U.S.
      Securities and Exchange Commission


Washington,
      DC 20549





Form
      10-QSB





QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





FOR
      THE
      QUARTERLY PERIOD ENDED


March
      31,
      2008





Commission
      File Number: 000-30017





Sinoenergy
      Corporation


(Name
      of
      small business issuer as specified in its charter)





Nevada
            
            84-1491682(State
                or other jurisdiction
              of
                incorporation)
            
            (I.R.S.
                Employer
              Identification
                Number)





1603-1604,
                Tower B Fortune Centre Ao City
              Beiyuan
                Road, Chaoyang District,
              Beijing,
                People’s Republic of China 100107(Address
                of principal executive offices)Issuer’s
                telephone number, including area code:
                86-10-84928149





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 checkmark whether the Registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act). Yes o No x





As
      of May
      14, 2008, the Registrant had 31,418,065 shares
      of common stock, par value $0.001 per share, issued and outstanding.





Transitional
      Small Business Disclosure Format: Yes o  No x





**SINOENERGY
      CORPORATION AND SUBSIDIARIES**





PagePart
                I. Financial
                InformationItem
                1. Consolidated Financial
                StatementsConsolidated
                Balance Sheets as of March
                31, 2008 (Unaudited) and September 30, 2007
            3Consolidated
                Statements of Operations and
                Comprehensive Income for the Three Months Ended March 31, 2008 and
                2007
                (Unaudited)
            4Consolidated
                Statements of Operations and
                Comprehensive Income for the Six Months Ended March 31, 2008 and
                2007
                (Unaudited)
            5Consolidated
                Statement of Stockholders’
                Equity for the Six Months Ended March 31, 2008 (Unaudited)
            6Consolidated
                Statements of Cash Flows for
                the Six Months Ended March 31, 2008 and 2007 (Unaudited)
            7Notes
                to Consolidated Financial
                Statements for the Three Months and Six Months Ended March 31, 2008
                and
                2007 (Unaudited)
            8Item
                2. Management’s Discussion
                and Analysis or Plan of Operation
            43Item
                3. Controls and
                Procedures
            53Part
                II. Other
                Information
            54Item
                1. Legal
                ProceedingsItem
                2. Unregistered Sales of
                Equity Securities and Use of ProceedsItem
                3. Defaults Upon Senior
                SecuritiesItem
                4. Submission of Matters to a
                Vote of Security HoldersItem
                5. Other
                InformationItem
                6. Exhibits
            54


2


**Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Balance Sheets**


**(In
      thousands)**




March 31, 2008
            
            September 30,2007(Unaudited)**ASSETS**CURRENT
                ASSETSCash
            
            $
            4,203
            
            $
            3,322Restricted
                cash
            
            
            -
            
            
            1,225Note
                receivable
            
            
            132
            
            
            -Accounts
                receivable, net-Related
                parties
            
            
            -
            
            
            169-Third
                parties
            
            
            12,142
            
            
            5,827Other
                receivables-Related
                parties
            
            
            8
            
            
            332-Third
                parties
            
            
            4,307
            
            
            3,754-Note
                subscription receivable (received October 2007)
            
            
            -
            
            
            29,840Deposits
                and prepayments
            
            
            2,487
            
            
            2,795Deferred
                expenses
            
            
            166
            
            
            58Inventories
            
            
            4,631
            
            
            2,901TOTAL
                CURRENT ASSETS
            
            
            28,076
            
            
            50,223LONG
                TERM ASSETSLong-term
                investments
            
            
            10,979
            
            
            1,592Property,
                plant and equipment, net
            
            
            21,681
            
            
            8,388Intangible
                assets
            
            
            29,901
            
            
            18,531Other
                long-term assets
            
            
            8,827
            
            
            9,599Goodwill
            
            
            1,172
            
            
            729Deferred
                tax asset
            
            
            6
            
            
            4TOTAL
                ASSETS
            
            $
            100,642
            
            $
            89,066LIABILITIES
                AND STOCKHOLDERS’ EQUITYCURRENT
                LIABILITIESShort-term
                bank loan
            
            $
            14,247
            
            $
            14,843Accounts
                payable-
                Third parties
            
            
            2,282
            
            
            3,166Notes
                payable
            
            
            85
            
            
            799Other
                payables-
                Related parties
            
            
            214
            
            
            3,679-
                Third parties
            
            
            7,031
            
            
            1,502Accrued
                expenses
            
            
            157
            
            
            319Warranty
                accrual
            
            
            118
            
            
            76Advances
                from customers
            
            
            2,552
            
            
            1,035Estimated
                liquidated damages payable under registration rights
                agreement
            
            
            140
            
            
            -Income
                taxes payable
            
            
            171
            
            
            119TOTAL
                CURRENT LIABILITIES
            
            
            26,997
            
            
            25,538LONG-TERM
                LIABILITIES12%
                senior notes
            
            
            15,660
            
            
            15,6223%
                senior convertible notes
            
            
            14,597
            
            
            13,823TOTAL
                LIABILITIES
            
            
            57,254
            
            
            54,983Minority
                interests
            
            
            1,536
            
            
            1,363CommitmentsSTOCKHOLDERS’
                EQUITYCommon
                stock- par value $0.001 per share; Issued and outstanding- 31,418,065
                shares at March 31, 2008 and September 30, 2007
            
            
            31
            
            
            31Additional
                paid-in capital
            
            
            22,237
            
            
            22,000Capital
                surplus
            
            
            20
            
            
            20Statutory
                surplus reserve fund
            
            
            1,140
            
            
            1,140Retained
                earnings
            
            
            13,379
            
            
            8,217Accumulated
                other comprehensive income
            
            
            5,045
            
            
            1,312Total
                stockholders’ equity
            
            
            41,852
            
            
            32,720TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            100,642
            
            $
            89,066




The
      accompanying notes are an integral part of these financial
      statements.


3


**Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Statements of Operations and Comprehensive Income
      (Unaudited)**


**(In
      thousands, except per share data)**




Three Months Ended March 31,2008
            
            2007NET
                REVENUE
            
            $
            7,734
            
            $
            2,626COST
                OF REVENUE
            
            
            (4,011
            )
            
            (1,591
            )GROSS
                PROFIT
            
            
            3,723
            
            
            1,035OPERATING
                EXPENSESSelling
                expenses
            
            
            138
            
            
            40General
                and administrative expenses
            
            
            967
            
            
            582TOTAL
                OPERATING EXPENSES
            
            
            1,105
            
            
            622INCOME
                FROM OPERATIONS
            
            
            2,618
            
            
            413OTHER
                INCOME (EXPENSE)Rental
                income, net of land right amortization of $58
            
            
            1,185
            
            
            -Investment
                gain
            
            
            123
            
            
            -Other,
                net
            
            
            3
            
            
            (3
            )Interest
                expense, net of capitalized interest of $505 in 2008
            
            
            (720
            )
            
            (55
            )Estimated
                liquidated damages payable under registration rights
                agreement
            
            
            (140
            )
            
            -OTHER
                INCOME (EXPENSE), NET
            
            
            451
            
            
            (58
            )INCOME
                BEFORE INCOME TAXES AND MINORITY INTEREST
            
            
            3,069
            
            
            355Provision
                for income taxes
            
            
            165
            
            
            -INCOME
                BEFORE MINORITY INTEREST
            
            
            2,904
            
            
            355Minority
                interests
            
            
            (61
            )
            
            (5
            )NET
                INCOME
            
            $
            2,843
            
            $
            350Other
                comprehensive incomeForeign
                currency translation adjustments
            
            
            2,768
            
            
            20COMPREHENSIVE
                INCOME
            
            $
            5,611
            
            $
            370Net
                Income Per ShareBasic
            
            $
            0.09
            
            $
            0.02Diluted
            
            $
            0.07
            
            $
            0.02Weighted
                Average Shares OutstandingBasic
            
            
            31,418
            
            
            17,561Diluted
            
            
            37,651
            
            
            23,155




The
      accompanying notes are an integral part of these financial
      statements.


4


**Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Statements of Operations and Comprehensive Income
      (Unaudited)**


**** **(In
      thousands, except per share data)**




Six Months Ended March 31,2008
            
            2007NET
                REVENUE
            
            $
            16,541
            
            $
            5,255COST
                OF REVENUE
            
            
            (8,907
            )
            
            (2,522
            )GROSS
                PROFIT
            
            
            7,634
            
            
            2,733OPERATING
                EXPENSESSelling
                expenses
            
            
            294
            
            
            78General
                and administrative expenses
            
            
            1,975
            
            
            1,247TOTAL
                OPERATING EXPENSES
            
            
            2,269
            
            
            1,325INCOME
                FROM OPERATIONS
            
            
            5,365
            
            
            1,408OTHER
                INCOME (EXPENSE)Rental
                income, net of land right amortization of $58
            
            
            1,185
            
            
            -Investment
                gain
            
            
            103
            
            
            -Other,
                net
            
            
            147
            
            
            35Interest
                expense, net of capitalized interest of $792 in 2008
            
            
            (1,280
            )
            
            (118
            )Estimated
                liquidated damages payable under registration rights
                agreement
            
            
            (140
            )
            
            -OTHER
                INCOME (EXPENSE), NET
            
            
            15
            
            
            (83
            )INCOME
                BEFORE INCOME TAXES AND MINORITY INTERESTS
            
            
            5,380
            
            
            1,325Income
                taxes
            
            
            (45
            )
            
            109INCOME
                BEFORE MINORITY INTEREST
            
            
            5,335
            
            
            1,434Minority
                interests
            
            
            (173
            )
            
            32NET
                INCOME
            
            
            5,162
            
            
            1,466Other
                comprehensive incomeForeign
                currency translation adjustments
            
            
            3,733
            
            
            197COMPREHENSIVE
                INCOME
            
            $
            8,895
            
            $
            1,663Net
                Income Per ShareBasic
            
            $
            0.16
            
            $
            0.06Diluted
            
            $
            0.14
            
            $
            0.06Weighted
                Average Shares OutstandingBasic
            
            
            31,418
            
            
            22,671Diluted
            
            
            37,750
            
            
            23,917




The
      accompanying notes are an integral part of these financial
      statements.


5


**Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Statement of Stockholders’ Equity**


**(In
      thousands)**


.


Number of
              Common
              Shares
              Issued
            
            Par Value
              Common
              Stock
            
            Par Value
              Series A
              Preferred
              Stock
            
            Additional
              Paid-in
              Capital
            
            Statutory
              Surplus
              Reserve
              Fund
            
            Accumulated
              Other
              Comprehensive
              Income
            
            Retained
              Earnings
            
            Capital
              Surplus
            
            Total
              Stock-
              holder’s
              equity**Balance, September 30, 2007**
            
            
            31,418,065
            
            $
            31
            
            $
            -
            
            $
            22,000
            
            $
            1,140
            
            $
            1,312
            
            $
            8,217
            
            $
            20
            
            $
            32,720Warrants issued for
                services
            
            
            
            
            
            
            
            
            
            
            
            46
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            46Stock
                options issued
            
            
            
            
            
            
            
            
            
            
            
            191
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            191Net
                income for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,162
            
            
            
            
            
            5,162Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,733
            
            
            
            
            
            
            
            
            3,733**Balance,
                March 31, 2008**
            
            
            31,418,065
            
            $
            31
            
            $
            -
            
            $
            22,237
            
            $
            1,140
            
            $
            5,045
            
            $
            13,379
            
            $
            20
            
            $
            41,852


.


The
      accompanying notes are an integral part of these financial
      statements.


6


**** **Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Statements of Cash Flows (Unaudited)**


**(In
      thousands)**


Six Months Ended March 31,2008
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              
              5,162
              
              
              1,466Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Warrants
                  issued for services
              
              
              18
              
              
              10Stock
                  options granted
              
              
              219
              
              
              30Amortization
                  of note discount
              
              
              28
              
              
              -Interest
                  expense for long-term notes issued
              
              
              784
              
              
              -Minority
                  interest
              
              
              173
              
              
              (31
              )Depreciation
              
              
              319
              
              
              202Amortization
                  of intangible assets
              
              
              285
              
              
              128Provision
                  for (recovery of) doubtful accounts
              
              
              (108
              )
              
              219Changes
                  in operating assets and liabilities:(Increase)
                  decrease in -Accounts
                  receivable
              
              
              (6,206
              )
              
              877Other
                  receivables, deposits and prepayments
              
              
              7
              
              
              (4,601
              )Inventories
              
              
              (1,730
              )
              
              464Increase
                  (decrease) in -Accounts
                  payable
              
              
              (1,598
              )
              
              199Accrued
                  expenses
              
              
              (120
              )
              
              104Advances
                  from customers
              
              
              1,517
              
              
              938Other
                  payables
              
              
              2,066
              
              
              660Estimated
                  liquidated damages payable under registration rights
                  agreement
              
              
              140
              
              
              -Income
                  taxes payable
              
              
              50
              
              
              (101
              )Net
                  cash provided by operating activities
              
              
              1,006
              
              
              564CASH
                  FLOWS FROM INVESTING ACTIVITESPurchase
                  of property, plant and equipment
              
              
              (12,842
              )
              
              (2,609
              )Purchase
                  of land use right
              
              
              (11,655
              )
              
              (4,059
              )Purchase
                  of minority interest in subsidiaries
              
              
              (9,387
              )
              
              -Other
                  receipts (payments) - investment activities
              
              
              (443
              )
              
              (383
              )Net
                  cash used in investing activities
              
              
              (34,327
              )
              
              (7,051
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  received from issuance of convertible notes
              
              
              29,840
              
              
              -Proceeds
                  from capital contributions
              
              
              -
              
              
              6,235Proceeds
                  from bank loan
              
              
              -
              
              
              1,089Payments
                  on bank loan
              
              
              (596
              )
              
              -Net
                  cash provided by financing activities
              
              
              29,244
              
              
              7,324Effect
                  on cash of changes in exchange rate
              
              
              3,733
              
              
              24Net
                  increase (decrease) in cash
              
              
              (344
              )
              
              861Cash
                  at beginning of period
              
              
              4,547
              
              
              1,632Cash
                  at end of period
              
              
              4,203
              
              
              2,493Supplementary
                  disclosure of cash flow information:Interest
                  paid
              
              
              1,248
              
              
              118Income
                  taxes paid
              
              
              -
              
              
              -




The
      accompanying notes are an integral part of these financial
      statements.


7


Sinoenergy
      Corporation and Subsidiaries





Notes
      to
      Consolidated Financial Statements (Unaudited)





March
      31,
      2008 and 2007





**1.**
            **The
                Company**




**(a)
      Recapitalization Transaction** ****


Sinoenergy
      Corporation (“Sinoenergy” or the “Company”) was incorporated in Nevada on March
      2, 1999 under the name Franklyn Resources III, Inc. (“Franklyn”). The Company’s
      corporate name was changed to Sinoenergy Corporation on September 28,
      2006.




On
      June
      2, 2006, the Company entered into the following agreements:




·
            An
                agreement with Sinoenergy Holding Limited (“Sinoenergy Holding”), a
                British Virgin Islands corporation, and its stockholders, pursuant
                to
                which the Company issued 14,215,385 shares of common stock to the
                former
                stockholders of Sinoenergy Holding. Sinoenergy Holding owns all of
                the
                registered capital of Qingdao Sinogas General Machinery Limited
                Corporation (“Sinogas”), a wholly owned foreign enterprise (“WOFE”)
                registered under laws of the People’s Republic of China (the “PRC”).
                Sinoenergy Holding had no business other than its ownership of Sinogas.
                As
                a result of this transaction, Sinoenergy Holding and its subsidiary,
                Sinogas, became subsidiaries of Sinoenergy and the business of Sinogas
                became the business of Sinoenergy.




·
            An
                agreement with Sinoenergy’s principal stockholders, who were the former
                principal stockholders of Franklyn before the reverse acquisition,
                pursuant to which the Company purchased 3,305,000 shares of common
                stock
                for $213,525, using the proceeds of the financing as described
                below.




·
            In
                connection with the acquisition of Sinoenergy Holding, the Company
                entered
                into a securities purchase agreement, as amended on July 6, 2006,
                and the
                Company issued and sold, for $3,700,000, 6% convertible notes in
                the
                principal amount of $3,700,000, 390,087 shares of common stock, and
                warrants to purchase 6,342,858 shares of common stock at $0.85 per
                share,
                6,342,858 shares of common stock at $1.20 per share and 6,342,858
                shares
                of common stock at $1.75 per share. The conversion price of the notes
                and
                the exercise price of the warrants were subject to adjustment. The
                $1.75
                warrants expired unexercised on December 31, 2006. The convertible
                notes
                were automatically converted into 5,692,307 shares of Series A preferred
                stock on September 28, 2006 when the Company amended its articles
                of
                incorporation and filed a certificate of designation for the Series
                A
                preferred stock. Each share of Series A preferred stock was convertible
                into one share of common stock. At September 30, 2007, all of the
                shares
                of Series A preferred stock had been converted into common
                stock.




Under
      generally accepted accounting principles, both acquisitions described above
      are
      considered to be capital transactions in substance, rather than business
      combinations. With respect to such acquisitions, they are equivalent to the
      issuance of stock by Sinogas for the net monetary assets of Sinoenergy Holding,
      and the issuance of stock by Sinoenergy Holding for the net monetary assets
      of
      Sinoenergy. Each transaction was, in essence, a recapitalization, and was
      accounted for as a change in capital structure. The accounting for the
      acquisitions is identical to that resulting from a reverse acquisition, and
      no
      goodwill is recorded. Under reverse takeover accounting, the comparative
      historical financial statements in the Sinoenergy/Sinoenergy Holding acquisition
      of the “legal acquirer”, Sinoenergy, are those of the “accounting acquirer”,
      which is Sinogas. The accompanying financial statements reflect the
      recapitalization of the shareholders’ equity section as if the transactions
      occurred as of the beginning of the first period presented. Earnings per share
      are restated for all period presented to reflect this recapitalization.


