**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





**December
      31, 2007**


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 No.)





1603-1604,
                Tower B Fortune Centre Ao City, Beiyuan Road, Chaoyang District,
              Beijing
                China, 100107(Address
                of principal executive offices)Issuer’s
                telephone number: +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
      February 14, 2007, there were  31,418,065  shares
      of
      the common stock, par value $.001 per share, outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o  No
x











**SINOENERGY
      CORPORATION AND SUBSIDIARIES**





PagePart
                I. Financial InformationItem
                1. Consolidated Financial StatementsConsolidated
                balance sheets as of December 31, 2007 (unaudited) and September
                30,
                2007(audited)
            
            
            2Unaudited
                Consolidated statements of operations for the three months ended
                December
                31, 2007 and 2006
            
            
            3Unaudited
                consolidated statement of stockholders’ equity for the three months ended
                December 31, 2007 and the nine months ended September 30,
                2007
            
            
            4Unaudited
                consolidated statements of cash flows for the three months ended
                December
                31, 2007 and 2006
            
            
            5Notes
                to the consolidated financial statements
            
            
            6Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            
            36Item
                3. Controls and Procedures
            
            
            47Part
                II. Other Information
            
            
            47Item
                6. Exhibits
            
            
            47





1





**Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Balance Sheets**


**(In
      thousands of United States dollars)**


December
                31, 2007
            
            September
                30, 2007**ASSETS**
            
            Notes
            
            Unaudited
            
            AuditedCURRENT
                ASSETSCash
            
            
            
            
            
            10,462
            
            
            3,322Restricted
                cash
            
            
            3
            
            
            821
            
            
            1,225Accounts
                receivable (net)
            
            
            4-Related
                party
            
            
            
            
            
            121
            
            
            169-Third
                party
            
            
            
            
            
            8,370
            
            
            5,827Other
                receivables
            
            
            5-Related
                party
            
            
            
            
            
            333
            
            
            332-Third
                party
            
            
            
            
            
            8,060
            
            
            33,594Deposits
                and prepayments-third party
            
            
            6(1
            )
            
            5,792
            
            
            2,795Deferred
                expenses
            
            
            
            
            
            89
            
            
            58Inventories
            
            
            7
            
            
            2,663
            
            
            2,901TOTAL
                CURRENT ASSETS
            
            
            
            
            
            36,711
            
            
            50,223LONG
                TERM ASSETSLong
                term investments
            
            
            8
            
            
            1,246
            
            
            1,592Property,
                plant and equipment (net)
            
            
            9
            
            
            17,892
            
            
            8,388Intangible
                assets
            
            
            10
            
            
            24,710
            
            
            18,531Other
                long-term assets
            
            
            6(2
            )
            
            12,112
            
            
            9,599Goodwill
            
            
            11
            
            
            758
            
            
            729Long
                term deferred tax asset
            
            
            
            
            
            4
            
            
            4TOTAL
                ASSETS
            
            
            
            
            
            93,433
            
            
            89,066**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**CURRENT
                LIABILITIESShort
                term bank loan
            
            
            12
            
            
            14,375
            
            
            14,843Accounts
                payable-
                Related party
            
            
            
            
            
            -
            
            
            --
                Third party
            
            
            
            
            
            2,488
            
            
            3,166Notes
                payable
            
            
            
            
            
            821
            
            
            799Other
                payables
            
            
            13-
                Related party
            
            
            
            
            
            2,005
            
            
            3,679-
                Third party
            
            
            
            
            
            4,825
            
            
            1,502Accrued
                expenses
            
            
            
            
            
            144
            
            
            319Warranty
                accrual
            
            
            
            
            
            93
            
            
            76Advances
                from customers
            
            
            14
            
            
            1,024
            
            
            1,035Income
                taxes payable
            
            
            15
            
            
            -
            
            
            119TOTAL
                CURRENT LIABILITIES
            
            
            
            
            
            25,775
            
            
            25,538LONGTERM
                LIABILITIES12%
                guaranteed senior notes
            
            
            16
            
            
            16,121
            
            
            15,6223%
                guaranteed senior convertible notes
            
            
            16
            
            
            10,978
            
            
            13,823TOTAL
                LONG TERM LIABILITIES
            
            
            
            
            
            27,099
            
            
            29,445Minority
                interests
            
            
            17
            
            
            1,475
            
            
            1,363Commitments
            
            
            23STOCKHOLDERS’
                EQUITYCommon
                stock- par value$.001 per share; Issued and Outstanding- 31,418,065
                shares
                at December 31, 2007, 14,636,472 shares at December 31, 2006
            
            
            21
            
            
            31
            
            
            31Series
                A convertible preferred stock-$0.001 Par Value -none at December
                31, 2007,
                5,692,307 shares at December 31, 2006
            
            
            21
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            21
            
            
            25,077
            
            
            22,000Capital
                surplus
            
            
            
            
            
            20
            
            
            20Statutory
                surplus reserve fund
            
            
            19
            
            
            1,140
            
            
            1,140Retained
                earnings
            
            
            
            
            
            10,536
            
            
            8,217Accumulated
                other comprehensive income
            
            
            
            
            
            2,280
            
            
            1,312Total
                stockholders’ equity
            
            
            
            
            
            39,084
            
            
            32,720TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            
            
            
            
            93,433
            
            
            89,066




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




2





**Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Statements of Operations (Unaudited)**


**** **(In
      thousands of United States dollars except per share
      information)**




Three
                Months Ended December 31,Notes
            
            2007
            
            2006NET
                REVENUE
            
            
            
            
            
            8,807
            
            
            2,629COST
                OF REVENUE
            
            
            
            
            
            (4,896
            )
            
            (931
            )GROSS
                PROFIT
            
            
            
            
            
            3,911
            
            
            1,698OPERATING
                EXPENSESSelling
                expenses
            
            
            
            
            
            156
            
            
            38General
                and administrative expenses
            
            
            
            
            
            1,008
            
            
            665TOTAL
                OPERATING EXPENSES
            
            
            
            
            
            1,164
            
            
            703INCOME
                FROM OPERATIONS
            
            
            
            
            
            2,747
            
            
            995OTHER
                INCOME(EXPENSES)Investment
                loss
            
            
            
            
            
            (20
            )
            
            -Other
                non-operating income
            
            
            
            
            
            145
            
            
            69Interest
                expense
            
            
            
            
            
            (560
            )
            
            (63
            )Other
                expenses
            
            
            
            
            
            (1
            )
            
            (31
            )OTHER
                LOSS NET
            
            
            
            
            
            (436
            )
            
            (25
            )`INCOME
                BEFORE INCOME TAXES
            
            
            
            
            
            2,311
            
            
            970Income
                tax recovery
            
            
            15
            
            
            120
            
            
            109INCOME
                BEFORE MINORITY INTEREST
            
            
            
            
            
            2,431
            
            
            1,079Minority
                interest
            
            
            
            
            
            (112
            )
            
            37NET
                INCOME
            
            
            
            
            
            2,319
            
            
            1,116Other
                comprehensive incomeForeign
                currency translation adjustments
            
            
            
            
            
            968
            
            
            5COMPREHENSIVE
                INCOME
            
            
            
            
            
            3,287
            
            
            1,121Earnings
                Per Share -Basic
            
            
            22
            
            
            0.07
            
            
            0.08Weighted
                Average Shares Outstanding- Basic
            
            
            
            
            
            31,418,065
            
            
            14,636,472Earnings
                Per Share-Diluted
            
            
            
            
            
            0.06
            
            
            0.06Weighted
                Average Shares Outstanding- Diluted
            
            
            
            
            
            37,821,413
            
            
            19,286,902


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




3




**Sinoenergy
      Corporation and Subsidiaries**


**Consolidated
      Statements of Changes in Stockholders’ Equity**


**(In
      thousands of United States dollars)**





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
                Earning
            
            Capital
                Surplus
            
            Total
                Stock-
              holder’s
                equityBalance,
                December 31, 2006
            
            14,636,472
            
            15
            
            6
            
            9,935
            
            1,140
            
            348
            
            4,576
            
            20
            
            16,040Issuance
                of common stock on conversion of series A preferred stock
            
            
            5,692,307
            
            
            6
            
            
            (6
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            0Issuance
                of common stock on exercise of warrants
            
            
            11,089,286
            
            
            10
            
            
            
            
            
            11,316
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,326Amortizable
                discount of 3% guaranteed senior convertible notes
            
            
            
            
            
            
            
            
            
            
            
            176
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            176Warrants
                for service cost
            
            
            
            
            
            
            
            
            
            
            
            65
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            65Stock
                options cost
            
            
            
            
            
            
            
            
            
            
            
            508
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            508Net
                income for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,641
            
            
            
            
            
            3,641Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            964
            
            
            
            
            
            
            
            
            964**Balance,
                September 30, 2007**
            
            
            31,418,065
            
            
            31
            
            
            -
            
            
            22,000
            
            
            1,140
            
            
            1,312
            
            
            8,217
            
            
            20
            
            
            32,720Warrants
                for service cost
            
            
            
            
            
            
            
            
            
            
            
            46
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            46Stock
                options cost
            
            
            
            
            
            
            
            
            
            
            
            72
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            72Amortizable
                discount of 3% guaranteed senior convertible notes
            
            
            
            
            
            
            
            
            
            
            
            2,959
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,959Net
                income for the period
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,319
            
            
            
            
            
            2,319Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            968
            
            
            
            
            
            
            
            
            968**Balance,
                December 31, 2007**
            
            
            31,418,065
            
            
            31
            
            
            -
            
            
            25,077
            
            
            1,140
            
            
            2,280
            
            
            10,536
            
            
            20
            
            
            39,084





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




4




**Sinoenergy
      Corporation and Subsidiaries**


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


**(In
      thousands of United States dollars)**




Three
                Months Ended December 31,2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            
            2,319
            
