
      Assets: our fixed assets were $26.85 million in the first quarter of 2008,
      causing an increase of $2.28 in comparison with the same period of
      2007. **


Construction
      in process: $12.83 million was fully utilized for constructing the gas stations
      and gas distribution network where our major investment was put.


Intangible
      assets: $2.11 million was used for land using rights of all gas stations,
      franchise and goodwill etc.





**Liabilities**





$7.12
      million Short term borrowings consists of the one year liquidity loan of RMB
      20
      million from Industrial Bank Beijing Shangdi Sub-branch and RMB 30 million
      from
      China Mercantile Bank.


Accounts
      Payable and other payables were mainly for the construction cost of gas
      distribution network and material purchase.


Income
      tax paid was the income tax for the first quarter of 2008 and operating tax
      for
      the month of March and was prepaid in April, 2008.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





Not
      required.




**Item
      4. Controls and Procedures**





**Management’s
      Report of Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      of
      the Exchange Act and have designed internal control over financial reporting
      or
      caused internal control over financial reporting to be designed under its
      supervision in order to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting principles, as
      applicable. Due to its inherent limitations, internal control over financial
      reporting may not prevent or detect material misstatements. In addition,
      projections of any evaluation of effectiveness to future periods are subject
      to
      the risk that controls may become inadequate because of changes in conditions,
      or that the degree of compliance with the policies or procedures may
      deteriorate.





Under
      the
      supervision of and with the participation of our Chief Executive Officer and
      our
      Chief Financial Officer, our management conducted its evaluation of the
      effectiveness of our Company’s internal control over financial reporting as of
      March 31, 2008, using the criteria in the *Internal
      Control-Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Based on that evaluation, our management concluded that, as of March 31, 2008,
      our Company’s internal control over financial reporting was not effective due to
      the material weaknesses described below.





(1)
      The
      Company has not yet established a comprehensive Code of Conduct and Ethics
      (the
“Code”) which is applicable to all Company directors, officers and
      employees.


36





(2)
      Our
      Internal Audit Department has not taken an active role in the conduct of its
      activities due to insufficient resources. The annual plan, budget, and specific
      procedures to perform the internal audit function has not been developed, and
      the anti-fraud audit plan has not been developed either.





(3)
      Our
      Audit Committee was not comprised of sufficient independent directors who are
      "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A under
      the
      Exchange Act. Our Audit Committee did not appoint a member who qualifies as
      an
      "audit committee financial expert" as defined in Item 401(e) of Regulation
      S-B.
      Our written Audit Committee Charter was not submitted to the Boards for
      approval.





(4)
      Our
      Company did not formulate a Related Party Transactions Policy and develop a
      master list of all Related Parties.





**Management’s
      Plan for Remediation of Material Weaknesses**





In
      light
      of the conclusion that our Company’s internal control over financial reporting
      was not effective, our management has worked, and will continue to work, to
      address these weaknesses in our internal control over financial reporting.
      Implementations of certain remedial measures include the following:





(1)
      We
      are going to issue the Code, and arrange respective training to all the
      employees in the near future. Training which includes the content of the Code
      will be provided to new employees at the time of hiring. All the employees
      will
      be required to sign an affidavit acknowledging that the employee has read and
      will intend to comply with the Code;





(2)
      The
      management is committed to develop a comprehensive and risk-based internal
      audit
      function within the Company. With the limited human capital supplies in the
      market, we have engaged a third party professional to assist the management
      in
      establishing the internal control system. At the same time, we have enhanced
      our
      efforts of recruitment and interviews are undergoing. We expect that an internal
      audit department will be set up in the near future. With the continuous
      assistance from the third party professional, the roles and responsibilities
      of
      the internal audit department will be formulated and a risk-based internal
      audit
      plan will be developed and approved by the Audit Committee within a month after
      the set up.





(3)
      The
      Board of Directors has appointed Mr. Zhang Xin Min on March 10, 2008, Mr. Zhang
      serves as a financial expert of Audit Committee and will provide
      oversight/monitoring over our financial reporting mechanism.





(4)
      Compensation Committee Charter, Audit Committee Charter and Related Party
      Transactions Policy have been drafted in February, 2008, and will be approved
      by
      the Board of Directors and become effective in the second quarter.





**Changes
      in Internal Control over Financial Reporting**




Other
      than the remediation measures described above, during the period ended March
      31,
      2008, there was no change in our internal controls over financial reporting
      that
      has materially affected, or that is reasonably likely to materially affect,
      our
      internal control over financial reporting.





**PART
      II - OTHER INFORMATION**


**Item
      1. Legal Proceedings**





None





**Item
      1A. Risk Factors**





Not
      required.


37




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





None.





**Item
      3. Defaults Upon Senior Securities**





None





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





None





**Item
      5. Other Information**





None





**Item
      6.  Exhibits**




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




Exhibit
              Number:
            
            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 1350




38




**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 Quarterly Report
      on
      Form 10-Q to be signed on its behalf by the undersigned, thereunto duly
      authorized, in Beijing, on May 15, 2008.




**SINO
                GAS INTERNATIONAL HOLDINGS, INC.**Date:
                May 15, 2008
            By:
            /s/ Yuchuan
                LiuYuchuan
                LiuChairman
                and Chief Executive Officer




**SINO
                GAS INTERNATIONAL HOLDINGS, INC.**Date:
                May 15, 2008
            By:
            /s/ Yong
                ZhangYong
                ZhangChief
                Financial Officer




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