8


**(b)
      Issuance of Convertible Notes and Senior Notes**





On
      September 28, 2007, pursuant to a note purchase agreement (the “Note Purchase
      Agreement”) dated September 1, 2007, among the Company and Abax Lotus Ltd. and
      CCIP Petrol Limited, the investors purchased the Company’s 12% Guaranteed Senior
      Notes due 2012 in the principal amount of $16,000,000 and 3.0% Guaranteed Senior
      Convertible Notes due 2012 in the principal amount of $14,000,000. On October
      8,
      2007, the Company received the net proceeds from the sale of the notes in the
      amount of $29,840,000. This amount was shown as note subscription receivable
      on
      the balance sheet at September 30, 2007.





**(c)
      Change of Fiscal Year**





The
      Company changed its fiscal year end to September 30. The Company has filed
      a
      Form 10-KSB for the transitional period from January 1, 2007 to September 30,
      2007. The fiscal year ending September 30, 2008 will be the Company’s first full
      fiscal year ending on September 30.





**(d)
      History of the Company**





T he
      Company was incorporated
      in Nevada on March 2, 1999 under the name Franklyn Resources III, Inc. Its
      corporate name was changed to Sinoenergy Corporation on September 28, 2006.





On
      June
      2, 2006, the Company acquired all of the issued and outstanding equity interests
      of Sinoenergy Holding Ltd. (“Sinoenergy Holding”), from Skywide
      Capital Management Limited, which held a 90% interest, and
      Eastpride Capital Limited, a British Virgin Islands corporation (“Eastpride”),
      which held a 10% interest. Pursuant to the exchange agreement, the Company
      issued 14,215,385 shares of common stock to
      Skywide and Eastpride. After the acquisition, the Company continued the
      operations of Sinoenergy Holding. Sinoenergy Holding owns all of the capital
      stock of Qingdao
      Sinogas General Machinery Limited Corporation (“Sinogas”).




As
      of
      March 31, 2008, Sinogas and Sinoenergy Holding together own 90% of the equity
      of
      Wuhan Sinoenergy Gas Company, 100% of the equity of Qingdao Sinogas Yuhan
      Chemical Equipment Co., Ltd. (“Yuhan”), 90% of the equity of Pingdingshan
      Sinoenergy Gas Company (“Pingdingshan Sinoenergy”), 100% of the equity of
      Xuancheng Sinoenergy Vehicle Gas Company (“Xuancheng Sinoenegy”), 100% of Qingdao
      Jingrun General Machinery Company (“Jingrun”), 70%
      of
      the equity of Jiaxing Lixun Automotive Electronic Co, Ltd (“Lixun”), 100%
      of Qingdao Sinoenergy General Machinery Co., Ltd., 100% of Hong Kong Giant
      Power
      International Investment Ltd. (HK Power), 55% equity of Hubei Gather Energy
      Company (“Hubei Gather”), and 45% of the equity of Anhui Gather Energy Company
      (“Anhui Gather”).


9


**(e)
      Subsidiaries of the Company**





*Sinogas* was
      established in Qingdao China on October 29, 2004, and mainly engages in the
      production of Compressed Natural Gas (“CNG”) facilities and equipment, technical
      consulting services in CNG filling station construction, as well as the
      manufacturing of a CNG vehicle conversion kit system.





*Yuhan* was
      established on May 25, 2005, and mainly engages in the manufacturing of
      customized pressure containers for different industries.





*Wuhan
      Sinoenergy* was
      established on August 2, 2006, and is in the business of construction and
      operation of CNG stations and the manufacturing and sales of automobile
      conversion kits that enable a gasoline powered automobile to operate on
      compressed natural gas.





*Pingdingshan
      Sinoenergy* was
      established on December 4, 2006, and is in the business of construction and
      operation of CNG stations and the manufacturing and sales of automobile
      conversion kits that enable a gasoline powered automobile to operate on
      compressed natural gas.





*Lixun* is
      engaged in the design and manufacturing of electric control devices for
      alternative fuel, such as compressed natural gas and liquefied petroleum gas
      vehicles, as well as a full range of electric devices, such as computer
      controllers, conversion switches, spark advancers, tolerance sensors and
      emulators for use in multi-powered vehicle production. On March __, 2007, the
      Company purchased a 60% interest in Lixun from its shareholders for
      approximately $390,000, and on July 27, 2007, the Company injected $400,000
      of
      capital in Lixun, and now owns a 70% equity interest in Lixun.





*Hubei
      Gather* was
      established on March 23, 2007, and is in the business of constructing and
      operating natural gas processing plants with expected annual processing capacity
      of 100-300 million cubic meters, of which the Company owns a 55% equity interest
      and Hong Kong China New Energy Development Investment Co. Ltd. owns a 45% equity
      interest.





*Xuancheng
      Sinoenergy* was
      established on March 26, 2007, and is in the business of construction and
      operation of CNG stations and the manufacturing and sales of automobile
      conversion kits that enable a gasoline powered automobile to operate on
      compressed natural gas. Upon incorporation, Shanghai CNPC owned a 70% interest
      and Sinogas owned a 30% interest. On July 26, 2007, the Company and Shanghai
      CNPC signed an equity purchase agreement (the agreement). On November 6, 2007,
      pursuant to the agreement, the Company acquired the 70% equity interest from
      Shanghai CNPC for $1,923,351 based on the current exchange ratio, and the
      Company now owns 100% of Xuancheng Sinoenergy.





*Jingrun* was
      established on December 15, 2007. Jingrun’s principal asset is a land use right
      and workshop. Jingrun is primarily engaged in the design and manufacturing
      of
      petroleum refinery equipment and petroleum machinery. On August 28, 2007, the
      Company entered into an Equity Purchase Agreement to acquire 100% of the equity
      of Jingrun. Under the terms of the agreement, the Company paid Jingrun’s
      shareholder approximately $4.2 million for all of the equity of Jingrun, and
      the
      Company made a $4.3 million contribution to Jingrun’s capital. The PRC
      government has approved the acquisition and issued a new business license to
      Jingrun.





*Anhui
      Gather* was
      incorporated on March 23, 2007, with Hong Kong China New Energy Development
      Investment Co. Ltd. owning a 55% equity interest and Tianjin Green Fuel (“Green
      Fuel”) owning a 45% equity interest. On July 4, 2007, the Company purchased a
      45% equity interest in Anhui Gather from Green Fuel for $2,750,000, of which
      $844,330 was to be paid to Green Fuel for capital paid and its costs incurred
      in
      obtaining the right to receive 200 million cubic meters of natural gas from
      Sinopec, and $1,905,670 was to be paid to Anhui Gather as a capital
      contribution. As of March 31, 2008, the Company has paid $844,330 to Green
      Fuel
      and contributed $439,097 in paid-in capital to Anhui Gather.


10


*Qingdao
      Sinoenergy General Machinery Co., Ltd.* is
      primarily engaged in the manufacturing and installation of general machinery
      equipment. On December 24, 2007, ** the
      Company entered into an agreement and supplementary agreement with the
      shareholders of Qingdao Shan Yang Tai Chemistry Resources Development Co. Ltd
      (“QDSY”) pursuant to which the Company agreed to acquire 100% of the outstanding
      equity interest in QDSY for a purchase price of RMB43 million or approximately
      $6,126,000 based on the current exchange ratio. On January 4, 2008, the PRC
      government approved the equity acquisition and issued a new business license
      to
      QDSY. At the same time, QDSY changed its name to Qingdao Sinoenergy General
      Machinery Co., Ltd.





*Hong
      Kong Giant Power International Investment Ltd* .
      is a
      holding company that, through its four subsidiaries, specializes in investing
      in
      CNG in China. On January 24, 2008, the Company acquired all of the equity of
      Hong Kong Giant Power International Investment Ltd. (“HK Power”) from its
      shareholders, for RMB64 million, or approximately $9,120,000 million based
      on
      the current exchange ratio, pursuant to an agreement dated January 11, 2008.





**(f)
      The business of the Company**




The
      Company manufactures non-standard pressure containers and CNG storage and
      transportation products; provides technical consulting service for LPG
      (“Liquified Petroleum Gas”) and CNG station construction; and operates natural
      gas process plants and CNG vehicle filling stations. The Company also
      manufactures CNG conversion kits which permit gasoline engines to use
      CNG.




**(i)**  **Non-standard
      pressure container business**





The
      manufacture and sale of non-standard equipment and pressure containers has
      been
      conducted by Sinogas since its formation. This business is a traditional
      chemical equipment manufacturing business with low profit margins. It includes
      the design and manufacturing of various types of pressure
      containers:




·  in the
      petroleum and chemical industries


·  in the
      metallurgy and electricity generation industries


·  in the
      food and brewery industries


·  various
      types of non-standard containers





**(ii)**  **CNG
      storage, transportation products and technical consulting service for CNG
      station construction**





(1)
      CNG
      storage and transportation products manufacturing, which includes the following
      products:





·  CNG
      trailers


·  CNG
      deposited system for gas station usage


·  CNG
      compressor skid


·  Some
      other CNG facilities and equipment fittings


11


(2)
      Technical consulting service for LPG/CNG station construction




·  Designing for LPG/CNG stations


·  Technical consulting for equipment selection and matching


·  CNG
      station running adjusting




**(iii)**  **CNG
      station operation**




(1)
      Construction and operation of CNG stations




This
      business is currently the Company’s principal business. The Company plans to
      operate CNG stations in Wuhan City of Hubei Province, Pingdingshan City of
      Henan
      Province and Xuancheng City of Anhui Province. Two CNG filling stations in
      Wuhan
      City started operation in early October 2007; on November 16, 2007, one filling
      station in Xuancheng City began operations; in late March 2008, another three
      filling stations in Wuhan City began operations. On April 28, 2008, one filling
      station in Pingdingshan City started operations.




(2)
      Wholesale distribution of natural gas




Both
      Hubei Gather and Anhui Gather have been licensed to engage in the natural gas
      processing and wholesale business. In May 2007, both Hubei Gather and Anhui
      Gather signed a 20 year natural gas purchase agreement with Sinopec to secure
      200 million cubic meters of natural gas resources each from the main pipeline
      of
      Sinopec, respectively.




As
      of
      March 31, 2008, both Hubei Gather and Anhui Gather are in the development
      stage.




These
      natural gas quotas are not a guarantee of delivery and are subject to
      negotiation as to the amount and price. In addition, a significant portion
      of
      the Company’s quota is dependent upon the timely completion of a national
      natural gas transportation pipeline that is currently under construction.




**(iv** **iv** **)
      Vehicle fuel conversion equipment**




·  Design
      and sale of customized automotive alternate fuel (CNG/LPG) electronic
      device


·  CNG
      vehicle conversion kit installation and sale





**2.
      Summary of Significant Accounting Policies**





Basis
      of Presentation





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information and with the instructions to Form
      10-QSB and Item 310 Regulation S-B. In the opinion of management, the
      consolidated financial statements reflect all adjustments (including normal
      recurring adjustments) considered necessary for a fair presentation of the
      Company’s results of operations and financial position as of and for the periods
      presented. Operating results for interim periods are not necessarily indicative
      of results that may be expected for the fiscal year as a whole. These
      consolidated financial statements should be read in conjunction with the summary
      of significant accounting policies and notes to consolidated financial
      statements included in the Company’s Form 10-KSB Annual Report for the
      transition period ended September 30, 2007.


12


Principles
      of Consolidation




The
      accompanying consolidated financial statements include the financial statements
      of Sinoenergy Corporation and its wholly owned subsidiaries and majority owned
      subsidiaries as to which it exercises control. Intercompany transactions and
      balances have been eliminated in consolidation.





Use
      of
      Estimates





In
      preparing financial statements in conformity with accounting principles
      generally accepted in the United States of America, management is required
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements and revenues and expenses during the reported
      periods. Significant estimates include depreciation and the allowance for
      doubtful accounts and other receivables, asset impairment, valuation of warrants
      and options and inventory valuation. Actual results could differ from those
      estimates.





Goodwill





Goodwill
      represents the excess of the purchase price of business combinations over the
      fair value of the net assets acquired and is tested for impairment at least
      annually unless circumstances or events indicate an impairment test is required.
      The impairment test requires allocating goodwill and all other assets and
      liabilities to assigned reporting units. The fair value of each reporting unit
      is estimated and compared to the net book value of the reporting unit. If the
      estimated fair value of the reporting unit is less than the net book value,
      including goodwill, then goodwill is written down to the implied fair value
      of
      goodwill through a charge to operations. Because quoted market prices are not
      available for the Company’s reporting units, the fair values of the reporting
      units are estimated based upon several valuation analyses, including comparable
      companies, comparable transactions and premiums paid. The goodwill on the
      Company’s financial statements was a result of the Yuhan, Jiaxing, Xuancheng and
      HK Power acquisitions, and relates to the pressure container, vehicle conversion
      kits, and CNG station operation reporting segments.





Cash
      and Cash Equivalents





The
      Company considers all highly liquid investments with original maturities of
      three months or less at the time of purchase to be cash equivalents. As of
      March
      31, 2008 and September 30, 2007, the Company did not have any cash
      equivalents.





Allowance
      for Doubtful Accounts





An
      allowance for doubtful accounts is maintained for all customers based on a
      variety of factors, including the length of time the receivables are past due,
      significant one-time events and historical experience. An additional reserve
      for
      individual accounts is recorded when the Company becomes aware of a customer’s
      inability to meet its financial obligations, such as in the case of bankruptcy
      filings or deterioration in the customer’s operating results or financial
      position. When circumstances related to customers change, estimates of the
      recoverability of receivables are further adjusted.


13


Deferred
      Expenses





Deferred
      expenses are
      stated at cost less accumulated amortization. Amortization is calculated on
      the
      straight-line method over the estimated periods of benefit.





Inventories





Inventories
      are comprised of raw materials, work in process, finished goods and low value
      consumable articles. Amounts are stated at the lower of cost and market.
      Substantially all inventory costs are determined using the weighted average
      basis. Costs of finished goods include direct labor, direct materials, and
      production overhead before the goods are ready for sale. Inventory costs do
      not
      exceed net realizable value.





Long-Term
      Investments





Investments in
      entities in which the Company owns more than 20% but less than 50% of the equity
      and does not have the ability to control, but has the ability to exert
      significant influence, are accounted for using the equity method.





Property,
      Plant and Equipment





Property,
      plant and equipment are stated at cost. Depreciation is provided principally
      by
      use of the straight-line method over the useful lives of the related assets.
      Expenditures for maintenance and repairs, which do not improve or extend the
      expected useful life of the assets, are expensed to operations while major
      repairs are capitalized.





Management
      estimates a 10% residual value for its property, plant and equipment according
      to industry standards in the PRC. The estimated useful lives are as
      follows:





Buildings
                and facilities
            20
                yearsMachinery
                and equipment
            8
                yearsMotor
                vehicles
            10
                yearsOffice
                equipment and others
            5
                to 8 years





The
      gain
      or loss on disposal of property, plant and equipment is the difference between
      the net sales proceeds and the carrying amount of the relevant assets, and,
      if
      any, is recognized in the statements of operations.





Intangible
      Assets





Intangible
      assets, representing patents ,
      technical know-how acquired and land use rights, are stated at cost less
      accumulated amortization and impairment losses. Amortization is calculated
      on
      the straight-line method over the estimated useful lives of the
      assets.





There
      is
      no private ownership of land in the PRC. All land is owned by the government
      and
      the government grants what is known as a land use right, which is a transferable
      right to use the land. The land use right for the land on which the Sinogas,
      Xuancheng, Jingrun, and Qingdao Sinoenergy facilities are located is recorded
      as
      an intangible asset.


14


Impairment
      of Assets





In
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
      "Accounting for Impairment or Disposal of Long-Lived Assets", impairment of
      assets is monitored on a continuing basis, and is assessed based on the
      undiscounted cash flows expected to be generated by the underlying assets.
      In
      the event that the carrying amount of assets exceeds the undiscounted future
      cash flows, then the carrying amount of such assets is adjusted to their fair
      value.





Capitalization
      of Interest





The
      Company capitalizes interest cost incurred during the period required to
      complete the asset. The interest rate for capitalization is based on the rates
      on the Company’s outstanding borrowings. A weighted average interest rate is
      used to determine the amount of interest to capitalize.





The
      Company capitalized $505,000 and $792,000 of interest during the three months
      and six months ended March 31, 2008, respectively. Interest capitalized is
      recorded as an increase to construction in progress. The Company did not
      capitalize any interest during the three months and six months ended March
      31,
      2007.





Revenue
      Recognition





The
      Company recognizes revenue when the significant risks and rewards of ownership
      have been transferred to the customer, including factors such as when persuasive
      evidence of an arrangement exists, delivery has occurred, the sales price is
      fixed or determinable, and collectibility is probable.





The
      Company recognizes product sales generally at the time the product is shipped.
      CNG construction and building technical consulting service revenue is recognized
      on the percentage of completion basis. Revenue is measured by reference to
      the
      proportion of construction work completed to the total estimated work according
      to reports provided by the technical department of the Company, and
      simultaneously, the cost is recognized based on total contracted cost and the
      completion basis. Receivables and payables are recorded accordingly. Revenue
      is
      presented net of any sales tax and value added tax.





Value
      added tax (VAT) is collected from customers by the Company on behalf of the
      PRC
      tax authorities and is not recorded as income or expense in the consolidated
      statements of operations.





Warranty
      Reserves





Warranty
      reserves represent the Company’s obligation to repair or replace defective
      products under certain conditions.  The estimate of the warranty reserves
      is based on historical experience.  Based on experience and industry
      practice, the Company determined that the warranty reserve rate is 0.2 % of
      gross sales. The Company provides an appropriate reserve when
      necessary.





Income
      Taxes





The
      Company accounts for income taxes under SFAS No. 109, “Accounting for Income
      Taxes.” Under SFAS No. 109, deferred tax assets and liabilities are recognized
      for the future tax consequences attributable to differences between the
      financial statement carrying amounts of existing assets and liabilities and
      their respective tax bases. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or settled.
      Under
      SFAS No. 109, the effect on deferred tax assets and liabilities of a change
      in
      tax rates is recognized in income in the period that includes the enactment
      date.


15


The
      Company has reviewed the differences between the tax basis under PRC tax laws
      and financial reporting under US GAAP. Temporary differences, resulting in
      deferred tax assets or liabilities, have been recognized in the financial
      statements.