            
            1,116Amortization
                of warrants for service
            
            
            46
            
            
            -Amortization
                of options
            
            
            72
            
            
            30Amortization
                of notes discount
            
            
            28
            
            
            -Interest
                expense for long term notes issued
            
            
            585
            
            
            -Minority
                interest
            
            
            112
            
            
            (36
            )Depreciation
                of property, plant and equipment
            
            
            140
            
            
            102Amortization
                of intangible assets
            
            
            244
            
            
            58Provision
                for doubtful accounts
            
            
            90
            
            
            94Changes
                in operating assets and liabilities:(Increase)
                in accounts receivable
            
            
            (2,595
            )
            
            (398
            )(Increase)
                decrease in other receivables, deposits and prepayments
            
            
            (7,325
            )
            
            2,480Decrease
                in inventories
            
            
            238
            
            
            356(Decrease)
                increase in accounts payable
            
            
            (656
            )
            
            40(Decrease)
                increase in accrued expenses
            
            
            (158
            )
            
            36(Decrease)
                in advances from customers
            
            
            (11
            )
            
            (183
            )Increase
                in other payables
            
            
            3,020
            
            
            948(Decrease)
                in income tax payable
            
            
            (119
            )
            
            (101
            )Net
                cash (used in ) operating activities
            
            
            (3,970
            )
            
            4,542CASH
                FLOWS FROM INVESTING ACTIVITESPayment
                for purchase of property, plant and equipment
            
            
            (9,646
            )
            
            (2,436
            )Payment
                for purchase of land use right
            
            
            (6,423
            )
            
            (4,059
            )Purchase
                of minority interest in subsidiaries
            
            
            (1,023
            )
            
            -Other
                payment for investment activities
            
            
            (2,542
            )Other
                receipts from investments
            
            
            -
            
            
            134Net
                cash used in investing activities
            
            
            (19,634
            )
            
            (6,361
            )CASH
                FLOWS FROM FINANCING ACTIVITESCash
                received from bank loan
            
            
            -
            
            
            371Cash
                received from notes issued
            
            
            29,840
            
            
            -Cash
                Received for other financing activities
            
            
            -
            
            
            399Cash
                paid for Bank loan
            
            
            (468
            )
            
            -Net
                cash received in financing activities
            
            
            29,372
            
            
            770Effect
                of changes in exchange rate
            
            
            968
            
            
            5Net
                increase (decrease) in cash
            
            
            6,736
            
            
            (1,044
            )Cash
                at beginning of the year
            
            
            4,547
            
            
            1,632Cash
                at end of the year
            
            
            11,283
            
            
            588Supplementary
                Cash flow disclosure:Non-
                cash investing and financing activities:Increase
                in additional paid in capital owning to
              beneficial
                conversion features recording
            
            
            2,959
            
            
            -Decrease
                in 3% guaranteed senior convertible notes
              owing
                to beneficial conversion features recording
            
            
            (2,959
            )
            
            -Interest
                Paid
            
            
            255
            
            
            63




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





5








Notes
      to
      Consolidated Financial Statements





**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”). Its corporate
      name was changed to Sinoenergy Corporation on September 28, 2006.




On
      June
      2, 2006, Sinoenergy (then known as Franklyn) 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 described
                below.




·
            In
                connection with the acquisition of Sinoenergy Holding, we entered
                into a
                securities purchase agreement, as amended on July 6, 2006, the Company
                issued and sold, for $3,700,000, its 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 $.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 are 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.




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




6







On
      September 28, 2006, the Company filed a certificate of designation setting
      forth
      the rights, preferences, privileges and limitations of the series A convertible
      preferred stock. As a result of the filing of the restated articles of
      incorporation and the certificate of designation for the series A preferred
      stock, the 6% convertible notes were automatically converted into an aggregate
      of 5,692,307 shares of series A preferred stock.





At
      December 31, 2007, all of the shares of Series A Preferred Stock had been
      converted into shares of common stock.





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





On
      September 1, 2007, the Company entered into a note purchase agreement (the
“Note
      Purchase Agreement”) with Abax Lotus Ltd. and CCIF Petrol Limited pursuant to
      which, on September 28, 2007, 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. These notes and the related agreements are described in Note 16
      of
      10KSB for the transition period from January 1, 2007 to September 30, 2007.
      On
      October 8, $29,839,985 was received by the Company for the notes
      issued.





**(c)
      Change of Fiscal Year**





In
      late
      September 2007, the Company changed our fiscal year to the year ended September
      30. The change in our fiscal year will be effective commencing with the fiscal
      year beginning October 1, 2007.





**(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 is owned by Tianzhou
      Deng and Bo Huang, and Eastpride Capital Limited, a British Virgin Islands
      corporation owned by Wentao Yang (“Eastpride”), with the result that 90% shares
      of the Corporation were held by Skywide and 10% share of the Corporation were
      held by Eastpride. Pursuant to that 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
      at
      December 31, 2007, Sinogas and Sinoenergy Holding together own 90% of the equity
      of Wuhan Sinoenergy Gas Company, 90% 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”), 55%
      equity of Hubei Gather Energy Company (“Hubei Gather”), and we are a 45% equity
      owner of Anhui Gather Energy Company (“Anhui Gather”).




7





**(e)
      Subsidiaries of the Company**





*Siongas* was
      established in Qingdao China in October 29, 2004, and mainly engaged in the
      production of CNG facilities and equipment, technical consulting service to
      CNG
      filling station construction as well as manufacturing of CNG vehicle conversion
      kit system. In September 2007, an Equity Transferring Agreement and a Deputy
      Shareholding Agreement were signed between Sinoenergy Holding and Shanghai
      CNPC
      Enterprises Group (Shanghai CNPC Enterprise), pursuant to which Sinoenergy
      would
      agree to transfer 51% equity of Sinogas to Shanghai CNPC Enterprise, Shanghai
      CNPC Enterprise would be the deputy share holder of Sinoenergy Holding to hold
      the 51% of equity of Siongas in trust for Sinoenergy Holding. Sinoenergy Holding
      would 100% beneficial owner of Sinogas. Pursuant to the agreement, Sinoenergy
      Holding agreed to pay Shanghai CNPC Enterprise annual fee of RMB 200,000 for
      every five years. In December 2007, the PRC government approved the share
      holding transferring and new business licenses was issued.





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





*Wuhan
      Sinoenergy* was
      establish on August 2, 2006 with 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 with 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* ,
      a
      Chinese company engages in the designing and manufactures 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 vehicles production. On March 2007,
      the
      Company purchased a 60% interest in Lixun from its shareholders for
      approximately $390,000, and on July 27, the Company injected another $400,000
      capital to Lixun, and in turn totally owns 70% equity of Lixun.





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





*Xuancheng
      Sinoenergy* ,
      Xuancheng Sinoenery was established on March 26, 2007 with 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. During its corporation, Shanghai CNPC owned 70%
      interest and Sinogas owned 30% interest. On July 26, 2007 the Company and
      Shanghai CNPC singed equity purchase agreement (the agreement). Pursuant to
      the
      agreement, the Company would acquired 70% equity from Shanghai CNPC. On November
      6, 2007, the acquisition was completed and the Company wholly owns 100% of
      Xuancheng Sinoenergy.




8







*Jinrun* ,
      On
      August 28, 2007, the Company entered into an Equity Purchase Agreement to
      acquire 100% of the equity of Qingdao Jingrun General Machinery Company
      (“Jingrun”). Under the terms of the agreement, Jingrun’s shareholder will
      receive approximately $4.2 million, for all of the assets of Jingrun, and the
      Company would paid another $4.3 million paid in capital to Jinrun. The principal
      asset of Jingrun is the land use right and workshop. On December 15, 2007, the
      equity purchase deal closed and PRC government approved the acquisition and
      issued a new business license to Jinrun.





*Anhui
      Gather* , Anhui
      Gather was incorporated on March 23, 2007, with Hong Kong China New Energy
      Development Investment Co. Ltd owning 55% equity and Tianjin Green Fuel owning
      45% equity. On July 4, 2007, the Company purchased the 45% equity of Anhui
      Gather, which had been owned by Green Fuel, for $2,750,000, of which $844,330
      would be paid to Green Fuel for capital paid and its costs incurred in obtaining
      the right to receive 200 million cubic meters natural gas quota from Sinopec,
      and $1,905,670 would be paid to Anhui Gather as unpaid capital. As of December
      31, 2007, we had paid $844,330 to Green Fuel and $421,929 paid in capital to
      Anhui Gather.





**(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/CNG
      station construction; operates natural gas process plants and CNG vehicle
      filling stations. It 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 container has been
      conducted by the Sinogas since its organization. This business is a traditional
      chemical equipment manufacture business with low profit margin. It includes
      design and manufacture 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 (“CNG Station Facilities and
      Construction”)**





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





·  CNG
      trailers


·  CNG
      deposited system for gas station usage


·  CNG
      compressor skid


·  Some
      other CNG facilities and equipment fittings





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


·  Designing for LPG./CNG stations


·  Technical consulting for equipment choosing and matching




9





·  CNG
      station running adjusting





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





(1)
      Construction and operation of CNG station





In
      June
      2006, the Company developed a plan to develop and operate of natural gas filling
      stations and build and operate natural gas process plants in Central and East
      China. This business is currently our principal business. The Company is
      planning 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, another one filling station in Xuancheng City began its trying
      operation.





(2)
      Wholesale distribution of natural gas





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





The
      secured natural gas quota is the guarantee of our natural gas process and whole
      sale business. As of the end of September 2007, both Hubei Gather and Anhui
      Gather are under development stage.





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





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





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


·  CNG
      vehicle conversion kits installation and sale;





The
      Company is subject to the consideration and risks of operating in the PRC.
      These
      include risks associated with the political and economic environment, foreign
      currency exchange and the legal system in the PRC. The economy of the PRC
      differs significantly from the economies of the “western” industrialized nations
      in such respects as structure, level of development, gross national product,
      growth rate, capital reinvestment, resource allocation, self-sufficiency, rate
      of inflation and balance of payments position, among others. Only recently
      has
      the PRC government encouraged substantial private economic activities. The
      Chinese economy has experienced significant growth in the past several years,
      but such growth has been uneven among various sectors of the economy and
      geographic regions. Actions by the PRC government to control inflation have
      significantly restrained economic expansion in the recent past. Similar actions
      by the PRC government in the future could have a significant adverse effect
      on
      economic conditions in PRC.





Many
      laws
      and regulations dealing with economic matters in general and foreign investment
      in particular have been enacted in the PRC. However, the PRC still does not
      have
      a comprehensive system of laws, and enforcement of the existing laws may be
      uncertain and sporadic.




10







The
      Company’s operating assets and primary sources of income and cash flows are of
      interests in the PRC. The PRC economy has, for many years, been a
      centrally-planned economy, operating on the basis of annual, five-year and
      ten-year state plans adopted by central PRC governmental authorities, which
      set
      out national production and development targets. The PRC government has been
      pursuing economic reforms since it first adopted its “open-door” policy in 1978.
      There is no assurance that the PRC government will continue to pursue economic
      reforms or that there will not be any significant change in its economic or
      other policies, particularly in the event of any change in the political
      leadership of, or the political, economic or social conditions in, the PRC.
      There is also no assurance that the Company will not be adversely affected
      by
      any such change in governmental policies or any unfavorable change in the
      political, economic or social conditions, the laws or regulations, or the rate
      or method of taxation in the PRC. Further, the Company is subject to price
      controls on both the price at which it purchases natural gas and the price
      at
      which it can sell natural gas.





As
      many
      of the economic reforms which have been or are being implemented by the PRC
      government are unprecedented or experimental, they may be subject to adjustment
      or refinement, which may have adverse effects on the Company. Further, through
      state plans and other economic and fiscal measures, it remains possible for
      the
      PRC government to exert significant influence on the PRC economy.





On
      January 1, 1994, the PRC government introduced a single rate of exchange as
      quoted daily by the People’s Bank of China. Subsequently in 2005, the PRC
      government introduced a certain floating rate of exchange. No representation
      is
      made that the RMB amounts have been, or could be, converted into United States
      dollars at that or any rate. This quotation of exchange rates does not imply
      free convertibility of RMB to other foreign currencies. All foreign exchange
      transactions continue to take place either through the Bank of China or other
      banks authorized to buy and sell foreign currencies at the exchange rate quoted
      by the People’s Bank of China. Approval of foreign currency payments by the
      People’s Bank of China or other institutions requires submitting a payment
      application form together with suppliers’ invoices, shipping documents and
      signed contracts.





**2.** **Summary
      of Significant Accounting Policies**





Basis
      of Presentation





The
      accompanying financial statements of the Company and its subsidiaries were
      prepared in accordance with the accounting principles generally accepted in
      the
      United States of America (“GAAP”).





Principles
      of consolidation





The
      accompanying consolidated financial statements include the financial statements
      of Sinoenergy Corporation and its wholly owned subsidiaries and majority owned
      subsidiaries. All significant inter-company 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 allowance for doubtful
      accounts and other receivables, impairment, valuation of warrants and options,
      inventory, accruals etc.. Actual results could differ from those
      estimates.




11





Goodwill





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. The goodwill on the Company’s financial statements was a result of the
      Yuhan, Jiaxing and Xuancheng acquisition, and relates entirely to the pressure
      container reporting segment.





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
      December 31, 2007 and 2006, 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. If circumstances related to customers change, estimates of the
      recoverability of receivables would be further adjusted.





Inventories





Inventories
      comprise 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 which the Company owns less than 50%
      and
      over 20% of the investee companies and does not have the ability to control
      but
      have the ability to exert significant influence are stated at equity
      method.







Property,
      Plant and Equipment




12





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 right, 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 Sinogas’
facilities are located is recorded as an intangible asset.





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 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.





Revenue
      Recognition





Revenue
      Recognition - The Company recognizes revenue when the significant risks and
      rewards of ownership have been transferred to the customer pursuant to PRC
      law,
      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. 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.




13







Value
      Added and Business Taxes - The Company is subject to value added tax (“VAT”) for
      manufacturing products and business tax for services provided. The applicable
      VAT tax rate is 17% for products sold in the PRC, and the business tax rate
      is
      5% for services provided in PRC. The amount of VAT liability is determined
      by
      applying the applicable tax rate to the invoiced amount of goods sold (output
      VAT) less VAT paid on purchases made with the relevant supporting invoices
      (input VAT). VAT is collected from customers by the Company on behalf of the
      PRC
      tax authorities and is therefore not charged to 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 its experience and industry
      practice, the Company determined that the warranty rate is 0.2 % of gross sales.





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.





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





Advertising,
      Shipping and Handling Costs





Advertising,
      shipping and handling costs if any, are expensed as incurred.





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 the reporting
      period. 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.




14







For
      certain financial instruments, including cash, account 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





The
      minority interest refers to the percentage of a subsidiary which is not owned
      by
      the Company. The Company eliminates 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.





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 year by the
      weighted average number of shares of common stock outstanding for the year.
      Diluted earnings per share reflects the potential dilution of securities by
      including shares of common stock issuable upon exercise or conversion of series
      A preferred stock, stock options granted and warrants, in the weighted average
      number of common shares outstanding for a period, if dilutive.





Comprehensive
      Income and 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.




15







The
      Company’s only component of other comprehensive income (loss) is foreign
      currency translation gain of $968,000 and $5,000 for the three months ended
      December 31, 2007 and 2006, respectively. This foreign currency translation
      gain
      has been recorded as a separate component of stockholders’ equity.





**New
      Accounting Pronouncements**





In
      May
      2005, The FASB issued Statement No. 154, “Accounting Changes and Error
      Corrections,” a replacement of APB Opinion 20, “Accounting Changes” and FASB
      Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.”
This statement changes the requirements for the accounting for and reporting
      of
      a change in accounting principle. APB Opinion 20 previously required that most
      voluntary changes in accounting principles be recognized by including in net
      income of the period of the change the cumulative effect of changing to the
      new
      accounting principal. FASB Statement No. 154 requires retrospective application
      to prior periods’ financial statements of changes in accounting principle,
      unless it is impracticable to determine either the period specific effects
      or
      the cumulative effect of the change. This statement is effective for accounting
      changes and corrections of errors made in fiscal periods that begin after
      December 15, 2005. Management does not anticipate this statement will impact
      the
      Company’s consolidated financial position or consolidated results of operations
      and cash flows.





In
      February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments,” an amendment of FASB Statement No.133, “Accounting for
      Derivative Instruments and Hedging Activities” and FASB Statement No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities.” This Statement permits fair value re measurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation; clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of Statement No. 133, establishes
      a
      requirement to evaluate interests in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation; clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives and amends Statement 140 to eliminate the prohibition on a
      qualifying special purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. Management does not anticipate this Statement will impact the
      Company’s consolidated financial position or consolidated results of operations
      and cash flows.





In
      March
      2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets,” an amendment of FASB Statement No. 140, “Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities.” This
      Statement amends Statement No. 140 with respect to the accounting for separately
      recognized servicing assets and servicing liabilities. Management does not
      anticipate this Statement will impact the Company’s consolidated financial
      position or consolidated results of operations and cash flows.





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements.” 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 ended December 31, 2008.
      The Company is currently evaluating the impact of SFAS 157 on its consolidated
      financial statements.




16





In
      September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans,” which amended several other
      FASB Statements. SFAS 158 requires recognition in the balance sheet of the
      funded status of defined benefit pension and other postretirement benefit plans,
      and the recognition in other comprehensive income of unrecognized gains or
      losses and prior service costs or credits arising during the period.
      Additionally, SFAS 158 requires the measurement date for plan assets and
      liabilities to coincide with sponsor’s year-end. The Company has adopted a
      defined contribution plan as required in the PRC, and, accordingly we do not
      believe that the adoption of SFAS 158 will have any impact on us.





The
      FASB
      issued FASB Interpretation No.(“FIN”) 48, “Accounting for Uncertainty in Income
      Taxes,” in July 2006 .This interpretation establishes new standards for the
      financial statement recognition, measurement and disclosure of uncertain tax
      positions taken or expected to be taken in income tax returns. Then new rules
      will be effective for Sinoenergy in the first quarter of 2008. We continue
      to
      evaluate the impact of this interpretation, and do not anticipate its adoption
      will have a material effect on our financial statements.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) 108,
“Considering the Effects of Prior Year Misstatements when quantifying
      misstatements in Current Year Financial Statements,” which eliminated the
      diversity in practice surrounding the quantification and evaluation of financial
      statement errors. The guidance outlined in SAB 108 is effective for Sinoenergy
      and is consistent with our historical practices for assessing such matters
      when
      circumstances have required such an evaluation. Accordingly, we do not believe
      that adoption of SAB 108 will have any impact on us.





In
      February 2007, the FASB issued SFAX 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities-Including an Amendment of SFAS 115,” which
      allows for the option to measure financial instruments and certain other items
      at fair value. Unrealized gains and losses on items for which the fair value
      option has been elected are reported in earnings. We do not presently have
      any
      financial assets or liabilities that we would elect to measure at fair value,
      and therefore we expect this standard will have no impact on our financial
      statements.





In
      December 2007, the FASB issued FASB 141(R), “Business Combinations” of which the
      objective is to improve the relevance, representational faithfulness, and
      comparability of the information that a reporting entity provides in its
      financial reports about a business combination and its effects. , the new
      standard requires the acquiring entity in a business combination to recognize
      all (and only) the assets acquired and liabilities assumed in the transaction;
      establishes the acquisition-date fair value as the measurement objective for
      all
      assets acquired and liabilities assumed; and requires the acquirer to disclose
      to investors and other users all of the information they need to evaluate and
      understand the nature and financial effect of the business
      combination.





In
      December 2007, the FASB issued FASB 160 “Noncontrolling Interests in
      Consolidated Financial Statements—an amendment of ARB No.51” of which the
      objective is to improve 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 by
      requiring all entities to report noncontrolling (minority) interests in
      subsidiaries in the same way—as equity in the consolidated financial statements.
      Moreover, Statement 160 eliminates the diversity that currently exists in
      accounting for transactions between an entity and noncontrolling interests
      by
      requiring they be treated as equity transactions.