Advertising,
      Shipping and Handling Costs





Advertising
      costs, which were not significant in 2008 or 2007, are included in selling
      expenses. Shipping and handling costs are included in cost of sales for
      inventory and in selling expenses for customer sales.





Foreign
      Currency Transactions





The
      Company’s functional currency is Renminbi (“RMB”) and its reporting currency is
      U.S. dollars. The Company’s balance sheet accounts are translated using the
      closing exchange rate in effect at the balance sheet date and operating accounts
      are translated using the average exchange rate prevailing during  each
      quarter. Equity accounts are translated using the historical rate as incurred.
      Translation gains and losses are deferred and accumulated as a component of
      accumulated other comprehensive income in stockholders’ equity. Transaction
      gains and losses that arise from exchange rate fluctuations from transactions
      denominated in a currency other than the functional currency are included in
      the
      statement of operations as incurred.





Fair
      Value of Financial Instruments





SFAS
      No.
      107, “Disclosures about Fair Values of Financial Instruments,” requires
      disclosing fair value to the extent practicable for financial instruments that
      are recognized or unrecognized in the balance sheet. The fair value of the
      financial instruments disclosed herein is not necessarily representative of
      the
      amount that could be realized or settled, nor does the fair value amount
      consider the tax consequences of realization or settlement.





For
      certain financial instruments, including cash, accounts receivable, related
      party and other receivables, accounts payable, other payables and accrued
      expenses, it was assumed that the carrying amounts approximate fair value
      because of the near term maturities of such obligations.





Minority
      Interest





Minority
      interest refers to the percentage of a subsidiary which is not owned by the
      Company. The Company records the minority interest portion of any related
      profits and losses in consolidation.





Stock-Based
      Compensation





The
      Company may issue stock options to employees and stock options or warrants
      to
      non-employees in non-capital raising transactions for services and for financing
      costs. The Company has adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation,” which establishes
      a fair value method of accounting for stock-based compensation plans. In
      accordance with SFAS No. 123R, the cost of stock options and warrants issued
      to
      employees and non-employees is measured at the grant date based on the fair
      value. The fair value is determined using the Black-Scholes option pricing
      model. The resulting amount is charged to expense on the straight-line basis
      over the period in which the Company expects to receive benefit, which is
      generally the vesting period.


16


Concentration
      of Credit Risk


Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist primarily of trade accounts receivable. The Company
      performs ongoing credit evaluations with respect to the financial condition
      of
      its debtors, but does not require collateral. In order to determine the value
      of
      the Company’s accounts receivable, the Company records a provision for doubtful
      accounts to cover probable credit losses. Management reviews and adjusts this
      allowance periodically based on historical experience and its evaluation of
      the
      collectibility of outstanding accounts receivable.





Earnings
      per Share





Basic
      earnings per share is computed by dividing the earnings for the period by the
      weighted average number of shares of common stock outstanding for the period.
      Diluted earnings per share reflects the potential dilution of securities by
      including shares of common stock issuable upon conversion of Series A preferred
      stock and exercise of outstanding in-the-money stock options and warrants,
      in
      the weighted average number of common shares outstanding for a period, if
      dilutive.





Comprehensive
      Income (Loss)





The
      Company has adopted the provisions of Statement of Financial Accounting
      Standards No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”). SFAS No.
      130 establishes standards for the reporting and display of comprehensive income,
      its components and accumulated balances in a full set of general purpose
      financial statements. SFAS No. 130 defines comprehensive income (loss) to
      include all changes in equity except those resulting from investments by owners
      and distributions to owners, including adjustments to minimum pension
      liabilities, accumulated foreign currency translation, and unrealized gains
      or
      losses on marketable securities.





The
      Company’s only component of other comprehensive income (loss) is foreign
      currency translation gain of $2,768,000 and $20,000 for the three months ended
      March 31, 2008 and 2007, respectively, and $3,733,000 and $197,000 for the
      six
      months ended March 31, 2008 and 2007, respectively. This foreign currency
      translation gain has been recorded as a separate component of stockholders’
equity.





Reclassification





Certain
      amounts have been reclassified from their presentation in 2007 to
      conform to the current year’s presentation. Such reclassifications did not
      have any effect on total assets, total liabilities, income from operations
      or
      net income.





New
      Accounting Pronouncements





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
      establishes a framework for measuring fair value, and expands disclosures about
      fair value measurements. SFAS 157 is effective as of the beginning of the first
      fiscal year that begins after November 15, 2007. As such, the Company is
      required to adopt these provisions at the beginning of the fiscal year beginning
      October 1, 2008. The Company is currently evaluating the impact of SFAS 157
      on
      its consolidated financial statements.


17




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, “The Fair Value Option for Financial Assets and Financial
      Liabilities” (“SFAS No. 159”), which provides companies with an option
      to report selected financial assets and liabilities at fair value.
      SFAS No. 159’s objective is to reduce both complexity in accounting
      for financial instruments and the volatility in earnings caused by measuring
      related assets and liabilities differently. Generally accepted accounting
      principles have required different measurement attributes for different assets
      and liabilities that can create artificial volatility in earnings.
      SFAS No. 159 helps to mitigate this type of accounting-induced
      volatility by enabling companies to report related assets and liabilities at
      fair value, which would likely reduce the need for companies to comply with
      detailed rules for hedge accounting. SFAS No. 159 also establishes
      presentation and disclosure requirements designed to facilitate comparisons
      between companies that choose different measurement attributes for similar
      types
      of assets and liabilities. SFAS No. 159 requires companies to provide
      additional information that will help investors and other users of financial
      statements to more easily understand the effect of the company’s choice to use
      fair value on its earnings. SFAS No. 159 also requires companies to
      display the fair value of those assets and liabilities for which the company
      has
      chosen to use fair value on the face of the balance sheet.
      SFAS No. 159 does not eliminate disclosure requirements included in
      other accounting standards, including requirements for disclosures about fair
      value measurements included in SFAS No. 157 and
      SFAS No. 107. SFAS 159 is effective as of the beginning of the first
      fiscal year that begins after November 15, 2007. As such, the Company is
      required to adopt these provisions at the beginning of the fiscal year beginning
      October 1, 2008. The Company is currently evaluating the impact of SFAS 159
      on
      its consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business
      Combinations” (“SFAS No. 141(R)”), which requires an acquirer to
      recognize in its financial statements as of the acquisition date (i) the
      identifiable assets acquired, the liabilities assumed, and any noncontrolling
      interest in the acquiree, measured at their fair values on the acquisition
      date,
      and (ii) goodwill as the excess of the consideration transferred plus the
      fair value of any noncontrolling interest in the acquiree at the acquisition
      date over the fair values of the identifiable net assets acquired.
      Acquisition-related costs, which are the costs an acquirer incurs to effect
      a
      business combination, will be accounted for as expenses in the periods in which
      the costs are incurred and the services are received, except that costs to
      issue
      debt or equity securities will be recognized in accordance with other applicable
      GAAP. SFAS No. 141(R) makes significant amendments to other Statements
      and other authoritative guidance to provide additional guidance or to conform
      the guidance in that literature to that provided in SFAS No. 141(R).
      SFAS No. 141(R) also provides guidance as to what information is to be
      disclosed to enable users of financial statements to evaluate the nature and
      financial effects of a business combination. SFAS No. 141(R) is
      effective for financial statements issued for fiscal years beginning on or
      after
      December 15, 2008. Early adoption is prohibited. The adoption of
      SFAS No. 141(R) will affect how the Company accounts for a business
      combination occurring after December 31, 2008.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
      in Consolidated Financial Statements — an amendment of ARB No. 51”
(“SFAS No. 160”), which revises the relevance, comparability, and
      transparency of the financial information that a reporting entity provides
      in
      its consolidated financial statements by establishing accounting and reporting
      standards that require (i) the ownership interests in subsidiaries held by
      parties other than the parent be clearly identified, labeled, and presented
      in
      the consolidated statement of financial position within equity, but separate
      from the parent’s equity, (ii) the amount of consolidated net income
      attributable to the parent and to the noncontrolling interest be clearly
      identified and presented on the face of the consolidated statement of income,
      (iii) changes in a parent’s ownership interest while the parent retains its
      controlling financial interest in its subsidiary be accounted for consistently
      as equity transactions, (iv) when
      a
      subsidiary is deconsolidated, any retained noncontrolling equity
      investment in the former subsidiary be initially measured at fair value, with
      the gain or loss on the deconsolidation of the subsidiary being measured using
      the fair value of any noncontrolling equity investment rather than the carrying
      amount of that retained investment, and (v) entities provide sufficient
      disclosures that clearly identify and distinguish between the interests of
      the
      parent and the interests of the noncontrolling owners. SFAS No. 160
      amends FASB No. 128 to provide that the calculation of earnings per share
      amounts in the consolidated financial statements will continue to be based
      on
      the amounts attributable to the parent. SFAS No. 160 is effective for
      financial statements issued for fiscal years, and interim periods within those
      fiscal years, beginning on or after December 15, 2008. Early adoption is
      prohibited. SFAS No. 160 shall be applied prospectively as of the
      beginning of the fiscal year in which it is initially applied, except for the
      presentation and disclosure requirements which shall be applied retrospectively
      for all periods presented. The Company has not yet determined the affect on
      its
      consolidated financial statements, upon adoption of SFAS No. 160.




18




In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No.
      161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No.
      133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
      133”). The objective of SFAS No. 161 is to provide users of financial statements
      with an enhanced understanding of how and why an entity uses derivative
      instruments, how derivative instruments and related hedged items are accounted
      for under SFAS No. 133 and its related interpretations, and how derivative
      instruments and related hedged items affect an entity’s financial position,
      financial performance, and cash flows. SFAS No. 161 requires qualitative
      disclosures about objectives and strategies for using derivatives, quantitative
      disclosures about fair value amounts of and gains and losses on derivative
      instruments, and disclosures about credit-risk-related contingent features
      in
      derivative agreements. SFAS No. 161 applies to all derivative financial
      instruments, including bifurcated derivative instruments (and nonderivative
      instruments that are designed and qualify as hedging instruments pursuant to
      paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted for
      under SFAS No. 133 and its related interpretations. SFAS No. 161 also amends
      certain provisions of SFAS No. 131. SFAS No. 161 is effective for financial
      statements issued for fiscal years and interim periods beginning after November
      15, 2008, with early application encouraged. SFAS No. 161 encourages, but does
      not require, comparative disclosures for earlier periods at initial adoption.
      The Company has not yet determined the affect on its consolidated financial
      statements, if any, upon adoption of SFAS No. 161.





**3.
      Account Receivables and Allowance for Doubtful Receivables**





Details
      of the allowance for doubtful receivables deducted from accounts receivable
      are
      as follows (dollars in thousands):





March 31, 2008
              (unaudited)
            
            September 30, 2007Accounts
                receivable
            
            $
            12,348
            
            $
            6,274Less:
                allowance for doubtful accounts
            
            
            (206
            )
            
            (278
            )Balance
            
            $
            12,142
            
            $
            5,996





Accounts
      Receivable from Related Parties




As
      at
      March 31, 2008, there is no balance due from related parties.




19




The
      balance as of  September 30, 2007 includes receivables from Kangtai,
      the minority shareholder of Yuhan, for sales made by Kangtai on behalf Yuhan
      in
      the amount of $169,030.





**4** **.
      Other Receivables and Allowance for Doubtful Receivables**





Details
      of  the allowance for doubtful receivables deducted from other
      receivables are as follows (dollars in thousands):





March 31, 2008
              (unaudited)
            
            September 30, 2007Other
                receivables
            
            $
            4,329
            
            $
            33,972Less:
                allowance for doubtful accounts
            
            
            (14
            )
            
            (46
            )Balance
            
            $
            4,315
            
            $
            33,926





(a)
      Other
      Receivable from Related Parties





The
      balance at March 31, 2008 includes $7,872 from an unsecured loan due from
      Kangtai.





The
      balance as of  September 30, 2007 includes $186,431 from an unsecured
      loan due from Kangtai, the minority shareholder of Yuhan, and $145,595 rental
      fee receivable from Kangtai.





(b)
      Other
      Receivable from Third Parties





Other
      receivables from third parties at March 31, 2008 include $1,923,351 due from
      Shanghai CNPC for a short term unsecured loan; $213,706 due from Beijing Boken
      Compressor for a short term unsecured loan; and a $1,181,001 deposit for CNG
      transportation vehicle rental.





The
      balance also represents a $1,946,530 unsecured loan to Qingdao Jingrun General
      Machinery Company (“Jingrun”), which was repaid on November 29, 2007, and
      $532,566 due from CNPC Xingxing Energy for an unsecured loan.





**5.
      Deposits and Prepayments**





The
      balance at March 31, 2008 mainly represents prepayments of $1,546,484 to
      suppliers for purchases of raw material for CNG truck trailer manufacturing;
      $405,269 for the CNG construction; and a $584,129 deposit for CNG transportation
      vehicle rental.





The
      balance at September 30, 2007 mainly represents a prepayments of $2,795,000
      to
      raw material suppliers and service providers for routine manufacturing and
      CNG
      station operations.





**6.
      Other Long-Term Assets**





The
      balance at March 31, 2008 represents prepayments for long-lived assets. The
      balance mainly consists of the following prepayments:




20


(a)
              $4,254,813
                  for CNG station equipment. This equipment will be used to construct
                  CNG
                  filling stations as long-term fixed
                  assets;
 (b)
              $2,894,035
                  for land rental for CNG station building and
                  operation;
 (c)
              $750,000
                  to Hong Kong China New Energy Development Investment Co. Ltd as
                  an advance
                  for the purchase of 400 million cubic meters natural gas quota
                  from
                  Sinopec;
 (d)
              $56,988
                  to Mr.Fuqing Zhu for his five years consulting service to the Company
                  from
                  April 2007 to April 2012.




The
      balance at September 30, 2007 represents prepayments for long-lived assets.
      The
      balance mainly consists of the following prepayments:





(a)
            $3,962,701
                for CNG station equipment;


(b)
            $4,087,175
                for acquisition 100% of the equity of
                Jingrun;


(c)
            $750,000
                to Hong Kong China New Energy Development Investment Co. Ltd as an
                advance
                for the purchase of 400 million cubic meters natural gas quota from
                Sinopec;


(d)
            $732,278
                to Shanghai CNPC Enterprises for 70% equity purchase of Xuancheng
                Sinoenergy Vehicle Gas Company;


(e)
            $66,570
                to Mr.Fuqing Zhu for his five years consulting service to the Company
                from
                April 2007 to April 2012.





**7.
      Inventories**




Inventories
      at March 31, 2008 and September 30, 2007 are summarized as follows (dollars
      in
      thousands):




March 31, 2008
            
            September 30, 2007Raw
                materials
            
            $
            2,549
            
            $
            1,936Work
                in progress
            
            
            1,298
            
            
            538Finished
                goods
            
            
            783
            
            
            426Low
                value consumables
            
            
            1
            
            
            1Total
            
            $
            4,631
            
            $
            2,901





**8.
      Long-Term Investments**





Anhui
      Gather





Anhui
      Gather was
      incorporated on March 23, 2007, with Hong Kong China New Energy Development
      Investment Co. Ltd. owning a 55% equity interest and Tianjin Green Fuel (“Green
      Fuel”) owning a 45% equity interest. On July 4, 2007, the Company purchased a
      45% equity interest in Anhui Gather from Green Fuel for $2,750,000, of which
      $844,330 was to be paid to Green Fuel for capital paid and its costs incurred
      in
      obtaining the right to receive 200 million cubic meters of natural gas from
      Sinopec, and $1,905,670 to be paid to Anhui Gather as a capital contribution.
      As
      of March 31, 2008, the Company has paid $844,330 to Green Fuel and contributed
      $439,097 in paid-in capital to Anhui Gather, for a total of $1,283,427, and
      has
      recorded an investment loss of $15,694 under the equity method. As of March
      31,
      2008, Anhui Gather is in the development stage and has not yet commenced
      operations.




21




Hong
      Kong
      Giant Power International Investment Ltd.





Hong
      Kong
      Giant Power International Investment Ltd. is a holding company that, through
      its
      four subsidiaries, specializes in investing in CNG in China. On January 24,
      2008, the Company acquired all of the equity of Hong Kong Giant Power
      International Investment Ltd. (“HK Power”) from its shareholders, who were
      unrelated to the Company.





The
      acquisition cost was RMB64 million (equivalent to $8,865,713 at the date of
      acquisition) in cash, of which $7,370,937 had been paid through March 31, 2008.
      HK Power owns 35%  of Zhengzhou Hengran Gas Co., Ltd., 39.75% of Anhui
      Hengran Gas Co., Ltd., 10% of Nanjing Hengran Gas Co., Ltd., and 9% of Nanjing
      Xixia Hengran Gas Co., Ltd. Among HK Power’s four subsidiaries, Zhengzhou
      Hengran Gas Co., Ltd., Nanjing Xixia Hengran Gas Co. and Anhui Hengran Gas
      Co.,
      Ltd. have long term CNG supply contracts with China National Petroleum
      Corporation (CNPC).





The
      Company allocated the purchase consideration to the respective subsidiaries
      of
      HK Power based on their respective fair values as follows:





Company Name
            
            Fair Value ($)
            
            Acquired %
            
            Acquisition
              Fair Value ($)Anhui
                Hengran Gas Co, Ltd.
            
            
            7,580,185
            
            
            39.75
            %
            
            3,013,583Zhengzhou
                Hengran Gas Co, Ltd.
            
            
            13,812,504
            
            
            35
            %
            
            4,834,376Nanjing
                Xixia Hengran Gas Co, Ltd.
            
            
            5,977,430
            
            
            9
            %
            
            537,969Nanjing
                Hengran Gas Co, Ltd.
            
            
            656,478
            
            
            10
            %
            
            65,648Total
            
            
            
            
            
            
            
            
            8,451,576Total
                contribution paid
            
            
            
            
            
            
            
            
            8,865,713Goodwill
            
            
            
            
            
            
            
            
            414,137





The
      Company’s consolidated balance sheet reflects goodwill of $414,137, which
      represents the excess of the purchase price over the identifiable tangible
      and
      intangible assets of HK Power on the date of acquisition. The Company accounts
      for its investments in the subsidiaries of HK Power on the equity method of
      accounting.





For
      the
      three months ended March 31, 2008, the Company, through HK Power, recorded
      investment income from Zhengzhou Hengran Gas Co., Ltd. of $135,404, which was
      accounted for by the equity method.




22




9.
      Property, Plant and Equipment





As
      of
      March 31, 2008 and September 30, 2007, property, plant and equipment consists
      of
      the following (dollars in thousands):





March 31, 2008
            
            September 30, 2007**Cost**Buildings
                and facility
            
            $
            4,118
            
            $
            3,173Machinery
                equipment
            
            
            1,714
            
            
            1,501Motor
                vehicles
            
            
            791
            
            
            621Office
                equipment and other
            
            
            244
            
            
            180CIP
            
            
            16,099
            
            
            3,879Total
            
            
            22,966
            
            
            9,354**Accumulated
                depreciation**
            
            
            (1,285
            )
            
            (966
            )**Carrying
                value**
            
            $
            21,681
            
            $
            8,388





**10.
      Intangible Assets**





As
      of
      March 31, 2008 and September 30, 2007, intangible assets consist of the
      following (dollars in thousands):





March 31, 2008
            
            September 30, 2007**Cost**Patent,
                technology know-how
            
            $
            371
            
            $
            350Land
                use right
            
            
            30,490
            
            
            18,856Total
            
            
            30,861
            
            
            19,206**Accumulated
                amortization**
            
            
            (960
            )
            
            (675
            )**Carrying
                value**
            
            $
            29,901
            
            $
            18,531





Patents
      and technology know-how are being amortized over 10 years through September
      2014. Included in the cost of patent and technology know-how, $91,000 represents
      the technical know-how purchased while $226,000 represents the technical
      know-how contributed from Kangtai (minority shareholder) when Yuhan was
      incorporated. An additional $42,000 represents the patent and know-how of
      Jiaxing Lixun.





The
      land
      use right represents four parcels of land purchased by the Company, which were
      recorded by Sinogas, Jingrun, Xuancheng and Qingdao Sinoenergy.s The land use
      rights are being amortized over the following periods that they are transferable
      and renewable:





Owner
            
            Cost
            
            TermLand
                use right owned by Sinogas
            
            $
            20,177
            
            
            50
                years from May 2007Land
                use right owned by Jingrun
            
            
            5,080
            
            
            50
                years from December 2007Land
                use right owned by Xuancheng Sinoenergy
            
            
            926
            
            
            (1
            )Land
                use right owned by Qingdao Sinoenergy
            
            
            4,307
            
            
            (1
            )Total
            
            $
            30,490





(1)
      The
      land use right has not yet been transferred to the Company. Application has
      been
      made to the applicable government agency and the Company is awaiting government
      approval. The transfer will be made upon receipt of government approval. The
      Company believes the approval will be obtained.




23




The
      land
      use right owned by Sinogas represents two parcels of land located in the central
      portion of Qingdao City, on which Sinogas and Yuhan’s offices and
      manufacturing facilities are located. The land use right was purchased by the
      Company from Beijing Sanhuan, the predecessor shareholder of Sinogas, for a
      price of RMB160 million, equivalent to US$22.80 million based on the current
      exchange rate. The land is being amortized from the table says from May
      2007? over a 50-year term. On March 1, 2008, Sinogas entered into a land
      lease agreement with Qingdao Mingcheng Real Estate Co., Ltd. (“Qingdao
      Mingcheng”), an unrelated party, for a term of three years beginning in January
      2008 and expiring on December 31, 2010, for a price of RMB40 million per year,
      equivalent to approximately $5.7 million per year based on the current exchange
      rate. The lease also gives Qingdao Mingcheng a right of first refusal to
      purchase the property at a value to be negotiated if Sinogas proposes to sell
      the property during the term of the lease.





On
      December 15, 2007, the Company purchased all of the equity of Jingrun, whose
      sole asset is the land
      use
      right and construction in progress  for
      approximately RMB60 million ($8.5 million based on the current exchange
      rate) .
      The cost of
      the land use right paid by the Company was approximately
      RMB35 million (equivalent to US$4.99 million based on the current exchange rate.) The land
      is
      being amortized from the beginning of calendar year 2008 over a 50-year term.





The
      land
      use right owned by Xuancheng was purchased by the Company from Shanghai CNPC
      Enterprises Group at a price of RMB6.5 million or $926,058 based on
      the current exchange rate. The Company has paid the purchase price, and the
      issuance of the new title deed of the land, of which Xuancheng would be the
      owner, has been submitted for government approval.





On
      January 4 2008, the Company purchased all of the equity of Qingdao Shan Yang
      Tai
      Chemistry Resources Development Co., Ltd. (“QDSY”), whose sole asset is the land
      use right and
      construction in progress  for
      approximately RMB43 million .
      The cost of
      the land use right paid by the Company was approximately RMB30 million
      (equivalent to US$4.31 million based on the current exchange rate.) The land
      is
      being amortized from the beginning of calendar year 2008 over a 50-year term.
      The dollar equalends are based on the exchange rate on [insert
      date].





**11.
      Goodwill**





The
      amount of goodwill in the consolidated financial statements at March 31, 2008
      and September 30, 2007 is as follows (dollars in thousands):





Transactions
            
            March 31, 2008
            
            September 30, 2007Purchase
                of an additional 35% interest in Yuhan
            
            $
            676
            
            $
            676Purchase
                of a 60% equity in Jiaxing Lixun
            
            
            53
            
            
            53Purchase
                of a 70% equity in Xuancheng Sinoenergy
            
            
            29
            
            
            -HK
                Power
            
            
            414
            
            
            -Total
            
            $
            1,172
            
            $
            729




24




On
      May
      25, 2006, the Company and Qingdao Kangtai Machinery Equipment Manufacture Co.
      Limited (“Kangtai”) formed Qingdao Sinogas Yuhan Chemical Equipment Co., Ltd.
      (“Yuhan”), in which the Company held a 55% interest and Kangtai held a 45%
      interest. In August 2006, the Company entered into an agreement to acquire
      the
      remaining 45% interest for a purchase price of approximately $1.5 million,
      which
      was payable in installments. As of March 15, 2007, the Company had paid a total
      of $503,000 and owed $997,000. The agreement, as amended, gives the Company
      the
      right to buy the remaining 10% interest in Yuhan during the first six months
      of
      2008 for approximately $640,000. The consolidated balance sheet reflects
      goodwill of $676,000, which represents the excess of the purchase price for
      35%
      of Yuhan’s equity over 35% of Yuhan’s tangible assets at date of acquisition. In
      January 2008, the Company had paid the remainder of the purchase price and
      now
      owns 100% of Yuhan. As of March 31, 2008, the Company’s financial statements
      reflect a 100% ownership of Yuhan.





On
      March
      2007, the Company purchased a 60% interest in Jiaxing Lixun Automotive
      Electronic Co, Ltd (“Lixun”) from its shareholders, with a total cash
      payment of $310,310. The consolidated balance sheet reflects goodwill of
      $52,385, which represents the excess of the purchase price over the
      tangible assets of Lixun at the date of acquisition.





Xuancheng
      Sinoenergy was established on March 26, 2007. Upon incorporation, Shanghai
      CNPC
      owned a 70% interest and Sinogas owned a 30% interest. On November 6, 2007,
      the
      Company purchased the 70% equity interest owned by Shanghai CNPC for $958,000.
      The consolidated balance sheet reflects goodwill of $28,614, which represents
      the excess of the purchase price over the tangible assets of Xuancheng
      at the date of acquisition.





Hong
      Kong
      Giant Power International Investment Ltd. is a holding company that, through
      its
      four subsidiaries, specializes in investing in CNG in China. On January 24,
      2008, the Company acquired all of the equity of Hong Kong Giant Power
      International Investment Ltd. (“HK Power”) from its shareholders, who were
      unrelated to the Company (see Note 8). The acquisition cost was RMB64 million
      (equivalent to $8,865,713 at the date of acquisition) in cash. The Company’s
      consolidated balance sheet reflects goodwill of $414,137, which represents
      the
      excess of the purchase price over the identifiable tangible and intangible
      assets of HK Power on the date of acquisition. The Company accounts for its
      investments in the subsidiaries of HK Power on the equity method of
      accounting.





The
      Company monitors the impairment of goodwill on a continuous basis. As of March
      31, 2008, there were no indications that the carrying amount of the goodwill
      was
      higher than the undiscounted future cash flows of the above mentioned
      assets.




25




**12.
      Short Term Bank Loans**





The
      following table summarizes the contracted short-term borrowings between the
      banks and the Company as of March 31, 2008 (dollars in thousands):


Bank Name
                
                Purpose
                
                Borrowing
                  Date
                
                Maturity date
                
                Annual
                  Interest
                  Rate
                
                AmountBank
                    of Communication
                
                
                Working
                    Capital
                
                
                30-April-2007
                
                
                30-April-2008
                
                
                6.39
                %
                $
                2,849
                (1)Bank
                    of Communication
                
                
                Working
                    Capital
                
                
                14-Aug-2007
                
                
                14-Aug-2008
                
                
                7.29
                %
                
                5,699Bank
                    of Communication
                
                
                Working
                    Capital
                
                
                9-Sep-2007
                
                
                9-Sep-2008
                
                
                7.29
                %
                
                5,699Total
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                14,247





(1)
      The
      borrowing was repaid by the Company on April 30, 2008.





The
      following table summarizes the contracted short-term borrowings between the
      banks and the Company as of September 30, 2007 (dollars in
      thousands):





Bank Name
            
            Purpose
            
            Borrowing Date
            
            Maturity date
            
            Annual
              Interest
              Rate
            
            AmountShenzhen
                Development Bank
            
            
            Working
                Capital
            
            
            27-Nov
                -2006
            
            
            27-Nov
                -2007
            
            
            5.58
            %
            $
            863CITIC
                Bank
            
            
            Working
                Capital
            
            
            29-March-2007
            
            
            29-March-2008
            
            
            7.02
            %
            
            666Bank
                of Communication
            
            
            Working
                Capital
            
            
            30-April-2007
            
            
            30-April-2008
            
            
            6.39
            %
            
            2,662Bank
                of Communication
            
            
            
            
            
            14-Aug-2007
            
            
            14-Aug-2008
            
            
            7.29
            %
            
            5,326Bank
                of Communication
            
            
            Working
                Capital
            
            
            9-Sep-2007
            
            
            9-Sep-2008
            
            
            7.29
            %
            
            5,326Total
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            14,843





The
      Company repaid the short term bank loans as scheduled.





**13.
      Other Payables**





(1)
            Other
                Payables to Related Parties:





Other
      payables to related parties at March 31, 2008 includes a $209,145
      payable to Beijing Sanhuan for the balance of the purchase price of the land
      use
      right; a $3,633 payable to Kangtai for the unsecured loan; and a $1,425 payable
      to Mr. Guiqiang Shi, a shareholder of Kangtai.





Other
      payables to related parties at September 30, 2007 includes a $3,235,671 payable
      to Beijing Sanhuan for the balance of the purchase price of the land use right;
      a $310,664 payable to Kangtai for the unpaid portion of the 35% acquisition
      of
      the equity of Yuhan by the Company; a $44,895 payable to Xuancheng Sinoenergy
      for an unsecured loan; a $67,000 payable for a know-how fee payable to
      Beijing Sanhuan; a $1,331 payable due to Mr. Guiqiang Shi, a stockholder of
      Kangtai; and $19,128 due to Mr. Tanzhou Deng, the chairman of the Company.





(b)
      Other
      Payables to Third Parties:




26




Other
      payables to third parties at March 31, 2008 include a $1,364,656 payable for
      the
      acquisition of QDSY; a $1,494,777 payable for the acquisition of HK Power;
      a
      $1,543,167 unsecured loan payable to Hubei Yinghua; and a $807,708 payable
      for
      value added tax, business tax and other surtax.





Other
      payables to third parties at September 30, 2007 include a $145,500 payable
      for
      the audit fee, and a $928,166 payable for value added tax, business tax and
      other surtaxes.





**14.
      Advances from Customers**





Advances
      from customers at March 31, 2008 and September 30, 2007 are primarily the
      advances received for future sales.





**15.
      Income Taxes Payable**





Pursuant
      to the PRC income tax laws, the Company’s PRC subsidiaries are generally subject
      to enterprise income tax at a statutory rate of 33%, which comprises 30%
      national income tax and 3% local income tax. Beginning January 1, 2008, the
      Company’s PRC subsidiaries are generally subject to enterprise income tax at a
      statutory rate of 25%.





As
      PRC
      subsidiaries that qualify as wholly foreign owned manufacturing enterprises,
      Sinogas, Yuhan and Jiaxing Lixun were granted tax preferences. Sinogas and
      Yuhan
      are entitled to a 100% enterprise income tax exemption for calendar years 2006
      and 2007 and a 50% enterprise income tax exemption for the following three
      years
      (2008 through 2010). Jiaxing Lixun is entitled to a 100% tax
      exemption from August 2007 through 2008 and a 50% enterprise
      income tax exemption for the following three calendar years (2009 through
      2011).




Under
      the
      current tax laws of the PRC, the Company’s other PRC subsidiaries, Wuhan
      Sinoenergy and, Pingdingshan Sinoenergy will each be entitled to a two-year
      100%
      tax exemption followed by three years of a 50% tax exemption
      once they become profitable.





No
      provision for United States or other overseas tax is made as Sinoenergy
      Corporation and Sinoenergy Holding Limited are both investment holding
      companies, and have no taxable income in the United States or the British Virgin
      Islands for the three months and six months ended March 31, 2008 and
      2007.





The
      reconciliation between the income tax computed at the United States statutory
      tax rate and the Company’s provision for income tax is as follows:




Three months
                ended
            
            Three months endedMarch 31, 2008
            
            March 31, 2007U.S.
                statutory rate
            
            
            34
            %
            
            34
            %Foreign
                income not recognized in the U.S.
            
            
            (34
            )%
            
            (34
            )%PRC
                Enterprise Income Tax
            
            
            25
            %
            
            33
            %Tax
                holiday granted to the subsidiaries in PRC
            
            
            (20
            )%
            
            (33
            )%




27




In
      accordance with the relevant tax laws and regulations of PRC,
      the
      corporation statutory income tax rate is 25%. However, the Company’s
      subsidiaries have been granted has exemption’s from all overa part
      of the corporate income tax for various periods. The pro forma effect of this
      exemption is as follows:





***Six months ended March***
              ***31, 2008***
            
            ***Three months ended***
              ***March 31 , 2008***
            
            ***Six months ended***
              ***March 31, 2007***
            
            ***Three months ended***
              ***March 31 , 2007****$*
            
            *$*
            
            *$*
            
            *$*Statutory
                income tax rate
            
            
            25
            %
            
            25
            %
            
            25
            %
            
            25
            %Estimated
                exempted income tax rate
            
            
            5
            %
            
            5
            %
            
            5
            %
            
            5
            %Income
                tax exemption
            
            $
            1,076
            
            $
            614
            
            $
            264
            
            $
            70Tax
                  effect derived from exemption
                (per
                  share)
            
            $
            0.03
            
            $
            0.02
            
            $
            0.01
            
            
            nil





**16.
      Long Term Notes Payable**





On
      September 1, 2007, the Company entered into a note purchase agreement (the
“Note
      Purchase Agreement”) pursuant to which two investors agreed to purchase the
      Company’s 12% guaranteed senior notes due 2012 in the principal amount of
      $16,000,000 and 3.0% guaranteed senior convertible notes due 2012 in the
      principal amount of $14,000,000. The convertible notes are convertible into
      common stock at an initial conversion price of $3.17 per share, which represents
      a 25% premium of the 30 trading days volume weighted average price ending August
      31, 2007.





The
      closing of pursuant to the Note Purchase Agreement occurred on September 28,
      2007, and the Company received the net proceeds from the financing on October
      8,
      2007. In addition, the Company’s chief executive officer and its chairman, both
      of whom are directors, executed non-competition agreements with the
      Company.




The
      Company paid the investors an arrangement fee of $160,000, which was deducted
      from the proceeds payable to the Company.




The
      convertible notes were issued pursuant to an indenture between the Company
      and
      with DB Trustees (Hong Kong) Limited, as trustee. The convertible notes are
      due
      in September 2012 and bear interest at the stated interest rate of 3% per annum.
      Although the stated interest rate is 3% per annum, if the convertible notes
      are
      not redeemed or converted or purchased and cancelled by the maturity date,
      the
      Company is required to redeem the convertible notes at the amount which results
      in a yield to maturity of 13.8% per annum, net of interest previously received,
      plus any interest accrued on overdue principal (and, to the extent lawful,
      on
      overdue interest) and premium, if any, at a rate which is 3% per annum in excess
      of the rate of interest then in effect. As a result, the Company is accruing
      interest at the rate of 13.8% per annum. Since the Company is only required
      to
      pay interest currently at the interest rate of 3%, the remaining 10.8% interest
      rate is accrued and treated as deferred interest payable. If the convertible
      notes are converted, the deferred interest payable will be credited to
      additional paid in capital.





The
      convertible note indenture requires the Company to offer to purchase the Notes
      at a price which would generate a 13.8% yield if either of the following events
      shall occur:





•
            The
                occurrence at any time after the Company’s common stock is listed on the
                Nasdaq Stock Market of any event in connection with which all or
                substantially all of the Company’s common stock is exchanged for,
                converted into, acquired for or constitutes solely the right to receive,
                consideration which is not all or substantially all common stock
                or other
                equity securities listed on the Nasdaq Stock Market or any similar
                United
                States system of automated dissemination of quotations of securities
                prices.




28




•
            At
                any time after the Company’s common stock is listed on the Nasdaq Stock
                Exchange, the common stock is neither listed for trading on a United
                States national or regional securities exchange or the Nasdaq Stock
                Market.




•
            Trading
                in the Company’s common stock on any exchange or market has been suspended
                for ten or more consecutive trading
                days.