Both
      the
      FASB 141(R) and FASB 160 are in effective for fiscal years beginning after
      December 15, 2008, we do not believe that adoption of these standards will
      have
      any impact on our financial statements.




17





**3.
      Restricted Cash**





The
      balance as at December 31, 2007, represents $821,000 for a deposit on a bill
      of
      exchange issued by the Company for material purchase.





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





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


December
                31, 2007
              (unaudited)
            
            September
                30, 2007 (audited)Accounts
                receivable
            
            $
            8,869
            
            $
            6,274Less:
                allowance for doubtful accounts
            
            
            378
            
            
            278Balance
            
            $
            8,491
            
            $
            5,996





(a)
      Accounts receivable from related parties





Accounts
      receivable at December 31, 2007 represents $120,569 due from Kangtai, the
      minority stockholder of Yuhan, for sales made by Kangtai on behalf of Yuhan.





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





(b)  Accounts
      receivable from third parties





The
      balance as at December 31, 2007 mainly represents $2,067,191 receivables balance
      from Wuhan Fukang Automotive Cleaning Energy Company for sales of conversion
      kits; $3,056,177 receivables balance for CNG deposit and transportation
      equipment sales; $1,206,911 receivables for a bio-diesel equipments sales
      order.





Of
      the
      balance as at September 30, 2007, $1,417,958 represents receivables balance
      from
      Wuhan Fukang Automotive Cleaning Energy Company for sales of conversion kits;
      $679,907 represents the receivable balance for $1.9 million CNG deposit and
      transportation equipment sales to a petrochemical company in Shanghai; $785,535
      represent receivable balance for CNG station technical supporting and
      construction consulting service provided to a Shanghai company with the total
      sales amount of $1.28 million; $355,643 receivable balance for sales of truck
      trailers to a CNG filling stations company in Inner Mongolia.





**5.
      Other Receivables** **and Allowance for Doubtful Receivables**




18





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


December
                31, 2007
              (unaudited)
            
            September
                30, 2007
              (audited)Other
                receivables
            
            $
            8,429
            
            $
            33,972Less:
                allowance for doubtful accounts
            
            
            36
            
            
            46Balance
            
            $
            8,393
            
            $
            33,926





(a)
      Other
      Receivable from Related Parties





The
      balance  at
      December 31, 2007 represents $182,767 from an unsecured loan due from Kangtai,
      the minority shareholder of Yuhan and $145,595 rental fee receivable from
      Kangtai, which had been paid in January 2008; $4,631 petty cash borrowing by
      Mr.Tanzhou Deng.





The
      balance as at September 30, 2007 represents $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 Party





Other
      receivables from third parties at December 31, 2007 represents primarily
      $1,848,150 due from Shanghai CNPC for short term unsecured loan; $1,369,000
      due
      from Zhongyou Xinxin for unsecured loan, which had been returned in January
      10,
      2008; $1,026,750 due from Beijing Boken Compressor for short term unsecured
      loan; $1,127,904 deposit for CNG transportation vehicle rental; $621,400 due
      from Wuhan Jinyi for unsecured loan which had been returned on January 2008.





The
      other
      receivables with third party as at September 30, 2007 mainly represent the
      net
      proceeds of $15,752,485 from the $16,000,000 12% guaranteed senior notes issued
      and the net proceeds of $13,823,344 from the $14,000,000 3.0% guaranteed senior
      convertible notes issued (see Note 16), all of the funds were received by the
      Company on October 8, 2007; $1,946,530 unsecured loan to Qingdao Jingrun General
      Machinery Company (“Jingrun”), which has been paid back on November 29, 2007;
      $532,566 due from CNPC Xingxing Energy for unsecured loan.





**6(1).
      Deposits and Prepayments**





The
      balance at December 31, 2007 mainly represents $3,227,823 prepayments to
      suppliers for purchasing of raw material of CNG truck trailers manufacturing;
      $905,593.74 deposit for CNG stations’ land rental.





The
      balance as at September 30, 2007 mainly represents a $2,795,000 prepayment
      to a
      raw material suppliers and service providers for routine manufacturing and
      CNG
      stations operating.





**6(2).
      Other long-term assets**





The
      balance at December 31, 2007 represents prepayments for long-lived assets.
      The
      balance mainly represents the following:




19





(a)
            $2,114,987
                prepayments for CNG station equipment purchase. This equipment will
                be
                used to construct CNG filling stations as long-term fixed assets.


(b)
            $1,942,568
                prepayment for land rental for CNG station building and operation;


(c)
            $750,000
                prepayments 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)
            $7,242,364
                prepayment for Qingdao Shanyangtai 100% equity purchase.


(e)
            $61,605
                prepayment 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 represents the following:





(a)
      $3,962,701 prepayments for CNG station equipment from overseas. This equipment
      will be used to construct CNG filling stations as long-term fixed assets.


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


(c)
      $750,000 prepayments 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 prepayment to Shanghai CNPC Enterprises for 70% equity purchase of
      Xuancheng Sinoenergy Vehicle Gas Company;


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





**7.
      Inventories**





Inventories
      at December 31, 2007 and September 30, 2007 are summarized as follows (in
      thousand US dollars):




December
                31, 2007
            
            September
                30, 2007Raw
                materials
            
            $
            2,060
            
            $
            1,936Work
                in progress
            
            
            309
            
            
            538Finished
                goods
            
            
            294
            
            
            426Low
                value consumables
            
            
            -
            
            
            1Total
            
            $
            2,663
            
            $
            2,901





**8.
      Long-term investments**





On
      July
      4, 2007, the Company purchased 45% equity of Anhui Gather owned by Green Fuel
      for $2,750,000. As of December 31, 2007, the Company had paid $1,246,036 for
      the
      equity purchase to Green Fuel and pick up investment loss of $19,891 under
      equity method. As of December 31, 2007, Anhui Gather is in early development
      stage and has not yet commenced operations.




20








**9.
      Property, Plant and Equipment (net)**





As
      of
      December 31, 2007 and September 30, 2007, property, plant and equipment consist
      of following (in thousand US dollars):





December
                31, 2007
            
            September
                30, 2007**Cost**Buildings
                and facility
            
            $
            16,507
            
            $
            7,052Machinery
                equipment
            
            
            1,580
            
            
            1,501Motor
                vehicles
            
            
            702
            
            
            621Office
                equipment and others
            
            
            209
            
            
            180$
            18,998
            
            $
            9,354**Accumulated
                depreciation**Buildings
                and facility
            
            $
            550
            
            
            489Machinery
                equipment
            
            
            458
            
            
            407Motor
                vehicles
            
            
            58
            
            
            39Office
                equipment and others
            
            
            40
            
            
            31$
            1,106
            
            $
            966**Carrying
                value**Buildings
                and facility
            
            $
            15,957
            
            $
            6,563Machinery
                equipment
            
            
            1,122
            
            
            1,094Motor
                vehicles
            
            
            644
            
            
            582Office
                equipment and others
            
            
            169
            
            
            149$
            17,892
            
            $
            8,388





Included
      in the cost of buildings and facility is $12,405,583, representing
      construction-in-process relating to the construction of CNG stations by Wuhan
      Sinoenergy and Pingdingshan Sinoenergy and Xuancheng Sinoenergy, which commenced
      in August 2006, December 2006 and March 2007, respectively.





**10.
      Intangible Assets**





December
                31, 2007
            
            September
                30, 2007**Cost**Patent,
                technology know-how
            
            $
            359
            
            $
            350Land
                use right
            
            
            25,099
            
            
            18,856Total
            
            $
            25,458
            
            
            19,206Accumulated
                amortization
            
            
            (748
            )
            
            (675
            )Carrying
                value
            
            $
            24,710
            
            $
            18,531





Patents
      and technology know how are amortized over 10 years up to September, 2014.
      Included in the cost of patent and know-how, $91,000 is the technical know
      how
      purchased and $226,000 is paid in capital from Kangtai (minority shareholder)
      when the Yuhan was incorporated and $42,000 is the patent and know how of Jiaxin
      Lixun.




21









Kangtai
      (minority shareholder) when the Yuhan was incorporated and
      $42,000 is the patent and know how of Jiaxin Lixun.





The
      land
      use right represent three parcels of land use right purchased by the Company,
      which were recorded by Sinogas, Jinrun and Xuancheng. The land use right was
      amortized under the 50 years, which may be transferable and
      renewal:





Owner
            
            Cost
            
            TermLand
                use right owned by Sinogas
            
            $
            19,328
            
            
            50
                years from May 2007Land
                use right owned by Jinrun
            
            
            4,881
            
            
            50
                years from December 2007Land
                use right owned by Xuancheng Sinoenergy
            
            
            890
            
            
            The
                certificate is under transferring processTotal
            
            $
            25,099




The
      land
      use right owned by Sinogas represents two parcels of land located in central
      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 under the price of RMB 160
      million equals to US$21.9 million based on the current exchange rate. The land
      was amortized from the beginning of 2006 under 50-year term. As of December
      31,
      2007, the Company has paid RMB 141 million or $19.3 million.





On
      December 15, 2007, the Company purchased 100% equity of Jinrun, whose
      sole asset is the land
      use
      right and construction on progress  for
      approximately RMB 60 million . The
      cost
      of the land use right, which was paid by the Company, was approximately
      RMB 35 million equals
      to US$4.8 million based on the current exchange rate. The land was amortized
      from the beginning of calendar year 2008 under 50-year term.




The
      land
      use right owned by Xuanchang was purchased by the Company from Shanghai CNPC
      Enterprises Group under the price of RMB6, 5 million or $890,000 based on
      the current exchange rate. As of December 31, 2007 the Company has paid all
      the
      money, and the issuing of the new title deed of the land, of which Xuancheng
      would be the owner, is under progress.