The
      indenture also requires the Company to pay additional interest as
      follows:




•
            At
                the rate of 3.0% per annum if the Company has not obtained a listing
                of
                its common stock on the Nasdaq Global Market or the Nasdaq Capital
                Market
                by September 19, 2008 and maintained such listing continuously thereafter
                as long as the Notes are
                outstanding.




•
            At
                the rate of 1.0% for each 90-day period in which the Company has
                failed to
                comply with the registration obligations under the registration rights
                agreement.




The
      holders of the Notes have the right to convert their Notes into common stock
      at
      a conversion price of $3.17 per share, subject to adjustment. The provisions
      for
      adjustment in the conversion price include adjustments for the
      following.




•
            A
                stock distribution or dividend, a reverse split or combination of
                shares
                and the distribution of shares, warrants, assets or indebtedness
                to our
                stockholders;




•
            A
                sale of common stock at a price, or the issuance of options, warrants
                or
                other convertible securities with an exercise or conversion price,
                which
                is less than the conversion price at the time, subject to limitations
                provided in the investor rights agreement;
                and




•
            An
                adjustment based on the volume weighted average price of the common
                stock
                on September 28, and March 28, of each year during the term of the
                notes, commencing March 28, 2008, such that if the volume weighted
                average
                price of the common stock for the 15 trading days preceding the applicable
                September 28 or March 28 is made is less than the conversion price
                then in
                effect, then the conversion price is reduced to the greater of the
                volume
                weighted average price or $2.10 per share;
                and




•
            An
                adjustment based on the Company’s failure to have consolidated net income,
                as defined in the indenture, of $7.5 million for 2007, $14.0 million
                for
                2008 and $22.5 million for 2009, or the equivalent in RMB. The investors
                have waived the right to any adjustment based on 2007 net
                income.




If
      the Company’s consolidated net income does not reach the stated level for 2008
      or 2009, the conversion rate, which is the number of shares of common stock
      issuable upon conversion of $100,000 principal amount of convertible notes,
      shall be adjusted in accordance with the following formula. Conversion rate
      then
      in effect + [(A x B)/ C], where




A
      =  the
      total
      number of shares of common stock issued and outstanding on a fully-diluted
      basis
      at the date of determination of such adjustment;





B
      =  3%
      expressed as a decimal; and





C
      = the
      aggregate principal amount of the Notes issued on the Issue Date divided by
      $100,000.




The
      conversion price is determined by dividing $100,000 by the conversion rate.
      The
      initial conversion rate is 31,546 shares of common stock for each $100,000
      principal amount of convertible notes.




29




Net
      income, for purposes of this computation, is defined to mean “net income”
determined in accordance with GAAP consistently applied, after deducting “income
      tax expense” and the amount, if any, for minority interest that may arise, but
      without adding any “other comprehensive income” or any extraordinary income; *provided* that the
      calculation of “net income” for the purposes of this definition shall not
      include any non-cash expense incurred at any time in connection with the
      issuance of shares of Common Stock pursuant to (i) non-cash charges associated
      with any original issue discount on the notes or the potential issuance of
      shares of common stock pursuant to the terms of the indenture, (ii) the
      additional payments that are due if the common stock is not listed on the Nasdaq
      Global Market or Nasdaq Capital Market by September 19, 2008, (iii) any
      adjustment resulting from a reduction in the conversion price as a result of
      the
      volume weighted average price or the failure to meet the earnings targets,
      and
      (v) the Company’s stock option plans and employee stock purchase plans and which
      have been approved by the Company’s board of directors so long as such issuances
      in the aggregate do not exceed five percent (5%) of the issued and outstanding
      common stock immediately prior to such issuance or grants.




The
      investors have waived the right to an adjustment in the conversion rate for
      2007. The following table sets forth a computation of the resulting conversion
      price if (a) the target levels are not met for both 2008 and 2009, (b) the
      number of fully-diluted shares of common stock (other than shares issuable
      upon
      conversion of the convertible notes) through the end of 2009, and (c) none
      of
      the notes are converted. Any change in any of these components will affect
      the
      amount of any adjusted conversion rate and conversion price.




Conversion Rate
            
            Conversion Price
            
            Conversion Rate
            
            Conversion PriceYear
            
            Beginning of
              year
            
            Beginning of
              Year
            
            As Adjusted
            
            As Adjusted2008
            
            
            31,546
            
            $
            3.17
            
            
            40,038
            
            $
            2.502009
            
            
            40,038
            
            $
            2.50
            
            
            48,785
            
            $
            2.05




If
      the Company’s common stock is not listed on the Nasdaq Global Market or the
      Nasdaq Capital Market by September 19, 2008, the Company is required to pay
      by
      September 28, 2008, an additional payment on each convertible note in the amount
      of 3.3% of the principal amount of such note.




The
      senior notes mature on September 28, 2012. The Company is required to make
      mandatory prepayments on the senior notes on the following dates and in the
      following amounts:




Date
            
            Principal
                AmountMarch
                28, 2010
            
            $
            2,000,000September
                28, 2010
            
            $
            2,000,000March
                28, 2011
            
            $
            4,000,000September
                28, 2011
            
            $
            4,000,000March
                28, 2012
            
            $
            2,000,000




Commencing
      September 28, 2008, the Company may redeem the senior notes at the following
      percentage of the principal amount:




Twelve Months Commencing
              September 28,
            
            Percent of
              Principal2008
            
            
            108.0
            %2009
            
            
            106.0
            %2010
            
            
            104.0
            %2011
                and thereafter
            
            
            100.0
            %




The
      indentures for both the convertible notes and the senior notes have certain
      covenants, including the following:


• If
        the
        Company sells assets and does not reinvest the proceeds in its business within
        180 days (270 days in the case of a sale of real property), to the extent
        that
        such proceeds not so reinvested exceed $5,000,000, the Company is required
        to
        offer the holders of the notes the right to have the Company use such excess
        proceed to purchase their notes at the principal amount plus accrued
        interest..


30




• If
        there
        is a change of control, the Company is required to offer to repurchase the
        notes
        at 103% of the principal of the note, plus accrued interest. A change of
        control
        will occur if Bo Huang or Tianzhou Deng own less than 25% of the voting power
        of
        the Company’s voting stock or, with certain exceptions, a merger or
        consolidation or sale of substantially all of the Company’s and its
        subsidiaries’ assets.


• The
        Company is restricted from incurring additional debt unless, after giving
        effect
        to the borrowing, (i) the fixed charge coverage ratio would be greater than
        2.75
        to 1.00 for the first year and 3.5 to 1.0 if the debt is incurred thereafter,
        and (ii) the leverage ratio would not exceed 4.25 to 1.00 for the first year
        and
        3.75 to 1.00 if the debt is incurred thereafter, provided, that the certain
        subsidiaries may continue to maintain debt under credit facilities of not
        more
        than $15,000,000 for the first year and $10,000,000 thereafter, and may incur
        purchase money indebtedness. The fixed charge coverage ratio is the ratio
        of the
        Company’s earnings before interest, taxes, depreciation and amortization, which
        is generally known as EBITDA, to consolidated interest expense, as defined.
        Leverage ratio means the ration of outstanding debt to EBITDA, with the interest
        component being the consolidated interest expense, as defined.


•
The
        Company is subject to restriction in paying dividends, purchasing its own
        securities or those of its subsidiaries, prepaying subordinated debt, and
        making
        any investment other than any investments in itself and its subsidiaries
        engaged
        in the Company’s business and certain other permitted
        investments.


•
The
        Company is subject to restrictions on incurring liens.


•
The
        Company cannot enter into, or permit its subsidiaries to enter into,
        transactions with affiliates unless it is in writing, in the Company’s best
        interest and not less favorable to the Company than it could obtain from
        a
        non-affiliate in an arms’ length transaction, with any transaction involving
        more than $1,000,000 requiring audit committee approval and any transaction
        involving more than $5,000,000 requiring a written opinion from an independent
        financial advisor.


•
The
          Company shall maintain, as of the last day of each fiscal quarter, (i)
          a fixed
          charge coverage ratio of 1.75 to 1.00 for the first six months, 2.75 to
          1.00 for
          the next six months and 3.0 to 1.00 thereafter, (ii) a leverage ratio of
          7.5 to
          1.00 through March 31, 2008, 5.0 to 1.00 from April 1, 2008 to September
          30,
          2008, and 4.5 to 1.00 thereafter, and (iii) a consolidated subsidiary debt
          to
          consolidated net tangible asset ratio of not more than 0.2 through September
          30,
          2008 and 0.15 thereafter.


•  The
        Company shall make all payments of principal, interest and premium, if any,
        without withholding or deduction for taxes, and must offer to repurchase
        the
        notes if they are adversely affected by changes in tax laws that affect the
        payments to the holders.




The
      indentures provide for an event of default in the event that the Company fails
      to comply with its obligations under the indentures and certain events of
      bankruptcy or similar relief.




The
      Company’s obligations are guaranteed by its subsidiaries and are secured by a
      charge on the stock of Sinoenergy Holding.




The
      Company also entered into an investor rights agreement, as clarified, pursuant
      to which, as long as an investor holds at least $2,000,000 principal amount
      of
      notes or at least 3% of the issued and outstanding stock:




•
            The
                investor has the right to approve the Company’s annual budget, and the
                Company cannot deviate by more than 15% of the amount in the approved
                budget.




•
            The
                Company and its subsidiaries cannot replace or change the substantive
                responsibilities of the chief executive officer except in the event
                of his
                incapacity, resignation or
                retirement.




31




•
            The
                Company and its subsidiaries cannot take any action that would result
                in a
                change of control, as defined in the
                indentures.




•
            The
                Company and its subsidiaries cannot change the number of board members
                or
                the composition or structure of the board or board committees or
                delegate
                powers to a committee or change the responsibilities and powers of
                any
                committee.





•
            The
                Company shall, by April 1, 2008, have appointed an independent public
                accountant from a list of 16 firms provided by the investors, failing
                which the Company shall pay the investors the sum of $2,500,000 on
                April 1
                of each year in which this condition is not met, and the Company
                shall not
                terminate the engagement of such auditor without prior investor approval.
                The Company has complied with this
                condition.




•
            The
                investors have a right of first refusal on future financings by us
                and
                proposed transfers, with limited exceptions, by Mr. Huang and Mr.
                Deng.
                The investors also have a tag-along right in connection with proposed
                sales by Mr. Huang and Mr. Deng.




The
      investor rights agreement, as clarified, also provides that (i) the Company
      will
      not sell shares of its common stock or grant options or warrants or issue
      convertible securities with an exercise or conversion price that is less than
      $0.40 per share, (ii) the minimum conversion price for the convertible debenture
      would be $0.40 per share, (iii) the holders of the convertible notes may call
      an
      event of default if the Company breaches its covenant not to issue shares at
      a
      price which is less than $0.40 per share. If the Company increases its
      authorized common stock, the conversion price would decrease to an amount not
      less than $0.05 per share. The Company and the investors agreed to use their
      commercially reasonable efforts to modify the indenture for the convertible
      notes to reflect these provisions of the investor rights agreement.





Mr.
      Huang
      and Mr. Deng are also prohibited from transferring any shares, with limited
      exceptions, until the investors shall have sold, singly or in the aggregate,
      more than 5% of the Company’s total outstanding equity on a fully-diluted
      basis.




From
      the
      closing date and as long as long as Abax continues to hold more than 5% of
      the
      outstanding shares of common stock on an as-converted basis, (i) Abax shall
      be
      entitled to appoint up to 20% of the voting members (or the next higher whole
      number if such percentage does not yield a whole number) of the Company’s board
      of directors, and (ii) if the Company fails to meet the net income requirements
      under the indenture for the convertible notes, Abax has the right to appoint
      an
      additional director. The Abax director shall be entitled to serve on each
      committee of the board, except that, the Abax director shall not serve on the
      audit committee unless he or she is an independent director. Mr. Huang and
      Mr.
      Deng have agreed to vote their shares for the election of the Abax directors.
      The Company is required to amend its by-laws to provide that a quorum for action
      by the board shall include at least one Abax director.




The
      Company is required to prepare and file a registration statement covering the
      sales of all of the shares of common stock issuable upon conversion of the
      convertible notes, subject to any limitation required by applicable of Rule
      415
      of the SEC pursuant to the Securities Act of 1933 and to have the registration
      statement declared effective by March 28, 2008. In the event that the
      registration statement has not been declared effective by the SEC on or before
      March 28, 2008 or if effectiveness of the Registration Statement is suspended
      at
      any time other than pursuant to a suspension notice, for each 90-day period
      during which the registration default remains uncured, the Company shall be
      required to pay additional interest at the rate of one percent 1% of the
      convertible notes, as described above.




32




Management
      completed its review of the accounting for the transactions and has concluded
      that the conversion option does not constitute an embedded derivative under
      SFAS
      133, as the Company has sufficient authorized but unissued shares to meet its
      maximum share obligations upon conversion, including any reductions in the
      conversion price. However, it qualifies for beneficial conversion treatment
      under EITF 98-5 and 00-27, and the total beneficial conversion features of
      $176,656 has been charged to additional paid in capital and is being amortized
      over the life of the notes.




As
      of
      March 31, 2008, neither the notes nor the common stock issuable upon conversion
      of the notes have been registered under the U.S. Securities Act of 1933, as
      amended.





The
      Company has accounted for registration rights penalties in accordance with
      EITF
      00-19-2, “Accounting for Registration Payment Arrangements”, and Statement of Financial Accounting
      Standards No. 5, “Accounting for Contingencies”.  Accordingly, the Company
      recorded $140,000 as an estimate of liquidated damages payable under
      registration rights agreements at March 31, 2008. The Company will review and
      adjust this accrual at each subsequent period end.





**17.**  **Related
      Party Relationships and Transactions**




The
      related parties with which the Company had transactions in the three and six
      months ended March 31, 2008 and 2007, are as follows:





Name
                of related party
            
            RelationshipBeijing
                Sanhuan Technology Development Co., Ltd (Beijing Sanhuan)
            
            Parent
                company of a subsidiary before November 8, 2005. Legal representative
                of
                Beijang Sanhuan is the Company’s CEO before July 2007.****Qingdao
                Kangtai Machinery Equipment Manufacture Co. Limited
                (Kangtai)
            
            Minority
                shareholder of a subsidiary (Yuhan) from May 2005Xuancheng
                Sinoenegy Vehicle Gas Company
            
            30%
                equity owner as at September 30, 2007Mr.
                GuiQiang Shi
            
            Shareholder
                of KangtaiMr.
                Tianzhou Deng
            
            Chairman
                of the Company




Significant
      transactions between the Company and its related parties during the three months
      and six months ended March 31, 2008 and 2007 are as follows:





(1)  Sales
      and
      purchase transactions with related parties





Name
                of the Company
            
            For
                the three months ended March 31,
            
            For
                the six months ended March 31,2008
            
            2007
            
            2008
            
            2007Mr.
                Guili Shi
            
            -None
            
            -None
            
            -None
            
            -Owned
                25% of equity of Yuhan, which was purchased by the
                CompanyBeijing
                Sanhuan
            
            -None
            
            -Acted
                as an agent of the Company for foreign currency transfer to
                RMB
            
            -None
            
            -NoneKangtai
            
            -None
            
            -None
            
            -None
            
            -Sales
                of $73,837




33




(2)  Related-company
      receivables





Name
                of the Company
            
            March
                31, 2008 (unaudited)
            
            September
                30, 2007Kangtai
            
            -$7,872
                inter-company loan
            
            -$186,431
                inter-company loan
              -$169,030
                sales receivable on behalf of the Company
              -$145,595
                rental fee receivablesMr.Tianzhou
                Deng
            
            -$41
                petty cash borrowing
            
            -None





(3)  Related-company
      and related party payables





Name
                of the Company
            
            March
                31, 2008 (unaudited)
            
            September
                30, 2007Beijing
                Sanhuan
            
            -$209,145
                payables to Beijing Sanhuan for balance of the purchase price of
                the land
                use right
            
            -$3,235,671
                payables to Beijing Sanhuan for balance of the purchase price of
                the land
                use right
              -$67,000
                for use of know-how for CNG station system integrationKangtai
            
            -$3,633
                of unsecured loan
            
            -$310,664
                unpaid balance for 35% equity purchase of YuhanXuancheng
                Sinoenergy
            
            -None
            
            -$44,895
                unsecured loanMr.Tianzhou
                Deng
            
            -None
            
            -$19,128Mr.
                GuiQiang Shi
            
            -None
            
            -$1,331





The
      amounts due from and to related parties are interest free, unsecured and have
      no
      fixed terms.





**18.
      Statutory Surplus Reserve Fund**





In
      accordance with PRC regulations, Sinogas is required to make appropriations
      to
      the statutory surplus reserve fund, based on after-tax net income determined
      in
      accordance with PRC GAAP. According to the Memorandum and Articles of
      Association of Sinogas, appropriation to the statutory surplus reserve fund
      should be at least 10% of the after-tax net income determined in accordance
      with
      the PRC GAAP until the reserve fund is equal to 50% of the entity’s registered
      capital. Appropriations to the statutory public welfare fund should be at least
      5% of the after-tax net income determined in accordance with the PRC GAAP.
      Statutory surplus reserve is established for the purpose of remedying Sinogas
      losses, expanding operations, or increasing registered capital, and is
      non-distributable other than in liquidation.





34




**19.
      Segment Information**





Operating
      segments are defined by SFAS No.131, “Disclosure about Segments of an Enterprise
      and Related Information,” as components of an enterprise for which separate
      financial information is available that is evaluated regularly by the Company
      in
      deciding how to allocate resources and in assessing performance. At March 31,
      2008, the Company has four operating segments: (i) non-standard pressure
      containers, (ii) CNG station construction and CNG station service, (iii) CNG
      operation business, which is in the development stage, and (iv) CNG vehicle
      conversion kits. At March 31, 2007 the Company had the three segments listed
      in
      (i), (ii) and (iii) above.




As
      all
      businesses of the Company are carried out in the PRC, the Company is deemed
      to
      operate in one geographical area.




The
      following tables set forth information relating to our business segments for
      the
      three and six months ended March 31, 2008 and 2007 (dollars in
      thousands).