**11.
      Goodwill**





The
      goodwill consolidated to the financial statement as at December 31, 2007 and
      2006 are as follow:





Transactions
            
            December
                31, 2007
            
            September
                30, 2007Purchase
                of an additional 35% interest in Yuhan
            
            $
            676
            
            $
            676Purchase
                of a 60% equity in Jiaxin Lixun
            
            
            53
            
            
            53Purchase
                of a 70% equity in Xuancheng Sinoenergy
            
            
            29
            
            
            -Total
            
            $
            758
            
            $
            729




22









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. At December 31, 2006, the Company’s financial
      statements reflect a 90% ownership of Yuhan, based on having received government
      approval for the Company’s ownership of a 90% interest in Yuhan. As of December
      31, 2007, the Company had paid $1,189,336 and owned $310, 664. 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.





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





Xuancheng
      Sinoenergy was established on March 26, 2007. During its corporation, Shanghai
      CNPC owned 70% interest and Sinogas owned 30% interest. On November 6, 2007
      the
      Company purchased the 70% equity of Xuancheng with the total cash payment of
      $958,000. The consolidated balance sheet reflects good will of $28,614, which
      represents the excess fo the purchase over the tangible assets of Xuancheng
      at
      date of acquisition.





The
      Company continually monitors the impairment of goodwill on a continuous basis.
      As of December 31, 2007, there were no indications that the carrying amount
      of
      the goodwill was higher than the undiscounted future cash flows of the above
      mentioned assets.





**12.
      Short Term Loan**





The
      following table summarizes the contracted short-term borrowings between the
      banks and the Company as at December 31, 2007 (dollars in
      thousands):





Bank
                Name
            
            Purpose
            
            Borrowing
                Date
            
            Borrowing
                Term
            
            Annual
                Interest Rate
            
            AmountCITIC
                Bank
            
            
            Working
                Capital
            
            
            29-March-2007
            
            
            One
                year
            
            
            7.02
            %
            $
            685Bank
                of Communication
            
            
            Working
                Capital
            
            
            30-April-2007
            
            
            One
                year
            
            
            6.39
            %
            
            2,738Bank
                of Communication
            
            
            Working
                Capital
            
            
            14-Aug-2007
            
            
            One
                year
            
            
            7.29
            %
            
            5,476Bank
                of Communication
            
            
            Working
                Capital
            
            
            9-Sep-2007
            
            
            One
                year
            
            
            7.29
            %
            
            5,476Total
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            14,375





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




23







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





**1** **3.
      Other Payables**





(1)
            Other
                Payables to Related Party:





Other
      payables at December 31, 2007, represent  $1,684,209
      payables to Beijing Sanhuan for balance of the purchase price of the land use
      right; $319,433 payable to Kangtai for the unpaid part of the 35% acquisition
      of
      the equity of Yuhan by the Company; $1,369 due to Mr. Guiqiang Shi who is a
      stockholder of Kangtai.





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





(b)
      Other
      Payables to Third Parties





The
      balance to third party as of December 31, 2007 mainly represents $1,369,000
      payables for the acquisition of work on constructed plant of Jinrun; $1,505,900
      unsecured loan payable to Hubei Yinghua; $1,082,233 value added tax, business
      tax and other sur-tax accrued by the company but has not been paid.





Within
      the balance as at September 30, 2007, $145,500 payables to SLF for the audit
      fee
      accrual; $928,166 payables for VAT, business tax and other surtax, of which
      there are some time gap between accrual and payment.





**14.
      Advances from Customers**





Advances
      from customers at December 31, 2007 and September 30, 2007 were primarily the
      advances received for sales according to the Company’s sales contracts.





**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.





As
      PRC
      subsidiaries that qualify as wholly foreign owned manufacturing enterprises,
      Sinogas, Yuhan and Jiaxing Lixun were granted tax preference. Sinogas and Yuhan
      are entitled to 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 100% tax exemption for August
      2007 to calendar year end of 2008 and 50% enterprise income tax exemption for
      the following three calendar years (2009 through 2011).  As
      Jiaxin
      Lixun has received an exemption from corporate income tax from August 2007,
      the
      Company recorded $120,268 tax credit which accrued in September 2007 quarter,
      into current period profit.




24







Under
      the
      current tax laws of the PRC, the Company’s other PRC subsidiaries, Wuhan
      Sinoenergy and, Pingdingshan Sinoenergy will each get two-year 100% tax
      exemption followed by a three years 50% 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
      Island for both the three months ended December 31, 2007.





Reconciliation
      between the income tax computed at the United States statutory tax rate and
      the
      Company’s provision for income tax is:




Three
                months ended
            
            Three
                months endedDecember
                31, 2007
            
            December
                31, 2006U.S.
                statutory rate
            
            
            34
            %
            
            34
            %Foreign
                income note recognized in the U.S.
            
            
            (34
            %)
            
            (34
            %)PRC
                Enterprise Income Tax
            
            
            33
            %
            
            33
            %Tax
                holiday granted to the subsidiaries in PRC
            
            
            (33
            %)
            
            (33
            %)Prior
                year provision written back due to tax holiday and relief
            
            
            120
            
            
            109




**16.** **Long
      term notes payable**





On
      September 1, 2007, the Company entered into a note purchase agreement (the
“Note
      Purchase Agreement”) with Abax Lotus Ltd. and CCIF Petrol Limited pursuant to
      which, on September 28, 2007, 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. The initial conversion price for the Convertible Notes is equal
      to
      $3.17.. These notes and the related agreements are described in Note 16 of
      our
      Form 10-KSB for transition period Ended September 30, 2007.





Pursuant
      to the indenture for the Convertible Notes, an adjustment will be ;made to
      the
      conversion price based on the failure of the Company to have consolidated net
      income, as defined in the indenture, of $7.5 million for calendar year 2007
      (“2007 Earning Target”), $14.0 million for calendar year 2008 and $22.5 million
      for calendar year 2009, or the equivalent in RMB.





If
      the
      Company’s consolidated net income does not reach the stated level for each
      calendar year ending in 2007, 2008 or 2009, the conversion rate, which is equal
      to 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.




25







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.





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 common stock of the Company issued and
      outstanding immediately prior to such


issuance
      or grants (“the Defined Net Income”).





In
      early
      September 2007 the Company changed its fiscal year from December 31 to September
      30. The Company added together the audited net income for the nine months ended
      September 30, 2007 plus the unaudited net income for the three months ended
      December 31, 2007, to reconcile the Defined Net Income. The reconciled Defined
      Net Income incurred about 6% shortfall to the 2007 Earning Target, which has
      resulted in the conversion price, as calculated according to above mentioned
      formula, to decreased from $3.17 to $2.61. According to EITF 98-5 and 00-27,
      $2,958,900 beneficial conversion feature was accrued with 57 months amortizable
      term began from January 1, 2008.





The
      balance as of December 31, 2007 represents the principals and interest payable
      accrual for the three months ended December 31, 2007, as well as the beneficial
      conversion features accrued and amortized according to EITF 98-5 and 00-27.





As
      of
      September 30, 2007, after net receivable from the issuance of the notes, net
      of
      the $160,000 arrangement fee and other cost of the issuance, was $29,445,155.
      This amount is reflected as long term notes payable outstanding, together with
      the same amount of receivables due to the proceeds of the notes issued were
      paid
      in October 8, 2007. The proceeds from the notes are maintained in a separate
      account which require the signatures of our chief executive officer, our
      chairman and one senior officer of one of the lenders.




26







**17.
      Minority Interests’ Equity**





The
      activities of the minority interests’ equity during the three months ended
      December 31, 2007 are summarized as follows:





Beginning
                balance (January 1, 2007)
            
            
            614Minority
                interests in income
            
            
            142Add:
                Contribution from minority stockholders
            
            
            607Balance,
                September 30,2007
            
            
            1,363Minority
                interests in income
            
            
            112Balance,
                December 31, 2007
            
            $
            1,475





**18.**  **Related
      Party Relationships and Transactions**




The
      principal related companies and related parties with which the Company had
      transactions in the three months ended December 31, 2007 and 2006, 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, 2007Name
                of Related Party
            
            RelationshipMr.
                GuiQiang Shi
            
            Shareholder
              of KangtaiMr.
                Tanzhou Deng
            
            Chairman
                of the Company




Significant
      transactions between the Company and its related parties during the three months
      ended December 31, 2007 and 2006 are as follows:





(1)
            Sales
                and purchase transactions with related
                parties





Three
                months ended December 31,Name
                of the related party
            
            2007(unaudited)
            
            2006(unaudited)Mr.
                Guili Shi
            
            --
            
            -Owned
                25% of equity of Yuhan, which was purchased by the
                CompanyBeijing
                Sanhuan
            
            --
            
            -Agreement
                in transfer land use right to Sinogas, for which Sinogas totally
                paid $9.1
                million ($4.1 million was paid in the three months ended December
                31,
                2006
              
              -Grant
                CNG technology know-how license with total charges of $113,000 in
                the
                three months ended December 31,2006Kangtai
            
            --
            
            -Sales
                with amount of $73,837




27







(2) Related-company
      receivables





Name
                of the Company
            December
                31, 2007 (unaudited)
            
            September
                30, 2007 (Audited)Kangtai
            -
                $182,767 inter-company loan
              
              -
                $120,569 sales receivable on behalf of the Company
              
              -
                $145,595 rental fee receivables
            
            -$186,431
                inter-company loan
              
              -$169,030
                sales receivable on behalf of the Company
              
              -$145,595
                rental fee receivablesMr.TanzouDeng
            -
                $4,631 petty cash borrowing
            
            --





(3) Related-company
      and related party payables





Name
                of the Company
            December
                31, 2007 (unaudited)
            
            September
                30, 2007 (Audited)Beijing
                Sanhuan
            -$1,684,209
                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 know how using of CNG station system integrationKangtai
            -$319,433
                unpaid part for 35% equity purchase of Yuhan
            
            -$310,664
                unpaid part for 35% equity purchase of YuhanXuancheng
                Sinoenergy
            
            
            -$44,895
                unsecured loanMr.Tianzhou
                Deng
            --
            
            -
                $19,128Mr.
                GuiQiang Shi
            -$1,369
            
            -
                $1,331





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





**19.
      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.




28







**20.
      Segment Information**





Operating
      segments are defined by SFAS No.131, “Disclosure about Segments of an Enterprise
      and Related Information,” as components of an enterprise about which separate
      financial information is available that is evaluated regularly by the Company
      in
      deciding how to allocate resources and in assessing performance. At December
      31,
      2007, the Company has four operating segments, which are (i) non-standard
      pressure containers, (ii) CNG station construction and CNG station service
      and
      (iii) CNG operation business, which is in the development stage ( iv )
      CNG
      vehicle conversion kits, and at December 31, 2006, it has the three segments
      listed in ( i )
      (ii)
      and ( ii i).




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 months ended December 31, 2007 and 2006 (dollars in
      thousands).





Three
                months ended
              December
                31, 2007 (unaudited)
            
            Non-standard
                pressure containers
            
            CNG
                station facilities and construction
            
            CNG
                station Operation
            
            Vehicle
                conversion kits
            
            TotalNet
                revenue
            
            $
            1,849
            
            $
            4,638
            
            
            68
            
            $
            2,252
            
            $
            8,807Cost
                of revenues
            
            
            1,085
            
            
            2,313
            
            
            44
            
            
            1,454
            
            
            4,896Gross
                profit
            
            
            764
            
            
            2,325
            
            
            24
            
            
            798
            
            
            3,911Gross
                margin
            
            
            41
            %
            
            50
            %
            
            36
            %
            
            35
            %
            
            44
            %Operating
                expenses:Selling
                expenses
            
            $
            58
            
            $
            12
            
            $
            7
            
            $
            79
            
            $
            156General
                and administrative expenses
            
            
            208
            
            
            482
            
            
            94
            
            
            224
            
            
            1,008Total
                operating expense
            
            
            266
            
            
            494
            
            
            101
            
            
            303
            
            
            1,164Income
                (loss) from operations
            
            $
            498
            
            $
            1,831
            
            
            ($77
            )
            $
            495
            
            $
            2,747




29







Three
                months ended
              December
                31, 2006 (unaudited)
            
            Non-standard
                pressure containers
            
            CNG
                station facilities and construction
            
            CNG
                station Operation
            
            TotalNet
                revenue
            
            $
            1,113
            
            $
            1,516
            
            
            -
            
            $
            2,629Cost
                of revenues
            
            
            598
            
            
            333
            
            
            -
            
            
            931Gross
                profit
            
            
            515
            
            
            1,183
            
            
            -
            
            
            1,698Gross
                margin
            
            
            50
            %
            
            78
            %
            
            
            
            
            65
            %Operating
                expenses:Selling
                expenses
            
            $
            25
            
            $
            13
            
            
            -
            
            $
            38General
                and administrative expenses
            
            
            285
            
            
            286
            
            
            94
            
            
            665Total
                operating expense
            
            
            310
            
            
            299
            
            
            94
            
            
            703Income
                (loss) from operations
            
            $
            205
            
            $
            884
            
            
            ($94
            )
            $
            995





**21.
      Capital Stock**





(a) Common
      stock issued on conversion of series A preferred stock and exercise of
      warrants





As
      of
      December 31, 2007, we 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 transferring of 3% senior guaranteed convertible
                notes;


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




30







(b)
      Warrants





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





As
      at
      December 31, 2007, the average exercise price for the above mentioned warrants
      is $1.14.





**(c)
      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 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 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.





Shares
                subject to options
            
            Weighted
                average exercise price
            
            Remaining
                contractual lifeOptions
                outstanding at December 31, 2006
            
            
            120,000
            
            $
            0.65
            
            
            3.5
                yearsOptions
                granted during the period
            
            
            20,000
            
            $
            2.03
            
            
            4.25
                yearsOptions
                granted during the period
            
            
            1,180,000
            
            $
            2.00
            
            
            4.
                25 yearsOptions
                outstanding at December 31, 2007
            
            
            1,320,000
            
            $
            1.88
            
            
            4.18
                yearsOptions
                exercisable at December 31, 2007
            
            
            650,000
            
            $
            0.94
            
            
            4.18
                years




31







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





Stock
                options granted on April 9, 2007
            
            Stock
                options granted on April 1, 2007
            
            Stock
                options granted on June 2, 2006Expected
                volatility
            
            
            26.39
            %
            
            35.16
            %
            
            50
            %Risk-free
                rate
            
            
            4.64
            %
            
            4.64
            %
            
            4.64
            %Expected
                term (years)
            
            
            5
            
            
            5
            
            
            3Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Weighted
                average fair value per share
            
            $
            0.62
            
            $
            0.60
            
            $
            0.25





(d)
      Additional paid in capital





The
      activities of the additional paid in capital during the nine months ended
      December 31, 2007 is summarized as follows (dollars in thousands):




Balance,
                September 30, 2007
            
            $
            22,000Warrants
                for service cost amortization
            
            
            22Stock
                options cost amortization
            
            
            78**Balance,
                December 31, 2007**
            
            **$**
            **22,100**





**22.
      Basic and Diluted Earnings Per Share**





Earnings
      per share is calculated in accordance with the Statement of Financial Accounting
      Standards No. 128 (“SFAS No. 128”), “Earnings per share.” SFAS No. 128
      superseded Accounting Principles Board Opinion No.15 (APB 15). Net earning
      per
      share for all periods presented has been restated to reflect the adoption of
      SFAS No. 128. Basic earnings per share is based upon the weighted average number
      of shares of common stock outstanding during the period. Diluted earnings per
      share is based on the assumption that all dilutive convertible shares and stock
      options were converted or exercised. The number of shares included in
      determining diluted earnings per share is computed by applying the treasury
      stock method. Under this method, options and warrants are assumed to be
      exercised at the beginning of the period (or at the time of issuance, if later),
      with the funds obtained thereby being used to purchase common stock at the
      average market price during the period.





The
      breakdown for the fully diluted outstanding shares for the nine months ended
      December 31, 2007 and 2006 is as follows:




32







Three
                months ended
              December
                31,2007
            
            2006Weighted
                average common stock outstanding during period
            
            
            31,418,065
            
            
            14,462,268Common
                stock issuable upon conversion of series A preferred stock
            
            
            -
            
            
            1,017,680Common
                stock issuable pursuant to $0.85 warrants
            
            
            544,987
            
            
            2,196,185Common
                stock issuable pursuant to $1.20 warrants
            
            
            646,740
            
            
            1,569,216Common
                stock issuable pursuant to $2.10 warrants
            
            
            73,913
            
            
            -Common
                stock issuable upon exercise of options outstanding during the
                period
            
            
            721,304
            
            
            41,533Common
                stock issuable upon transfer of convertible notes
            
            
            4,416,404
            
            
            -Total
                diluted outstanding shares
            
            
            37,821,413
            
            
            19,286,902





**23.
      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:




(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
      December 31, 2007, the Company has paid a total of $7.9 million for the
      purchase, and $6.57 million goods have 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 13 lands in Wuhan City
      for
      its CNG station. The lease terms are from 10 year to 20 years with annual rental
      fee about $341,600 . Wuhan Sinoenergy has purchased a land use right for land
      located in Wuhan City for its CNG station at a price of $116,000. As of
      reporting date, $41,070 has been paid.




(e)
      The
      Company had previously owned a 55% interest in Yuhan. In August 2006, the
      Company entered into an agreement to acquire the remaining 45% for $1,500,000,
      with payment due in installments.  The agreement, as amended, gives the
      Company the right to buy the remaining 10% interest in Yuhan during the first
      six months of 2008 on payment of the rest $640,000. As of December 31, 2007,
      the
      Company owns 90% of Yuhan and paid a total of $524,000 and own $976,000.




33







(f)
      The
      C  ompany
      purchased 45% equity of Anhui Gather, whose registered paid in capital has
      not
      been fully paid by its shareholders, accordingly the Company should pay to
      Anhui
      Gather as paid in capital. As of December 31, 2007, we had paid $421,929 paid
      in
      capital to Anhui Gather.




(g) 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 process plants. The registered
      capital is $5 million of which Sinoenergy Holding Ltd will contribute $2,750,000
      as 55% equity owner and New Energy will contribute $2, 250,000 owing 45%
      interest. As of December 31, 2007, the Company has paid $412,500 in Hubei
      Gather.





(h) 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 December 31, 2007, the Company has paid $16.9 million to Beijing
      Sanhuan.





(i)
      On
      December 24, 2007 the  C ompany
      signed equity purchase agreement and supplemental agreement with shareholders
      of
      Qingdao Shan Yang Tai Chemistry Resources Development Co., Ltd. (“QSYT”) to
      purchase the 100% equity and a land use right of QSYT for $5.33 million, and
      also the company would pay the unpaid paid in capital of $4.28million to QSYT.
      As of December 31, 2007 the company has prepaid $7.24 million.





**24.
      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 $68,885 and $22,370 for the three months ended December 31, 2007
      and 2006, 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 dose
      not
      accrue welfare benefit for them. Although the Company believes the common
      treatment is acceptable under these circumstance, there may exist a possibility
      that government may require the Company to accrue the welfare benefit and may
      arises penalty for the under accrual.





**25.
       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.





In
      three
      months ended December 31, 2007, there are two customers accounting for in excess
      of 10% of consolidated sales as 21% and 24% of consolidated sales respectively,
      or an aggregate of 45% of consolidated sales. And as at December 31, 2007,
      approximately 24% and 14% of accounts receivable were from trade transactions
      with the aforementioned customers.




34







In
      nine
      months ended September 30, 2007, there are two customers accounting for in
      excess of 10% of consolidated sales as 24.3% and 13.1% of consolidated sales
      respectively, or an aggregate of 37.5% of consolidated sales. As at September
      30, 2007, approximately 28.8% and 7% of accounts receivable were from trade
      transactions with the aforementioned customers.