Three
                months ended March
              31,
                2008 (unaudited)
            
            Non-standard
              pressure
              containers
            
            CNG
              station
              facilities
              and
              construction
            
            CNG
              station
              operation
            
            Vehicle
              conversion
              kits
            
            TotalNet
                revenue
            
            $
            1,822
            
            $
            3,751
            
            $
            282
            
            $
            1,879
            
            $
            7,734Cost
                of revenues
            
            
            1,053
            
            
            1,592
            
            
            179
            
            
            1,187
            
            
            4,011Gross
                profit
            
            
            769
            
            
            2,159
            
            
            103
            
            
            692
            
            
            3,723Gross
                margin
            
            
            42
            %
            
            58
            %
            
            37
            %
            
            37
            %
            
            48
            %Operating
                expenses:Selling
                expenses
            
            $
            35
            
            $
            21
            
            $
            30
            
            $
            52
            
            $
            138General
                and administrative expenses
            
            
            50
            
            
            591
            
            
            8
            
            
            318
            
            
            967Total
                operating expense
            
            
            85
            
            
            612
            
            
            38
            
            
            370
            
            
            1,105Income
                from operations
            
            $
            684
            
            $
            1,547
            
            $
            65
            
            $
            322
            
            $
            2,618




35





Three
                months ended March31,
              2007
                (unaudited)
            
            Non-standard
                pressure
              containers
            
            CNG
              station
              facilities
              and
              construction
            
            CNG
              station
              operation
            
            TotalNet
                revenue
            
            $
            783
            
            $
            1,843
            
            $
            -
            
            $
            2,626Cost
                of revenues
            
            
            614
            
            
            977
            
            
            -
            
            
            1,591Gross
                profit
            
            
            169
            
            
            866
            
            
            -
            
            
            1,035Gross
                margin
            
            
            22
            %
            
            47
            %
            
            
            
            
            40
            %Operating
                expenses:Selling
                expenses
            
            $
            5
            
            $
            35
            
            $
            -
            
            $
            40General
                and administrative expenses
            
            
            80
            
            
            236
            
            
            266
            
            
            582Total
                operating expense
            
            
            85
            
            
            271
            
            
            266
            
            
            622Income
                (loss) from operations
            
            $
            84
            
            $
            595
            
            $
            (266
            )
            $
            413





Six
                months ended March31,
              2008
                (unaudited)
            
            Non-standard
                pressure
              containers
            
            CNG
                station facilities
              and
              construction
            
            CNG
              station
              operation
            
            Vehicle
                conversion
              kits
            
            TotalNet
                revenue
            
            $
            3,671
            
            $
            8,389
            
            $
            350
            
            $
            4,131
            
            $
            16,541Cost
                of revenues
            
            
            2,138
            
            
            3,905
            
            
            223
            
            
            2,641
            
            
            8,907Gross
                profit
            
            
            1,533
            
            
            4,484
            
            
            127
            
            
            1,490
            
            
            7,634Gross
                margin
            
            
            42
            %
            
            53
            %
            
            36
            %
            
            36
            %
            
            46
            %Operating
                expenses:Selling
                expenses
            
            $
            93
            
            $
            33
            
            $
            37
            
            $
            131
            
            $
            294General
                and administrative expenses
            
            
            258
            
            
            1,073
            
            
            102
            
            
            542
            
            
            1,975Total
                operating expense
            
            
            351
            
            
            1,106
            
            
            139
            
            
            673
            
            
            2,269Income
                from operations
            
            $
            1,182
            
            $
            3,378
            
            $
            (12
            )
            $
            817
            
            $
            5,365


36





Six
                months ended March 31,
              2007(unaudited)
            
            Non-standard
                pressure
              containers
            
            CNG
              station
              facilities
              and
              construction
            
            CNG
              station
              operation
            
            TotalNet
                revenue
            
            $
            1,896
            
            $
            3,359
            
            $
            -
            
            $
            5,255Cost
                of revenues
            
            
            1,212
            
            
            1,310
            
            
            -
            
            
            2,522Gross
                profit
            
            
            684
            
            
            2,049
            
            
            -
            
            
            2,733Gross
                margin
            
            
            36
            %
            
            61
            %
            
            
            
            
            52
            %Operating
                expenses:Selling
                expenses
            
            $
            30
            
            $
            48
            
            $
            -
            
            $
            78General
                and administrative expenses
            
            
            365
            
            
            522
            
            
            360
            
            
            1,247Total
                operating expense
            
            
            395
            
            
            570
            
            
            360
            
            
            1,325Income
                (loss) from operations
            
            $
            289
            
            $
            1,479
            
            $
            (360
            )
            $
            1,408





**20.
      Capital Stock**





As
      of
      March 31, 2008 and September 30, 2007, the Company had the following shares
      of
      common stock reserved for issuance:





•
            1,746,428
                shares issuable upon exercise of the warrants issued in the June
                2006
                private placement and issued for services of investment relations
                company;


•
            4,416,404
                shares issuable upon conversion of 3% senior guaranteed convertible
                notes;


•
            2,000,000
                shares issuable upon exercise of stock options or other equity-based
                incentives pursuant to the Company’s 2006 long-term incentive
                plan.





Number of shares issuable on exercise of warrants$0.85
              Warrants
            
            $1.20
              Warrants
            
            $1.75
              Warrants
            
            $2.10
              Warrants
              for
              services
              outsourced
            
            TotalBalance
                at September 30, 2007
            
            
            685,715
            
            
            910,715
            
            
            -
            
            
            150,000
            
            
            1,746,430Issued
                during the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
                during the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance
                at March 31, 2008
            
            
            685,715
            
            
            910,715
            
            
            -
            
            
            150,000
            
            
            1,746,430


37





As
      at
      March 31, 2008, the average exercise price for the above mentioned warrants
      is
      $1.14.





Stock
      options





Pursuant
      to the 2006 long-term incentive plan, each newly-elected independent director
      receives, at the time of his or her election, a five-year option to purchase
      30,000 shares of common stock at the fair market value on the date of his or
      her
      election. The plan provides for the annual grant to each independent director
      of
      an option to purchase 5,000 shares of common stock on the first trading day
      in April of each calendar year, at market price, subject to stockholder approval
      of the plan, commencing in 2007. Pursuant to the automatic grant provisions
      of
      the plan, in June 2006, the Company issued to its independent directors, options
      to purchase an aggregate of 120,000 shares of common stock at $0.65 per share,
      being the fair market value on the date of grant.





Pursuant
      to the 2006 long-term incentive plan, each independent director  is to
      be
      granted an  option
      to  purchase 5,000
      shares of common stock on the first trading day in April of each calendar
      year at market price. On April 1, 2007, the four independent directors were
      granted 20,000 stock options at an exercise price of $2.03 per share, being
      the
      fair market value on the date of grant.





On
      April
      9, 2007, pursuant to 2006 long-term incentive plan, the stock option committee
      of the board of directors granted five year options to its senior managers
      and
      key management to acquire 1,180,000 shares of common stock at $2.00 per
      share, being the fair market value on the date of grant. These options vest
      as
      to 50% of the underlying shares of common stock on August 3, 2007 and as to
      the
      remaining 50% on August 3, 2008.





On
      January 9, 2008, pursuant to 2006 long-term incentive plan, the stock option
      committee of the board of directors granted five year options to its senior
      managers and key management to acquire 120,000 shares of common stock at $4.10
      per share, being the fair market value on the date of grant. These options
      vest
      as to 50% of the underlying shares of common stock on January 9, 2009 and as
      to
      the remaining 50% on January 9, 2010.





On
      March
      10, 2008, pursuant to 2006 long-term incentive plan, the stock option committee
      of the board of directors granted five year options to its senior mangers and
      key management to acquire 80,000 shares of common stock at $3.10 per share,
      being the fair market value on the date of grant. The options vest as to 42%
      of
      the underlying shares of common stock on December 31, 2008, 50% on December
      31,
      2009 and as to the remaining 8% on March 9, 2010.





Shares subject
              to options
            
            Weighted average
              exercise price
            
            Remaining
              contractual lifeOptions
                outstanding at September 30, 2007
            
            
            1,320,000
            
            $
            1.88
            
            
            4.18
                yearsOptions
                granted during the period
            
            
            120,000
            
            $
            4.10
            
            
            4.8
                yearsOptions
                granted during the period
            
            
            80,000
            
            $
            3.10
            
            
            5
                yearsOptions
                outstanding at March 31, 2008
            
            
            1,520,000
            
            $
            2.12
            
            
            3.93
                yearsOptions
                exercisable at March 31, 2008
            
            
            650,000
            
            $
            0.94
            
            
            3.93
                years





The
      fair
      value of options granted is estimated on the date of grant using the
      Black-Scholes option-pricing model utilizing the assumptions shown in the
      following table:


38





Stock Options Granted OnGrant Date
            
            March 10,
              2008
            
            January 9, 2008
            
            April 9, 2007
            
            April 1,
              2007
            
            June 2,
              2006Expected
                volatility
            
            
            68.32
            %
            
            80.06
            %
            
            26.39
            %
            
            35.16
            %
            
            50.00
            %Risk-free
                rate
            
            
            4.64
            %
            
            4.64
            %
            
            4.64
            %
            
            4.64
            %
            
            4.64
            %Expected
                term (years)
            
            
            5
            
            
            5
            
            
            5
            
            
            5
            
            
            3Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Fair
                value per share
            
            $
            1.78
            
            $
            2.58
            
            $
            0.62
            
            $
            0.60
            
            $
            0.25





There
      were no options granted during the three months ended December 31, 2007 or
      2006.





The
      stock
      compensation expense during the three months and six months as at March 31,
      2008
      was $119,206 and $190,839, respectively, which was recorded as general and
      administrative expense. The fair value of stock options granted during the
      three
      and six months ended March 31, 2007 was $473,556 and $473,556, respectively,
      which was charged to operations as general and administrative
      expense.





As
      of
      March 31, 2008, unrecognized compensation cost related to all unvested stock
      options was $646,852. The intrinsic value of outstanding stock options at March
      31, 2008 was approximately $1,151,400.





**21.
      Basic and Diluted Earnings per Share**





The
      Company computes earnings per share (“EPS’) in accordance with Statement of
      Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”),
      and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS
      No. 128 requires companies with complex capital structures to present basic
      and diluted EPS.  Basic EPS is measured as net income divided by the
      weighted average common shares outstanding for the period.  Diluted EPS is
      similar to basic EPS but presents the dilutive effect on a per share basis
      of
      potential common shares (e.g., convertible securities, options and warrants)
      as
      if they had been converted at the beginning of the periods presented, or
      issuance date, if later.  Potential common shares that have an
      anti-dilutive effect (i.e., those that increase income per share or decrease
      loss per share) are excluded from the calculation of diluted EPS. Approximately
      4,416,440


shares
      are included on an “as converted” basis for the convertible debt for the three
      months and six months ended March 25, 2008.





The
      calculation of diluted weighted average common shares outstanding for the three
      months ended March 25, 2008 and 2007 is based on the average of the closing
      price of the Company’s common stock during such periods applied to warrants and
      options using the treasury stock method to determine if they are dilutive.
      For
      the three months ended March 25, 2008 and 2007 the options and warrants were
      dilutive.




39




Three months
              ended March
              31, 2008
            
            Six months
              ended March
              31, 2008Weighted
                average common stock outstanding during period
            
            
            31,418,064
            
            
            31,418,064Common
                stock issuable pursuant to $0.85 warrants
            
            
            521,105
            
            
            534,323Common
                stock issuable pursuant to $1.20 warrants
            
            
            602,072
            
            
            626,856Common
                stock issuable pursuant to D warrants
            
            
            61,038
            
            
            68,182Stock
                option/incentive plan
            
            
            633,297
            
            
            686,612Convertible
                notes as if converted
            
            
            4,416,404
            
            
            4,416,404Total
                diluted outstanding shares
            
            
            37,651,980
            
            
            37,750,441





**22.
      Commitments and Contingencies**




(1)
      Legal
      Proceedings - The Company is not currently a party to any material threatened
      or
      pending legal proceedings.




(2)
      Commitments - The Company has the following material contractual obligations
      and
      capital expenditure commitments at March 31, 2008:




(a)
      The
      Company has a purchase order with Fornovo Gas S.r.l of Italy for the purchase
      of
      36 compressor units and 60 high capacity dispensers for a total purchase price
      of $9.6 million.





(b)
      The
      Company has a purchase order with NK Co., Ltd (a Korea company) for the purchase
      of steel bottles with total price of $1.14million.





(c)
      The
      Company has a purchase order with Shijiazhuang Enric Gas E quipment
      Company for the purchase of steel bottles with total price of $18.1 million.





At
      March
      31, 2008, the Company has paid a total of $11.8 million for the purchase, and
      $8.66 million of the goods had been delivered to the Company for the above
      mentioned purchase orders in paragraphs (a), (b) and (c).




(d)
      Wuhan
      Sinoenergy, the subsidiary of the Company, has leased 10 parcels of land in
      Wuhan City for its CNG stations. The lease terms are from 10 year to 30 years
      with annual rental fees of approximately $452,087. Wuhan Sinoenergy will
      purchase a land use right for land located in Wuhan City for its CNG station
      at
      a price of RMB8.72 million, equivalent to $1,242,342 based on the current
      exchange rate. As of reporting date, RMB3.2 million, equivalent to $455,905,
      had
      been paid.




(e)
      The
      Company purchased a 45% equity interest of Anhui Gather. The Company was
      required to contribute $1,905,670 to Anhui Gather as paid in capital. As of
      March 31, 2008, the Company had paid $439,097 in paid in capital to Anhui
      Gather, leaving a balance due of $1,466,573.




(f) On
      March
      23, 2007, the Company and Hong Kong China New Energy Development Investment
      Co.
      Ltd. (“New Energy”), incorporated Hubei Gather Eenergy Gas Co., Ltd. (“Hubei
      Gather”) to construct and operate natural gas processing plants. The registered
      capital is $5 million of which Sinoenergy Holding Ltd. will contribute
      $2,750,000 as a 55% equity owner and New Energy will contribute $2,250,000
      for a
      45% equity interest. As of March 31, 2008, the Company had contributed $429,284
      to Hubei Gather.


40





(g) The
      Company has purchased the land use right for the real property on which the
      Company’s facilities are located from Beijing Sanhuan. The initial purchase
      price was $12.3 million. Based on increased expenses incurred by Beijing Sanhuan
      as well as the increased value of the land, the price was increased to $18.6
      million. As of March 31, 2008, the Company had paid $18.4 million to Beijing
      Sanhuan.





**23.
      Retirement Benefits**





The
      full-time employees of the Company are entitled to welfare benefits, including
      medical care, labor injury insurance, housing benefits, education benefits,
      unemployment insurance and pension benefits through a Chinese
      government-mandated multi-employer defined contribution plan. The Company is
      required to accrue the employer-portion for these benefits based on certain
      percentages of the employees’ salaries. The total provision for such employee
      benefits was $50,919 and $13,475 for the three months ended March 31, 2008
      and
      2007, respectively, and were recorded as other payables.  The PRC
      government is responsible for the staff welfare benefits including medical
      care,
      casualty, housing benefits, unemployment insurance and pension benefits to
      be
      paid to these employees. The Company is responsible for the education benefits
      to be paid.





From
      time
      to time, the Company may hire some part time workers or short term workers
      to
      satisfy the peak season labor requirement. Those workers have the right to
      terminate their work to the Company at any time. For those part time
      non-contracted workers, it is difficult for the Company to accurately record
      the
      working time, total wages and then accrual welfare benefits. So based on the
      common practice, the Company treats those workers as probationers, and does
      not
      accrue welfare benefits for them. Although the Company believes the common
      practice is acceptable under these circumstance, the government may require
      the
      Company to accrue the welfare benefit and may assess a penalty for the under
      accrual.





**24.
      Significant Concentrations**




The
      Company grants credit to its customers, generally on an open account basis.
      The
      Company’s customers are all located in the PRC.





During
      the three months ended March 31, 2008, there were two customers that accounted
      for 20% and 17% of consolidated sales, respectively.




During
      the six months ended March 31, 2008 and 2007, two customers accounted for 24.3%
      and 13.1% of consolidated sales, respectively, or an aggregate of 37.5% of
      consolidated sales. As of March 31, 2008 and September 30, 2007, approximately
      28.8% and 7% of accounts receivable were from trade transactions with the
      aforementioned customers.




**25.
      Subsequent Events**




(a)
      On
      April 21, 2008, Sinogas entered into an agreement with a group of Chinese
      investors who will contribute RMB124.76 million, equivalent to $17.87 million,
      for a 24.95% equity interest in Sinogas. The Company will retain a 75.05%
      interest. Through the strategic investment, Sinogas will operate as a joint
      venture and the registered capital will increase from $11,800,000 to
      $15,723,800. After reorganization, Qingdao Sinogas and its two subsidiaries
      (Yuhan and Jiaxing Lixun) will be engaged in the manufacture of customized
      pressure containers for different industries and alternative fuel switching
      kits
      for motor vehicles.




41




(b)
      In
      April 2008, Wuhan Sinoenergy Changfeng Gas Co., Ltd. (“Changfeng”) obtained the
      license in which Wuhan Sinoenergy had contributed RMB3,060,000, equivalent
      to
      $435,960, and acquired 51% of Changfeng.




(c)
      In
      April 2008, the minority shareholder of Jiaxing Lixun signed an equity
      transferring agreement with Sinogas, pursuant to which Sinogas will acquire
      another 30% of Lixun. After that, Sinogas and Holding will own 75% and 25%,
      respectively.


42




Item
      2.
      Management’s Discussion and Analysis or Plan of Operation





*The
      following discussion of the results of our operations and financial condition
      should be read in conjunction with our financial statements and the related
      notes, which appear elsewhere in this report. The following discussion includes
      forward-looking statements. For a discussion of important factors that could
      cause actual results to differ from results discussed in the forward-looking
      statements, see “Forward Looking Statements.”*




**Overview**





We
      design, manufacture and market a range of pressurized containers for Compressed
      Natural Gas ("CNG."). Although our initial business involved the manufacturing
      of non-standard equipment and pressure containers, our business has evolved
      as
      an increasing market is developing in the PRC for the use of CNG. Our CNG
      vehicle and gas station construction business consists of two divisions (i)
      the
      manufacturing of CNG vehicle and gas station equipment, and (ii) the design
      of
      construction plans for CNG stations, the construction of the CNG stations,
      and
      the installation of CNG station equipment and related
      systems.





In
      addition to our CNG related products, we continue to manufacture a wide variety
      of pressure containers for use in different industries, including the design
      and
      manufacture of various types of pressure containers in the petroleum and
      chemical industries, the metallurgy and electricity generation industries and
      the food and brewery industries. In addition, we can design and manufacture
      various types of non-standard equipment.





All
      of
      our products and services are performed pursuant to agreements with our
      customers, which provide the specifications for the products and services.
      We do
      not sell our products from inventory. As a result, our revenue is dependent
      upon
      the flow of contracts. In any fiscal period, a small number of customers may
      represent a disproportionately large percentage of our business in one period
      and a significantly lower percentage, if any, in a subsequent
      period.





Commencing
      in 2006, we began to construct CNG stations and we intend to operate CNG
      stations. This aspect of our business is different from our other business
      since
      we will be operating CNG filling stations. The business of operating CNG
      stations requires a substantial capital investment, and we have raised
      approximately $30 million from the sale of our convertible and fixed rate notes
      in September 2007. As discussed under “Liquidity and Capital Resources,” the
      indentures relating to these notes have restrictions on our incurring additional
      debt. The nature of the operation of the business and the risks associated
      with
      that business are significantly different from the manufacturing of equipment
      or
      the construction of CNG stations for third parties. One aspect of the operation
      of CNG stations is the price controls, whereby both the price at which we
      purchase CNG and the price at which we sell CNG are subject to by price controls
      by central government and municipal government. As a result of these price
      controls, our gross margin is effectively dependent upon the government’s
      pricing policies. The operation of CNG stations is reported as a separate
      segment.





During
      2007, we entered into two agreements to form joint ventures for the operation
      of
      natural gas process plants. We have a majority interest in one of these two
      ventures and a minority interest in the other. At March 31, 2008, our total
      commitments under these agreements were approximately $5.0 million, of which
      we
      had paid a total of approximately $1.6 million. These two companies are in
      the
      early construction stage, and neither of these ventures has commenced
      operations. We also have contracted for the purchase of natural gas which is
      to
      be delivered through a pipeline which is presently under construction and which
      is expected to be completed in or about 2009. These contracts do not have
      specific delivery quantities or prices, all of which are to be determined at
      a
      later date.


43


In
      early
      2007, we established a division to sell and manufacture CNG vehicle conversion
      kits to OEM and sale in the after market. These kits are designed to enable
      a
      gasoline powered vehicle to operate on CNG. We began to generate revenue from
      this business segment in the second quarter of calendar 2007. In
      March
      2007, we purchased a 60% interest in Jiaxing
      Lixun Automotive Electronic Co, Ltd (“Lixun”) from its stockholders for
      $390,000. In July 2007, we paid an additional $400,000 to increase our
      equity ownership in Jiaxing Lixun to 70%. Lixun designs and manufactures
      electric control devices for alternative
      fuel, such as compressed natural gas and liquefied petroleum gas vehicles,
      as
      well as a full range of electric devices, such as computer controllers,
      conversion switches, spark advancers, tolerance sensors and emulators for use
      in
      multi-powered vehicles.  The
      business of manufacturing electronic parts for vehicle conversion kits as well
      as producing conversion kits is reported as a separate segment in the three
      and
      six months ended March 31, 2008 and 2007.




Our
      CNG
      vehicle and gas station equipment business include two product
      lines:




*•*
            the
                manufacturing of equipment for CNG vehicles and gas stations
                and





*•*
            the
                design of CNG station and construction plans, construction of CNG
                stations
                and installation of CNG station equipment and related
                systems.




Our
      original business was the manufacturing and sale of nonstandard equipment and
      pressure containers operated by our Yuhan subsidiary, of which we had been
      a 55%
      equity owner. During the second half of 2006, we acquired an additional 35%
      equity interest and in turn became a 90% equity owner of Yuhan. In January
      2008,
      we acquired the remaining 10%, and became a 100% owner of
      Yuhan.





Steel
      and
      steel tubing are major raw material used in manufacturing CNG facilities and
      gas
      station equipment. We purchase steel plate from a Chinese domestic manufacturer,
      and we believe that alternative suppliers are available. We had purchased steel
      bottles, a key raw material for CNG truck trailers, from an Italian supplier,
      which carried the risk of delays that could interrupt our manufacturing process.
      Accordingly from May 2007, we also began to purchase steel tubes from the PRC
      domestic market and engaged a Korean company to manufacture the bottles from
      the
      steel tubes, and in August 2007, we engaged a PRC company to manufacture these
      bottles. Although we believe that we have reduced the risks of interruption
      of
      our manufacturing process, we cannot eliminate the risk entirely.





Our
      functional currency is Renminbi (“RMB”), which is the currency of the PRC, and
      our reporting currency is United States dollars. In addition, our purchases
      from
      our Italian supplier are in Euros. When
      we
      discuss the amount of our future obligations, we convert RMB or Euros to dollars
      at the current exchange rate. However, since the payment will be made in the
      future, the amount paid in United States dollars may be different from the
      amount set forth in this report as a result of fluctuations in the currency
      rates.





**Results
      of Operations**




In
      the
      three months ended March 31, 2008, we had four business segments, and in the
      same period of 2007, we had three business segments. The fourth segment, the
      sale of CNG conversion kits, first generated revenue in the second quarter
      of
      calendar year 2007.


44




**(i)
      Non-standard pressure container business:**





Our
      non-standard equipment and pressure container business has been carried over
      from the predecessor since Sinogas was formed. It is a traditional chemical
      equipment manufacturing business with low profit margin. It includes design
      and
      manufacturing of various types of pressure containers:




·
            in
                the petroleum and chemical
                industries


·
            in
                the metallurgy and electricity generation
                industries


·
            in
                the food and brewery
                industries


·
            various
                types of non-standard containers





**(ii)
      CNG storage, transportation products and CNG station service construction (“CNG
      Station Facilities and Construction”)**





Our
      CNG
      station construction business represents:


(1)
      CNG
      vehicle and gas station equipment manufacturing and installation, which include
      the following products:





·
            CNG
                trailer


·
            CNG
                deposited system for gas station usage


·
            CNG
                compressor skid


·
            CNG
                dispenser (retail measurement
                system)




These
      services were provided by us for other companies that operate CNG
      stations.





(2)
      CNG
      station construction service business




It
      includes the design of CNG station construction plans, construction of CNG
      stations, and installation of CNG station equipment and related systems. The
      gross
      margin for CNG gas stations technical consulting service was high, as a result
      of our know-how in CNG system design and the absence of significant competition.
      Because of our emergence into the CNG filling station business, we did not
      receive any CNG station construction service orders from the beginning of 2007.
      We anticipate that, at least in the near term, we will devote most, if not
      all,
      of our CNG construction business to the construction of our own CNG filling
      stations.




**(iii)
      CNG station operation**




In
      2006,
      we entered the CNG station business, which involves the design, construction
      and
      equipping of CNG stations and the operation of those stations.




**(iv** **)
      Vehicle fuel conversion equipment**




We
      manufacture of CNG vehicle conversion kits and electronic
      control devices for alternative
      fuel.


45


**Three
      months ended March 31, 2008 compared to three months ended March 31,
      2007**




The
      following tables set forth information relating to our business segments for
      the
      three months ended March 31, 2008 and 2007 (dollars in thousands).





Three months ended March
              31, 2008 (unaudited)
            
            Non-standard
              pressure
              containers
            
            CNG
              station
              facilities
              and
              construction
            
            CNG
              station
              operation
            
            Vehicle
              conversion
              kits
            
            TotalNet
                revenue
            
            $
            1,822
            
            $
            3,751
            
            $
            282
            
            $
            1,879
            
            $
            7,734Cost
                of revenues
            
            
            1,053
            
            
            1,592
            
            
            179
            
            
            1,187
            
            
            4,011Gross
                profit
            
            
            769
            
            
            2,159
            
            
            103
            
            
            692
            
            
            3,723Gross
                margin
            
            
            42
            %
            
            58
            %
            
            37
            %
            
            37
            %
            
            48
            %Operating
                expenses:Selling
                expenses
            
            $
            35
            
            $
            21
            
            $
            30
            
            $
            52
            
            $
            138General
                and administrative expenses
            
            
            50
            
            
            591
            
            
            8
            
            
            318
            
            
            967Total
                operating expense
            
            
            85
            
            
            612
            
            
            38
            
            
            370
            
            
            1,105Income
                from operations
            
            $
            684
            
            $
            1,547
            
            $
            65
            
            $
            322
            
            $
            2,618





Three months ended March 31,
              2007
                (unaudited)
            
            Non-standard
              pressure
              containers
            
            CNGstation
              facilitiesand
              construction
            
            CNG
              station
              Operation
            
            TotalNet
                revenue
            
            $
            783
            
            $
            1,843
            
            $
            -
            
            $
            2,626Cost
                of revenues
            
            
            614
            
            
            977
            
            
            -
            
            
            1,591Gross
                profit
            
            
            169
            
            
            866
            
            
            -
            
            
            1,035Gross
                margin
            
            
            22
            %
            
            47
            %
            
            
            
            
            40
            %Operating
                expenses:Selling
                expenses
            
            $
            5
            
            $
            35
            
            $
            -
            
            $
            40General
                and administrative expenses
            
            
            80
            
            
            236
            
            
            266
            
            
            582Total
                operating expense
            
            
            85
            
            
            271
            
            
            266
            
            
            622Income
                (loss) from operations
            
            $
            84
            
            $
            595
            
            $
            (266
            )
            $
            413





*Net
      Revenue.* Net
      revenue for three months ended March 31, 2008 (the “March 2008 quarter”) was
      approximately $7.7 million, a 195% increase from the net revenue of
      approximately $2.6 million for the three months ended March 31, 2007 (the “March
      2007 quarter”). This increase results primarily from the sale of CNG station
      facilities, which generated revenue of $3.8 million, or 48.5 % of sales in
      the
      March 2008 quarter. In addition, the sales of vehicle conversion kits, the
      new
      segment which began contributing revenue in the second quarter of 2007, also
      contributed approximately $1.9 million or 24.3% of sales in the March 2008
      quarter.


46


*Cost
        of Revenue.* The cost
        of revenue for the March 2008 quarter was approximately $4.0 million, compared
        with approximately $1.6 million in the same period of 2007.
  ·
              Our
                  gross margin for the CNG station facilities and construction segment
                  increased to 58% in the March 2008 quarter from 47% in the March
                  2007
                  quarter. In March 2008, $1.34 million was generated from the processing
                  of
                  CNG truck trailers.
 
 ·
              The
                  conversion kit segment was developed in 2007, and generated 24.3
                  % of
                  sales in the March 2008 quarter at a gross margin of 37%. There
                  is no
                  comparable segment in the March 2007
                  quarter.
 
 ·
              Our
                  CNG station operation began generating revenue from December 2007,
                  and
                  generated 3.65% of sales in the March 2008 quarter at a gross margin
                  of
                  37%.
 
 ·
              The
                  gross margin of the non-standard pressure container segment in
                  the March
                  2008 quarter is 42%. In the March 2008 quarter, we fulfilled, in
                  addition
                  to our traditional container orders, one new order as the manufacturer
                  of
                  equipment for a bio-diesel plant which generated a higher gross
                  margin
                  because of the specialized nature of the services we provided.
                  Before
                  2007, when we only took traditional container orders, the gross
                  margin of
                  the segment was from 17% to 25%.
 
 *Operating
        Expenses.* Operating expenses were approximately $1.1 million in the March 2008 quarter,
        an
        increase of $483,000, or 78%, from the March 2007 quarter. The increase in
        operating expenses primarily relates to $323,000
        of selling, general and administrative expenses associated with the vehicle
        conversion kits segment in the March 2008 quarter. This segment commenced
        operations in April 2007, and, accordingly, there were no comparable
        expenses in the March 2007 quarter.
  *Income
        from Operations.* Income
        from operations was approximately $2.6 million for the March 2008 quarter,
        compared with approximately $0.4 million in the same quarter of 2007 and
        resulted from the above mentioned reasons.
 
 *Other
        Income.* Other
        income was $451,000 for the March 2008 quarter, and primarily relates to
        revenues generated from land rental.
 
 *Interest
        Expense* .
        Our
        interest expense for the March 2008 quarter was approximately $860,000, an
        increase of $805,000 compared with $55,000 of March 2007 quarter. In the
        March
        2008 quarter, we incurred interest costs of approximately $1,364,968 in
        connection with the $14 million PRC bank loan, the $16 million 12% guaranteed
        senior notes, and the $14 million 3% guaranteed convertible
        notes, including non-cash interest costs
        of  $756,000, of which approximately $505,123 was capitalized,. The
        un-capitalized portion was reflected as interest expense. While in the March
        2007 quarter, the $55,000 interest expense was incurred in connection with
        the
        $1.3 million PRC bank loan.
 
 *Income
        Taxes.* Both
        Sinogas and Yuhan entered the first year of the half income tax rate,
        namely 12.5%, and $165,140 of income tax was accrued in the March 2008
        quarter.
 
 47
  *Net
        Income* .
        As a
        result of the foregoing, we had net income of $2.8 million, or $0.09 per
        share
        (basic) and $0.07 per share (diluted) for the March 2008 quarter; as compared
        with net income of $350,000 or $0.02 per share (basic) and $0.02 per share
        (diluted) for the same quarter of 2007.
 
 **Six
        months ended March 31, 2008 compared to six months ended March 31,
        2007**
  Six months ended March
                31, 2008 (unaudited)
              
              Non-standard
                pressure
                containers
              
              CNG
                station
                facilities
                and
                construction
              
              CNG
                station
                operation
              
              Vehicle
                conversion
                kits
              
              TotalNet
                  revenue
              
              $
              3,671
              
              $
              8,389
              
              $
              350
              
              $
              4,131
              
              $
              16,541Cost
                  of revenues
              
              
              2,138
              
              
              3,905
              
              
              223
              
              
              2,641
              
              
              8,907Gross
                  profit
              
              
              1,533
              
              
              4,484
              
              
              127
              
              
              1,490
              
              
              7,634Gross
                  margin
              
              
              42
              %
              
              53
              %
              
              36
              %
              
              36
              %
              
              46
              %Operating
                  expenses:Selling
                  expenses
              
              $
              93
              
              $
              33
              
              $
              37
              
              $
              131
              
              $
              294General
                  and administrative expenses
              
              
              258
              
              
              1,073
              
              
              102
              
              
              542
              
              
              1,975Total
                  operating expense
              
              
              351
              
              
              1,106
              
              
              139
              
              
              673
              
              
              2,269Income
              
              $
              1,182
              
              $
              3,378
              
              $
              (12
              )
              $
              817
              
              $
              5,365
 
 Six months ended March 31,
                2007
                  (unaudited)
              
              Non-standard
                pressure
                containers
              
              CNGstation
                facilitiesand
                construction
              
              CNG
                station
                operation
              
              TotalNet
                  revenue
              
              $
              1,896
              
              $
              3,359
              
              $
              -
              
              $
              5,255Cost
                  of revenues
              
              
              1,212
              
              
              1,310
              
              
              -
              
              
              2,522Gross
                  profit
              
              
              684
              
              
              2,049
              
              
              -
              
              
              2,733Gross
                  margin
              
              
              36
              %
              
              61
              %
              
              
              
              
              52
              %Operating
                  expenses:Selling
                  expenses
              
              $
              30
              
              $
              48
              
              $
              -
              
              $
              78General
                  and administrative expenses
              
              
              365
              
              
              522
              
              
              360
              
              
              1,247Total
                  operating expense
              
              
              395
              
              
              570
              
              
              360
              
              
              1,325Income
                  (loss) from operations
              
              $
              289
              
              $
              1,479
              
              $
              (360
              )
              $
              1,408
 
 *Net
        Revenue.* Net
        revenue for the six months ended March 31, 2008 (the first half fiscal year
        2008) was approximately $16.5 million, a 214.8% increase from the net revenue
        of
        approximately $5.3 million for the six months ended March 31, 2007 (the first
        half fiscal year 2007). This increase resulted primarily from the vehicle
        conversion kit business, which generated revenue of $4.1 million, or 25%
        of
        sales in the first half fiscal year 2008; and the revenue generated from
        CNG
        station operation of $350,000, or 2.1% of the sales in the first half fiscal
        year 2008.
  48




*Cost
      of Revenue.* The cost
      of revenue for the first half fiscal year 2008 was approximately $8.9 million
      compared with $2.5 million in the same period of 2007, representing a 253%
      increase. The overall cost of sales increase is primarily the result of the
      following factors:




·
            The
                non-standard pressure container business and CNG station facilities
                and
                construction business: In the first half fiscal year 2008, the cost
                of
                sales increased with the increase of
                revenue.




·
            The
                vehicle conversion kits business incurred $2.6 million or 30% of
                the total
                cost of sales in the first fiscal half year 2008, while there was
                no
                comparable amount in the same period of 2007.





*Operating
      Expenses.* Operating
      expenses were approximately $2.3 million in the first half fiscal year 2008,
      an
      increase of $1.3 million, or 77%, compared with the same period of 2007. The
      increase in operating expenses primarily relates to the following
      factors:





·
            $626,000
                of selling, general and administrative expenses associated with the
                vehicle conversion kits segment in the first half fiscal year 2008.
                This
                segment commenced operations in April 2007, and, accordingly, there
                was no
                comparable expense in the same period of
                2007.




·
            $194,294
                of general and administrative expenses associated with the stock
                options
                granted and the amortization of the note
                issued.




·
            $446,000
                increase in selling, general and administrative expenses associated
                with
                the CNG station facilities and construction with the increase of
                revenue.




*Income
      from Operations.* Income
      from operations was approximately $5.4 million for the first half fiscal year
      2008, compared with approximately $1.4 million in the same period of 2007 and
      resulted from the above mentioned factors.