**26.
      Subsequent Events**




On
      December 24, 2007, the Company  entered
      into agreement and supplementary agreement with shareholders of Qingdao Shan
      Yang Tai Chemistry Resources Development Co. Ltd (“QDSY”) pursuant to which the
      Company would acquire 100% of the outstanding equity interest in Qingodao Shan
      Yang Tai Chemistry Resources Development Co. Ltd. (“QDSY”), for a purchase price
      of RMB43 million, which, based on the current exchange ratio, is equivalent
      to
      $5.33 million. As of December 31, 2007, the deal did not close. On January
      4,
      2008, PRC government approved the equity transferring by issue new business
      licenses to QDSY, at same time QDSY changed its name as Qingdao Sinoenergy
      General Machinery Co., Ltd.





On
      January 11, 2008, the Company entered into an agreement with shareholders of
      Hong Kong Giant Power International Investment Ltd. (“HK Power”), pursuant to
      which the Company would acquire 100% outstanding equity of HK Power, for a
      purchase price of CNY64 million, or approximately $8.75 million, based on the
      current exchange ratio. On January 16, 2007 HK government approved the
      shareholding transferring and the deal closed.




35







Item
      2.
      Management’s Discussion and Analysis of Financial Condition and Results 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 CNG.
      Although our initial business involved the manufacture 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 manufacture 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 at the CNG station.





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 manufacture 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 December 31, 2007, 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.




36







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 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 of electronic part of vehicle conversion kits as
      well
      as produce conversion kit is reported as a separate segment in the three months
      ended December 31, 2007.




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




*•*
            the
                manufacture 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 is the manufacture and sale of nonstandard equipment and
      pressure container business which is operated by Yuhan subsidiary, of which
      we
      had been 55% equity owner. During the second half year of 2006 we acquired
      additional 35% equity and turned to be 90% equity owner of Yuhan. Then we
      thoroughly controlled the operating of Yuhan.





To
      the
      manufacture of CNG facilities and gas station equipment, steel and steel tubing
      are major raw material for it. 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 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 December 31, 2007, we had four business segments, and in
      the
      same period of 2006, we had three business segments. The third segment - we
      construct CNG stations and operate those CNG stations. The fourth segment -
      the
      sale of CNG conversion kits first generated revenue in the second quarter of
      calendar year 2007.




37







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





Non-standard
      equipment and pressure container business has been carried over from the
      predecessor since Sinogas was set up. It is a traditional chemical equipment
      manufacture business with low profit margin. It includes design and manufacture
      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”)**





CNG
      station construction business represents:


(1)
      CNG
      vehicle and gas station equipment manufacture 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 our emergence into CNG filling station business, we did not receive
      any
      CNG station construction service order 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**




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




**Three
      months ended December 31, 2007 and 2006**




38







The
      following tables set forth information relating to our business segments for
      the
      three months ended December 31, 2007 and 2006 (dollars in
      thousands).





Three
                months ended
              December
                31, 2007
            
            Non-standard
                pressure containers
            
            CNG
                station facilities and construction
            
            CNG
                station Operation
            
            Vehicle
                conversion kits
            
            Total(unaudited)Net
                revenue
            
            $
            1,849
            
            $
            4,638
            
            
            68
            
            $
            2,252
            
            $
            8,807Cost
                of revenues
            
            
            1,085
            
            
            2,313
            
            
            44
            
            
            1,454
            
            
            4,896Gross
                profit
            
            
            764
            
            
            2,325
            
            
            24
            
            
            798
            
            
            3,911Gross
                margin
            
            
            41
            %
            
            50
            %
            
            36
            %
            
            35
            %
            
            44
            %Operating
                expenses:Selling
                expenses
            
            $
            58
            
            $
            12
            
            $
            7
            
            $
            79
            
            $
            156General
                and administrative expenses
            
            
            208
            
            
            482
            
            
            94
            
            
            224
            
            
            1,008Total
                operating expense
            
            
            266
            
            
            494
            
            
            101
            
            
            303
            
            
            1,164Income
                (loss) from operations
            
            $
            498
            
            $
            1,831
            
            
            ($77
            )
            $
            495
            
            $
            2,747








Three
                months ended
              December
                31, 2006
            
            Non-standard
                pressure containers
            
            CNG
                station facilities and construction
            
            CNG
                station Operation
            
            Total(unaudited)Net
                revenue
            
            $
            1,113
            
            $
            1,516
            
            
            -
            
            $
            2,629Cost
                of revenues
            
            
            598
            
            
            333
            
            
            -
            
            
            931Gross
                profit
            
            
            560
            
            
            1,183
            
            
            -
            
            
            1,698Gross
                margin
            
            
            46
            %
            
            78
            %
            
            
            
            
            65
            %Operating
                expenses:Selling
                expenses
            
            $
            25
            
            $
            13
            
            
            -
            
            $
            38General
                and administrative expenses
            
            
            285
            
            
            286
            
            
            94
            
            
            665Total
                operating expense
            
            
            310
            
            
            299
            
            
            94
            
            
            703Income
                (loss) from operations
            
            $
            205
            
            $
            884
            
            
            ($94
            )
            $
            995





*Net
      Revenue.* Net
      revenue for three months ended December 31, 2007 (the “December 2007 quarter”)
      was approximately $8.8 million, 235% increase from the net revenue of
      approximately $2.6 million for the three months ended December 31, 2006 (the
      “December 2006 quarter”). This increase results primarily from the sale of CNG
      station facilities, which generated revenue of $4.6 million, or 52.7 % of sales
      in the December 2007 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 $2.2 million or 25.6% of sales in the December
      2007 quarter.




39







*Cost
      of Revenue.* The cost
      of revenue for the December 2007 quarter was approximately $4.9 million,
      compared with approximately $1.0 million in the same period of 2006, a 425.9%
      increase. The cost increase trend is higher than the increase in net revenue
      due
      to gross margin decrease. The gross margin decreased from 65% of December 2006
      quarter to 44% of current period due to the changes in gross margins of the
      different segments.




·
            Our
                gross margin for the CNG station facilities and construction segment
                decreased to 50% in the December 2007 quarter from 78% in the December
                2006 quarter. In the December 2007 quarter, all of our revenue related
                to
                the manufacture of CNG facilities and equipment and none of the revenue
                was generated by technical consulting services, which in year 2006
                had
                generated a significantly higher gross margin than the manufacture.
                Besides, in December 2007 quarter, domestically, we purchase steel
                bottles, the key raw material for manufacturing of CNG truck trailer
                and
                deposit system, by ourselves, so the gross margin decreased to 50%.
                While
                in the December 2006 quarter, when, the steel bottles were provided
                by our
                customers, we only provided machining and process services which
                has a
                higher gross margin but significantly limited the production volume
                and
                sales order obtaining.


·
            The
                conversion kit segment is developed in year 2007, the gross margin
                of the
                segment, which accounted for 25.6 % of sales in the December 2007
                quarter,
                is 35%, lower than the overall gross margin of December 2006 quarter.
                Accordingly the new segment decreased the overall gross margin of
                the
                December 2007 quarter comparing with the same period of
                2006.




·
            The
                gross margin for our non-standard pressure container segment in the
                December 2007 quarter is 41%. In the December 2007 quarter, we fulfilled,
                in addition to our traditional container orders, one new order as
                manufacture of equipment for bio-diesel plant which generated a higher
                gross margin because of the specialized nature of the services we
                provided. Before year 2007, when we only take traditional container
                orders, the gross margin of the segment is from 17% to 25% except
                in
                December 2006 quarter, when a main steel plate supplier gave us an
                occasional one-off discount which increased the gross margin to
                46%.





*Operating
      Expenses.* Operating expenses were approximately $1.2 million in the December 2007 quarter,
      an increase of $461,000, or 65.6%, from the December 2006 quarter. The increase
      in operating expenses reflects the following factors:





·
            $101,000
                of expenses relating to the our CNG station operation segment, as
                compared
                with $94,000 of such expenses in the December 2006 quarter, as more
                stations being under construction and more managing work in that
                segment
                in the 2007 quarter.




·
            $303,000
                of selling, general and administrative expenses associated with the
                vehicle conversion business in the December 2007 quarter. This segment
                commenced operations in 2007, and, as accordingly, there were no
                comparable expenses in the December 2006
                quarter.




·
            Our
                general and administrative expenses for the December 2007 quarter
                include
                $100,000 of non-cash expenses resulting from the grant of stock options
                and warrants during the December 2007 quarter, while there were no
                comparable expenses in the December 2006
                quarter.




*Income
      from Operations.* Income
      from operations was approximately $2.7million for the three months of 2007,
      compared with approximately $1.0 million in the same quarter of 2006 resulted
      from the above mentioned reasons.




40







*Interest
      Expense* .
      Our
      interest expense for the December 2007 quarter was approximately $560,000,
      an
      increase of $497,000 comparing with $63,000 of December 2006 quarter. In the
      December 2007 quarter, we incurred interest cost of about $847,000 for the
      $14
      million PRC bank loan and $16 million 12% guaranteed senior notes and $14
      million 3% guaranteed convertible notes, of which about $287,000 interest cost
      were capitalized. The un-capitalized part was reflected as interest expenses.
      While in the December 2006 quarter, the $63,000 interest expenses were for
      the
      $1.1 million PRC bank loan.





*Income
      Taxes.* Sinogas,
      Yuhan, and Wuhan Sinoenergy have received exemption from corporate income tax
      separately in December 2006 and in the beginning of 2007. As a result, we did
      not accrue any income tax in the December 2007 quarter. As
      Jiaxin
      Lixun has received an exemption from corporate income tax from August 2007,
      we
      recorded a tax credit for the full amount of the taxes accrued by Jiaxin
      Lixun.





*Net
      income* .
      As a
      result of the foregoing, we had net income of $2.3 million, or $0.07 per share
      basic and 0.06 per share diluted, for the three months of 2007 as compared
      with
      net income of $1.1 million, or $ 0.07 per share basic and 0.05 per share diluted
      for the same quarter of 2006.