*Other
      Income.* Other
      income was approximately $15,000 for the first half fiscal year 2008, and
      primarily relates to revenues generated from land rental.





*Interest
      Expense* .
      In the
      first half fiscal year 2008, interest expense was approximately $1,420,000.
      In
      the first half fiscal year 2008, we incurred interest cost of approximately
      $2,212,023 in connection with the $14 million PRC bank loan, the $16 million
      12%
      guaranteed senior notes, and the $14 million 3% guaranteed convertible
      notes, including non-cash interest costs
      of  $756,000 of which approximately $792,023 was capitalized. The
      un-capitalized portion is reflected as interest expense.





*Income
      Taxes.* The
      income tax expense for the six months ended March 31, 2008 includes the
      income tax accrued by Sinogas and Yuhan at the income tax rate of 12.5%. As
      Sinogas, Yuhan, and Wuhan Sinoenergy had each received an exemption from
      corporate income tax in the beginning of 2007, there is no income tax accrued
      in
      the first half fiscal year 2007.





49




*Net
      Income* .
      As a
      result of the foregoing, we had net income of $5.2 million, or $0.16 per share
      (basic) and $0.14 per share (diluted), for the first fiscal half year 2008;
      as
      compared with net income of $1.5 million, or $0.06 per share (basic) and
      $0.06 per share (diluted) for the first half fiscal year 2007.





**Liquidity
      and Capital Resources**





At
      March
      31, 2008, we had cash of approximately $4,203,000, an increase of approximately
      $881,000 from September 30, 2007. At March 31, 2008, we had working capital
      of
      approximately $1.2 million and stockholders’ equity of approximately $41.8
      million, compared with a working capital of approximately $24.7 million and
      stockholders’ equity of approximately $32.7 million at September 30,
      2007.





For
      the
      first half fiscal year 2008, we generated cash flow of approximately $30 million
      from our operations, and we used approximately $33 million for investments,
      consisting of payments of approximately $24.6 million for the purchase of
      property, plant and equipment, including the purchase of land use rights, and
      approximately $9 million to purchase a portion of the minority interest in
      some
      of our subsidiaries.





We
      believe that our working capital, together with cash flow generated from our
      operations, will provide us with the funds necessary to continue to develop
      our
      business, which, because of efforts to develop the CNG station business, is
      very
      cash intensive. We will continue to incur capital expenditures for this business
      segment in the future. Because the CNG business in the PRC is a relatively
      new
      industry, it is necessary for us to plan, construct and equip each CNG station
      before we can generate any revenue.





Our
      agreement relating to the issuance of $16 million principal amount of guaranteed
      senior notes and $14 million principal amount of guaranteed senior convertible
      notes have covenants which could impair our ability to raise additional funds
      if
      we require the funds either to develop or expand our present businesses,
      primarily the CNG station business, or to make acquisitions. These covenants
      include the following:




·
            We
                cannot incur any debt unless,
                after giving effect to the borrowing, (i) the fixed charge coverage
                ratio
                would be greater than 2.75 to 1.00 for the first year and 3.5 to
                1.0 if
                the debt is incurred thereafter, and (ii) the leverage ratio would
                not
                exceed 4.25 to 1.00 for the first year and 3.75 to 1.00 if the debt
                is
                incurred thereafter, provided, that certain subsidiaries may continue
                to
                maintain debt under credit facilities of not more than $15,000,000
                for the
                first year and $10,000,000 thereafter, and may incur purchase money
                indebtedness. The fixed charge coverage ratio is the ratio of the
                Company’s earnings before interest, taxes, depreciation and amortization,
                which is generally known as EBITDA, to consolidated interest expense,
                as
                defined. Leverage ratio means the ratio of outstanding debt to EBITDA,
                with the interest component being the consolidated interest expense,
                as
                defined.




·
            We
                must maintain, as of the last day of each fiscal quarter, (i) a fixed
                charge coverage ratio of 1.75 to 1.00 for the first six months, 2.75
                to
                1.00 for the next six months and 3.0 to 1.00 thereafter, (ii) a leverage
                ratio of 7.5 to 1.00 through March 31, 2008, 5.0 to 1.00 from April
                1,
                2008 to September 30, 2008, and 4.5 to 1.00 thereafter, and (iii)
                a
                consolidated subsidiary debt to consolidated net tangible asset ratio
                of
                not more than 0.2 through September 30, 2008 and 0.15
                thereafter.




50




·
            Sinogas
                cannot incur debt under its credit facilities except to the extent
                that
                such debt does not exceed $15.0 million through September 28, 2008
                or
                $10.0 million thereafter.




·
            The
                Company is subject to restriction in paying dividends, purchasing
                its own
                securities or those of our subsidiaries, prepaying subordinated debt,
                and
                making any investment other any investments in itself and its subsidiaries
                engaged in our business and certain other permitted
                investments.




·
            We
                are subject to restrictions on incurring
                liens.




In
      connection with this financing, we paid the lenders a fee of
      $160,000.





**Critical
      Accounting Policies and Estimates**




The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our financial statements which have been prepared in accordance
      with
      accounting principles generally accepted in the United States. The preparation
      of these financial statements requires us to make estimates and judgments that
      affect the reported amounts of assets and liabilities. On an on-going basis,
      we
      evaluate our estimates including the allowance for doubtful accounts and other
      receivables, the valuation and costing of inventory, depreciation of property,
      plant and equipment, impairment of long-lived assets, income taxes and
      contingencies. We base our estimates on historical experience and on other
      assumptions that we believe to be reasonable under the circumstances, the
      results of which form our basis for making judgments about the carrying values
      of assets and liabilities that are not readily apparent from other sources.
      Actual results may differ from these estimates under different assumptions
      or
      conditions.




In
      estimating the collectability of accounts receivable we analyze historical
      write-offs, changes in our internal credit policies and customer concentrations
      when evaluating the adequacy of our allowance for doubtful accounts. Differences
      may result in the amount and timing of expenses for any period if we make
      different judgments or use different estimates.





Inventories
      are comprised of raw materials, work in process, finished goods and low value
      consumable articles and are stated at the lower of cost or market. Substantially
      all inventory costs are determined using the weighted average basis. Costs
      of
      finished goods include direct labor, direct materials, and production overhead
      before the goods are ready for sale as well as license fees payable to Beijing
      Sanhuan. Inventory costs do not exceed net realizable value.




Property,
      plant and equipment are stated at cost. Depreciation is provided principally
      by
      use of the straight-line method over the useful lives of the related assets
      from
      the time when the assets are in service. Expenditures for maintenance and
      repairs, which do not improve or extend the expected useful life of the assets,
      are expensed to operations while major repairs are capitalized. The gain or
      loss
      on disposal of property, plant and equipment is the difference between the
      net
      sales proceeds and the carrying amount of the relevant assets, and, if any,
      is
      recognized in the statements of operations. We perform impairment tests on
      our
      long-term assets at least annually.





Intangible
      assets are reviewed at least annually for impairment, or more frequently if
      we
      have reason to believe that there is impairment. Intangible assets are tested
      by
      comparing net book value of the asset to fair value. Our assumptions about
      fair
      values require significant judgment because broad economic factors, industry
      factors and technology considerations can result in variable and volatile fair
      values.





Goodwill
      represents the excess of purchase price of business combinations over the fair
      value of the net assets acquired and is tested for impairment at least annually
      unless business events indicate an impairment test is required. For example,
      an
      impairment test would be conducted if an asset of significant value was sold
      or
      disposed of in the cost center. The impairment test requires allocating goodwill
      and all other assets and liabilities to assigned reporting units. The fair
      value
      of each reporting unit is estimated and compared to the net book value of the
      reporting unit. If the estimated fair value of the reporting unit is less than
      the net book value, including goodwill, then the goodwill is written down to
      the
      implied fair value of the goodwill through a charge to expense. Because quoted
      market prices are not available for the Company’s reporting units, the fair
      values of the reporting units are estimated based upon several valuation
      analyses, including comparable companies, comparable transactions and premiums
      paid.





51




Revenue
      Recognition – We recognize product sales generally at the time the product
      is shipped. CNG construction and building technical consulting service revenue
      is recognized on the percentage of completion basis. The revenue is measured
      by
      reference to the proportion of construction work completed to the total
      estimated work according to the report provided by technical department of
      the
      Company, and simultaneously, the cost is recognized based on total contracted
      cost and the completion basis. Receivables and payables are recorded
      accordingly. Revenue is presented net of any sales tax and value added
      tax.





Foreign
      Currency Transactions –Our functional currency is Renminbi (“RMB”), which is the
      currency of the PRC, and our reporting currency is United States dollars. Our
      balance sheet accounts are translated into United States dollars at the year-end
      exchange rates prevailing during the periods in which these items arise.
      Translation gains and losses are deferred and accumulated as a component of
      other comprehensive income in stockholders’ equity. Transaction gains and losses
      that arise from exchange rate fluctuations from transactions denominated in
      a
      currency other than the functional currency are included in the statement of
      operations as incurred.




The
      government of the PRC imposes significant exchange restrictions on fund
      transfers out of the PRC that are not related to business operations. These
      restrictions have not had a material impact on our operations because we have
      not previously engaged in any significant transactions that are subject to
      the
      restrictions.





Stock-Based
      Compensation – We grant stock options to employees and stock options or
      warrants to non-employees in non-capital raising transactions for services
      and
      for financing costs. We have adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation,” which establishes
      a fair value method of accounting for stock-based compensation plans. In
      accordance with SFAS No. 123R, the cost of stock options and warrants issued
      to
      employees and non-employees is measured at the grant date based on the fair
      value. The fair value is determined using the Black-Scholes option pricing
      model. The resulting amount is charged to expense on the straight-line basis
      over the period in which the Company expects to receive benefit, which is
      generally the vesting period.





**New
      Accounting Pronouncements**


In
        September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
        No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
        establishes a framework for measuring fair value, and expands disclosures
        about
        fair value measurements. SFAS 157 is effective as of the beginning of the
        first
        fiscal year that begins after November 15, 2007. As such, the Company is
        required to adopt these provisions at the beginning of the fiscal year beginning
        October 1, 2008. The Company is currently evaluating the impact of SFAS 157
        on
        its consolidated financial statements.
 In
          February 2007, the FASB issued Statement of Financial Accounting Standards
          No. 159, “The Fair Value Option for Financial Assets and Financial
          Liabilities” (“SFAS No. 159”), which provides companies with an option
          to report selected financial assets and liabilities at fair value.
          SFAS No. 159’s objective is to reduce both complexity in accounting
          for financial instruments and the volatility in earnings caused by measuring
          related assets and liabilities differently. Generally accepted accounting
          principles have required different measurement attributes for different
          assets
          and liabilities that can create artificial volatility in earnings.
          SFAS No. 159 helps to mitigate this type of accounting-induced
          volatility by enabling companies to report related assets and liabilities
          at
          fair value, which would likely reduce the need for companies to comply
          with
          detailed rules for hedge accounting. SFAS No. 159 also establishes
          presentation and disclosure requirements designed to facilitate comparisons
          between companies that choose different measurement attributes for similar
          types
          of assets and liabilities. SFAS No. 159 requires companies to provide
          additional information that will help investors and other users of financial
          statements to more easily understand the effect of the company’s choice to use
          fair value on its earnings. SFAS No. 159 also requires companies to
          display the fair value of those assets and liabilities for which the company
          has
          chosen to use fair value on the face of the balance sheet.
          SFAS No. 159 does not eliminate disclosure requirements included in
          other accounting standards, including requirements for disclosures about
          fair
          value measurements included in SFAS No. 157 and
          SFAS No. 107. SFAS
          159
          is effective as of the beginning of the first fiscal year that begins after
          November 15, 2007. As such, the Company is required to adopt these provisions
          at
          the beginning of the fiscal year beginning October 1, 2008. The Company
          is
          currently evaluating the impact of SFAS 159 on its consolidated financial
          statements.


In
      December 2007, the FASB issued SFAS No. 141(R), “Business
      Combinations” (“SFAS No. 141(R)”), which requires an acquirer to
      recognize in its financial statements as of the acquisition date (i) the
      identifiable assets acquired, the liabilities assumed, and any noncontrolling
      interest in the acquiree, measured at their fair values on the acquisition
      date,
      and (ii) goodwill as the excess of the consideration transferred plus the
      fair value of any noncontrolling interest in the acquiree at the acquisition
      date over the fair values of the identifiable net assets acquired.
      Acquisition-related costs, which are the costs an acquirer incurs to effect
      a
      business combination, will be accounted for as expenses in the periods in which
      the costs are incurred and the services are received, except that costs to
      issue
      debt or equity securities will be recognized in accordance with other applicable
      GAAP. SFAS No. 141(R) makes significant amendments to other Statements
      and other authoritative guidance to provide additional guidance or to conform
      the guidance in that literature to that provided in SFAS No. 141(R).
      SFAS No. 141(R) also provides guidance as to what information is to be
      disclosed to enable users of financial statements to evaluate the nature and
      financial effects of a business combination. SFAS No. 141(R) is
      effective for financial statements issued for fiscal years beginning on or
      after
      December 15, 2008. Early adoption is prohibited. The adoption of
      SFAS No. 141(R) will affect how the Company accounts for a business
      combination occurring after December 31, 2008.




52




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
      in Consolidated Financial Statements — an amendment of ARB No. 51”
(“SFAS No. 160”), which revises the relevance, comparability, and
      transparency of the financial information that a reporting entity provides
      in
      its consolidated financial statements by establishing accounting and reporting
      standards that require (i) the ownership interests in subsidiaries held by
      parties other than the parent be clearly identified, labeled, and presented
      in
      the consolidated statement of financial position within equity, but separate
      from the parent’s equity, (ii) the amount of consolidated net income
      attributable to the parent and to the noncontrolling interest be clearly
      identified and presented on the face of the consolidated statement of income,
      (iii) changes in a parent’s ownership interest while the parent retains its
      controlling financial interest in its subsidiary be accounted for consistently
      as equity transactions, (iv) when a subsidiary is deconsolidated, any
      retained noncontrolling equity investment in the former subsidiary be initially
      measured at fair value, with the gain or loss on the deconsolidation of the
      subsidiary being measured using the fair value of any noncontrolling equity
      investment rather than the carrying amount of that retained investment, and
      (v) entities provide sufficient disclosures that clearly identify and
      distinguish between the interests of the parent and the interests of the
      noncontrolling owners. SFAS No. 160 amends FASB No. 128 to
      provide that the calculation of earnings per share amounts in the consolidated
      financial statements will continue to be based on the amounts attributable
      to
      the parent. SFAS No. 160 is effective for financial statements issued
      for fiscal years, and interim periods within those fiscal years, beginning
      on or
      after December 15, 2008. Early adoption is prohibited.
      SFAS No. 160 shall be applied prospectively as of the beginning of the
      fiscal year in which it is initially applied, except for the presentation and
      disclosure requirements, which shall be applied retrospectively for all periods
      presented. The Company has not yet determined the affect on its consolidated
      financial statements, if any, upon adoption of SFAS No. 160.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS No.
      161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No.
      133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
      133”). The objective of SFAS No. 161 is to provide users of financial statements
      with an enhanced understanding of how and why an entity uses derivative
      instruments, how derivative instruments and related hedged items are accounted
      for under SFAS No. 133 and its related interpretations, and how derivative
      instruments and related hedged items affect an entity’s financial position,
      financial performance, and cash flows. SFAS No. 161 requires qualitative
      disclosures about objectives and strategies for using derivatives, quantitative
      disclosures about fair value amounts of and gains and losses on derivative
      instruments, and disclosures about credit-risk-related contingent features
      in
      derivative agreements. SFAS No. 161 applies to all derivative financial
      instruments, including bifurcated derivative instruments (and nonderivative
      instruments that are designed and qualify as hedging instruments pursuant to
      paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted for
      under SFAS No. 133 and its related interpretations. SFAS No. 161 also amends
      certain provisions of SFAS No. 131. SFAS No. 161 is effective for financial
      statements issued for fiscal years and interim periods beginning after November
      15, 2008, with early application encouraged. SFAS No. 161 encourages, but does
      not require, comparative disclosures for earlier periods at initial adoption.
      The Company has not yet determined the affect on its consolidated financial
      statements, if any, upon adoption of SFAS No. 161.





**Item
      3. Controls and Procedures**




Under
      the
      supervision and with the participation of management, our chief executive
      officer and chief financial officer have carried out an evaluation of the
      effectiveness of our disclosure controls and procedures, as such term is defined
      under Rune 13a-15(e) promulgated under the Securities Exchange Act of 1934,
      as
      amended. Based upon that evaluation, our chief executive officer and chief
      financial officer concluded that there were material weaknesses in our internal
      controls over financial reporting as of the end of the period covered by this
      report. Our chief executive officer and chief financial officer identified
      weaknesses related to our accounting personnel’s ability to identify accounting
      and disclosure issues, calculate accounting entries, and prepare financial
      statements and footnotes in accordance with U.S. GAAP. We, addressing these
      issues by reviewing and revising our internal accounting policies and
      procedures, expanding the resources allocated to our accounting department,
      and
      hiring outside accounting advisors. We expects resolution of these matters
      may
      take several months. Based on the foregoing, the certifying officers have
      concluded that our disclosure controls and procedures are not effective at
      this
      time.




There
      were no changes in our internal controls over financial reporting during the
      quarterly period covered by this report that materially affected, or are
      reasonable likely to materially affect, our internal controls over financial
      reporting.




53




**PART
      II. OTHER INFORMATION**





**Item
      6.**  **Exhibits
      and Reports on Form 8-K**




31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act32.1
            Certification
                of Chief Executive and Financial Officer pursuant to Section 906
                of the
                Sarbanes-Oxley Act




54


**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


SINOENERGY
                  CORPORATION.(Registrant)Dated:
                  May 20, 2008
              s/
                  Bo HuangBo
                  Huang, Chief Executive Officers/
                  Qiong (Laby) WuDated:
                  May 20, 2008
              Qiong
                  (Laby) Wu, Chief Financial
                  Officer




55