**Liquidity
      and Capital Resources**





At
      December 31, 2007, we had cash of approximately $11,283,000, an increase of
      approximately $6,736,000 from September 30, 2007. Our cash at December 31,
      2007
      included restricted cash of $821,000,
      representing a deposit for a bill of exchange in the same amount which was
      issued in connection with a material purchase by us. At
      December 31, 2007, we had working capital of approximately $10.9 million and
      stockholders’ equity of approximately $39.1 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
      December 2007 period, we generated negative cash flow of approximately $4.0
      million from our operations, and we used approximately $19.6 million for
      investments, consisting of payments of approximately $18.6 million for the
      purchase of property, plant and equipment, including the purchase of land use
      rights, and approximately $1.0 million to purchase a portion of the minority
      interest in some of our subsidiaries.





We
      generated approximately $29.8 million cash from issues of 12% guaranteed senior
      notes and 3% guaranteed convertible notes, and we returned approximately
      $468,000 short term bank loans, which, as of December 31, 2007, were in the
      aggregate principal amount of approximately $29.3 million.





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 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:




41







·
            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 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.




·
            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.;




·
            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.




·
            We
                are 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.




**Commitments** **and
      Contingencies**




We
      are
      not currently a party to any material threatened or pending legal
      proceedings




We
      have
      purchase orders with several suppliers with aggregated amount of $28.84 million.
      At December 31, 2007, we have paid a total of $7.9 million for the purchase,
      and
      $6.57 million goods have been delivered to us.




One
      of
      our subsidiaries, Wuhan Sinoenergy, has leased 13 lands in Wuhan City for its
      CNG station. The lease terms are from 10 year to 20 years with annual rental
      fee
      about $341,600 . Wuhan Sinoenergy has purchased a land use right for land
      located in Wuhan City for its CNG station at a price of $116,000. As of
      reporting date, $41,070 has been paid.




When
      we
      formed Yuhan with Kantai, we had a 55% interest in Yuhan. We have since acquired
      an additional 35% for $1,500,000, of which, at September 30, 2007, we had paid
      $1.2 million and owed $300,000. **** We
      have the
      right
      to acquire the remaining 10% interest in Yuhan during the first six months
      of
      2008 for approximately $640,000.





We
      purchased 45% equity of Anhui Gather, whose registered paid in capital has
      not
      been fully paid by its shareholders, accordingly we should pay to Anhui Gather
      as paid in capital. As of December 31, 2007, we had paid $421,929 paid in
      capital to Anhui Gather.




42







On
      March
      23, 2007, we and Hong Kong China New Energy Development Investment Co. Ltd
      (“New
      Energy”), formed Hubei Gather Eenergy Gas Co., Ltd (“Hubei Gather”) to construct
      and operate natural gas process plants. The registered capital is $5 million
      of
      which we will contribute $2,750,000 as 55% equity owner and New Energy will
      contribute $2, 250,000 for a 45% interest. As of December 31, 2007, we have
      paid
      $412,500 in Hubei Gather.





We have
      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 December 31, 2007, we have paid $16.9 million to Beijing
      Sanhuan.





On
      December 24, 2007, we signed equity purchase agreement and supplemental
      agreement with shareholders of Qingdao Shan Yang Tai Chemistry Resources
      Development Co., Ltd. (“QSYT”) to purchase the 100% equity and a land use right
      of QSYT for $5.33 million, and also we would pay the unpaid paid in capital
      of
      $4.28million to QSYT. As of December 31, 2007 we have paid $7.24 million to
      the
      shareholders and to QSYT. Since as of December 31, 2007, the shareholding
      transferring has not been approved by PRC government, and the deal did not
      close, we recorded the payment as prepaying.





**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 believes 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 uses difference estimates.





Inventories
      comprise 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.




43







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 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.





We
      cannot
      predict what future laws and regulations might be passed that could have a
      material effect on our results of operations. We assess the impact of
      significant changes in laws and regulations on a regular basis and update the
      assumptions and estimates used to prepare our financial statements when we
      deem
      it necessary.





Revenue
      Recognition - We 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. 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 translation and transaction gains and losses were
      immaterial in the statement of operations for 2006.




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.




44







**New
      Accounting Pronouncements**





In
      May
      2005, The FASB issued Statement No. 154, “Accounting Changes and Error
      Corrections,” a replacement of APB Opinion 20, “Accounting Changes” and FASB
      Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.”
This statement changes the requirements for the accounting for and reporting
      of
      a change in accounting principle. APB Opinion 20 previously required that most
      voluntary changes in accounting principles be recognized by including in net
      income of the period of the change the cumulative effect of changing to the
      new
      accounting principal. FASB Statement No. 154 requires retrospective application
      to prior periods’ financial statements of changes in accounting principle,
      unless it is impracticable to determine either the period specific effects
      or
      the cumulative effect of the change. This statement is effective for accounting
      changes and corrections of errors made in fiscal periods that begin after
      December 15, 2005. Management does not anticipate this statement will impact
      the
      Company’s consolidated financial position or consolidated results of operations
      and cash flows.





In
      February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments,” an amendment of FASB Statement No.133, “Accounting for
      Derivative Instruments and Hedging Activities” and FASB Statement No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities.” This Statement permits fair value re measurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation; clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of Statement No. 133, establishes
      a
      requirement to evaluate interests in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation; clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives and amends Statement 140 to eliminate the prohibition on a
      qualifying special purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. Management does not anticipate this Statement will impact the
      Company’s consolidated financial position or consolidated results of operations
      and cash flows.





In
      March
      2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets,” an amendment of FASB Statement No. 140, “Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities.” This
      Statement amends Statement No. 140 with respect to the accounting for separately
      recognized servicing assets and servicing liabilities. Management does not
      anticipate this Statement will impact the Company’s consolidated financial
      position or consolidated results of operations and cash flows.





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements.” 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 ended December 31, 2008.
      The Company is currently evaluating the impact of SFAS 157 on its consolidated
      financial statements.




45







In
      September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans,” which amended several other
      FASB Statements. SFAS 158 requires recognition in the balance sheet of the
      funded status of defined benefit pension and other postretirement benefit plans,
      and the recognition in other comprehensive income of unrecognized gains or
      losses and prior service costs or credits arising during the period.
      Additionally, SFAS 158 requires the measurement date for plan assets and
      liabilities to coincide with sponsor’s year-end. The Company has adopted a
      defined contribution plan as required in the PRC, and, accordingly we do not
      believe that the adoption of SFAS 158 will have any impact on us.





The
      FASB
      issued FASB Interpretation No.(“FIN”) 48, “Accounting for Uncertainty in Income
      Taxes,” in July 2006 .This interpretation establishes new standards for the
      financial statement recognition, measurement and disclosure of uncertain tax
      positions taken or expected to be taken in income tax returns. Then new rules
      will be effective for Sinoenergy in the first quarter of 2008. We continue
      to
      evaluate the impact of this interpretation, and do not anticipate its adoption
      will have a material effect on our financial statements.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) 108,
“Considering the Effects of Prior Year Misstatements when quantifying
      misstatements in Current Year Financial Statements,” which eliminated the
      diversity in practice surrounding the quantification and evaluation of financial
      statement errors. The guidance outlined in SAB 108 is effective for Sinoenergy
      and is consistent with our historical practices for assessing such matters
      when
      circumstances have required such an evaluation. Accordingly, we do not believe
      that adoption of SAB 108 will have any impact on us.




In
      February 2007, the FASB issued SFAX 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities-Including an Amendment of SFAS 115,” which
      allows for the option to measure financial instruments and certain other items
      at fair value. Unrealized gains and losses on items for which the fair value
      option has been elected are reported in earnings. We do not presently have
      any
      financial assets or liabilities that we would elect to measure at fair value,
      and therefore we expect this standard will have no impact on our financial
      statements.





In
      December 2007, the FASB issued FASB 141(R), “Business Combinations” of which the
      objective is to improve the relevance, representational faithfulness, and
      comparability of the information that a reporting entity provides in its
      financial reports about a business combination and its effects. , the new
      standard requires the acquiring entity in a business combination to recognize
      all (and only) the assets acquired and liabilities assumed in the transaction;
      establishes the acquisition-date fair value as the measurement objective for
      all
      assets acquired and liabilities assumed; and requires the acquirer to disclose
      to investors and other users all of the information they need to evaluate and
      understand the nature and financial effect of the business
      combination.




In
      December 2007, the FASB issued FASB 160 “Noncontrolling Interests in
      Consolidated Financial Statements—an amendment of ARB No.51” of which the
      objective is to improve 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 by
      requiring all entities to report noncontrolling (minority) interests in
      subsidiaries in the same way—as equity in the consolidated financial statements.
      Moreover, Statement 160 eliminates the diversity that currently exists in
      accounting for transactions between an entity and noncontrolling interests
      by
      requiring they be treated as equity transactions.




Both
      the
      FASB 141(R) and FASB 160 are in effective for fiscal years beginning after
      December 15, 2008, we do not believe that adoption of these standards will
      have
      any impact on our financial statements.





46







**Item
      3. Controls and Procedures**





As
      of the
      end of the period covered by this report, our chief executive officer and chief
      financial officer evaluated the effectiveness of our disclosure controls and
      procedures. Based on their evaluation, the chief executive officer and chief
      financial officer concluded that our disclosure controls and procedures are
      effective in alerting them to material information that is required to be
      included in the reports that we file or submit under the Securities Exchange
      Act
      of 1934 and that information required to be disclosed in the reports that we
      file or submit under the Securities Exchange Act of 1934 is accumulated and
      communicated to our management, including our chief executive officer and chief
      financial officer, to allow timely decisions regarding required disclosure.




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.




**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 Act


31.2  Certification of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act


32.1  Certification of Chief Executive and Financial Officer pursuant to Section
      906
      of the Sarbanes-Oxley Act




47


---



**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:
              February 15, 2008
            
            s/
              Bo
              HuangBo
              Huang, Chief Executive
              Officer


Dated:
                February 15, 2008
              
              s/
                Qiong
                (Laby) WuQiong
                (Laby) Wu, Chief Financial
                Officer
 
 48