**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
 June
        30,
        2008
 
 Commission
        File Number: 1-34131
 
 **Sinoenergy
        Corporation**
 (Name
        of
        small business issuer as specified in its charter)
 
 Nevada
              
              84-1491682(State
                  or other jurisdiction
                of
                  incorporation)
              
              (I.R.S.
                  Employer
                Identification
                  Number)
 
 1603-1604,
                  Tower B Fortune Centre Ao City
                Beiyuan
                  Road, Chaoyang District,
                Beijing,
                  People’s Republic of China 100107(Address
                  of principal executive offices)Issuer’s
                  telephone number, including area code:
                  86-10-84928149
 
 Check
        whether the issuer (1) has filed all reports required to be filed by Section
        13
        or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the Registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90
        days. Yes x No o
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        the definitions of "large accelerated filer," "accelerated filer" and "smaller
        reporting company" in Rule 12b-2 of the Exchange Act.
 
 Large
                  accelerated filer
              o
              Accelerated
                  filer
              oNon-accelerated
                  filer
                (Do
                  not check if smaller reporting company)
              o
              Smaller
                  reporting company
              x
 
 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
        August 13, 2008, the Registrant had 15,709,033 shares
        of
        common stock, par value $0.001 per share, issued and
        outstanding.
 
 Transitional
        Small Business Disclosure Format: Yes o No x
   
 
 
  **SINOENERGY
        CORPORATION AND SUBSIDIARIES**
 
 PagePart
                  I. Financial InformationItem
                  1. Consolidated Financial StatementsConsolidated
                  Balance Sheets as of June 30, 2008 (Unaudited) and September 30,
                  2007
              
              
              3Consolidated
                  Statements of Operations and Comprehensive Income for the Three
                  Months
                  Ended June 30, 2008 and 2007 (Unaudited)
              
              
              4Consolidated
                  Statements of Operations and Comprehensive Income for the Nine
                  Months
                  Ended June 30, 2008 and 2007 (Unaudited)
              
              
              5Consolidated
                  Statement of Stockholders’ Equity for the Nine Months Ended June 30, 2008
                  (Unaudited)
              
              
              6Consolidated
                  Statements of Cash Flows for the Nine Months Ended June 30, 2008
                  and 2007
                  (Unaudited)
              
              
              7Notes
                  to Consolidated Financial Statements for the Three Months and Nine
                  Months
                  Ended June 30, 2008 and 2007 (Unaudited)
              
              
              8Item
                  2. Management’s Discussion and Analysis or Plan of
                  Operation
              
              
              43Item
                  3. Controls and Procedures
              
              
              53Part
                  II. Other Information
              
              
              54Item
                  6. Exhibits
              
              
              54Signatures
              
              
              54
 
 
 
 
 **Sinoenergy
        Corporation and Subsidiaries**
 **Consolidated
        Balance Sheets**
 **(In
        thousands)**
  June
                  30, 2008
              
              September 30,2007(Unaudited)**ASSETS**CURRENT
                  ASSETSCash
              
              $
              17,021
              
              $
              3,322Restricted
                  cash
              
              
              
              
              
              1,225Accounts
                  receivable, net
              
              
              19,920
              
              
              5,827Other
                  receivables
              
              
              11,939
              
              
              3,754Due
                  from related parties
              
              
              42
              
              
              501Note
                  subscription receivable (received October 2007)
              
              
              
              
              
              29,840Deposits
                  and prepayments
              
              
              4,394
              
              
              2,795Deferred
                  expenses
              
              
              169
              
              
              58Inventories
              
              
              5,436
              
              
              2,901TOTAL
                  CURRENT ASSETS
              
              
              58,921
              
              
              50,223LONG
                  TERM ASSETSLong-term
                  investments
              
              
              3,187
              
              
              1,592Property,
                  plant and equipment, net
              
              
              24,995
              
              
              8,388Intangible
                  assets, net
              
              
              30,882
              
              
              18,531Other
                  long-term assets
              
              
              7,759
              
              
              9,
                  603Goodwill
              
              
              1,351
              
              
              729TOTAL
                  ASSETS
              
              $
              127,095
              
              $
              89,066LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCURRENT
                  LIABILITIESShort-term
                  bank loan
              
              $
              11,663
              
              $
              14,843Accounts
                  payable
              
              
              5,847
              
              
              3,166Notes
                  payable
              
              
              
              
              
              799Other
                  payables
              
              
              7,710
              
              
              1,502Payable
                  to investors in subsidary
              
              
              14,590Due
                  to related parties
              
              
              2,193
              
              
              3,679Accrued
                  expenses
              
              
              423
              
              
              395Accrued
                  interest payable
              
              
              1,341Advances
                  from customers
              
              
              2,722
              
              
              1,035Estimated
                  liquidated damages payable under registration rights agreement
              
              
              653
              
              
              —Income
                  taxes payable
              
              
              690
              
              
              119TOTAL
                  CURRENT LIABILITIES
              
              
              47,832
              
              
              25,538LONG-TERM
                  LIABILITIES12%
                  senior notes, net of discount of $321 at June 30, 2008 and $378
                  at
                  September 30, 2007
              
              
              15,679
              
              
              15,6223%
                  senior convertible notes, net of discount of $3,324 at June 30,
                  2008 and
                  $177 at September 30, 2007
              
              
              11,053
              
              
              13,823TOTAL
                  LIABILITIES
              
              
              74,564
              
              
              54,983Minority
                  interest
              
              
              1,552
              
              
              1,363CommitmentsSTOCKHOLDERS’
                  EQUITYCommon
                  stock- par value $0.001 per share; Authorized - 50,000,000 shares;
                  Issued
                  and outstanding- 15,709,033 shares at June 30, 2008 and September
                  30,
                  2007
              
              
              16
              
              
              16Additional
                  paid-in capital
              
              
              25,941
              
              
              22,015Capital
                  surplus
              
              
              20
              
              
              20Statutory
                  surplus reserve fund
              
              
              1,140
              
              
              1,140Retained
                  earnings
              
              
              17,395
              
              
              8,217Accumulated
                  other comprehensive income
              
              
              6,
                  467
              
              
              1,312Total
                  stockholders’ equity
              
              
              50,979
              
              
              32,720TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              127,095
              
              $
              89,066
  The
        accompanying notes are an integral part of these financial
        statements.
 
 3
 
 **Sinoenergy
        Corporation and Subsidiaries**
 **Consolidated
        Statements of Operations and Comprehensive Income
        (Unaudited)**
 **(In
        thousands, except per share data)**
  Three Months Ended June
                  30,2008
              
              2007NET
                  REVENUE
              
              $
              10,204
              
              $
              6,181COST
                  OF REVENUE
              
              
              (6,283
              )
              
              (2,972
              )GROSS
                  PROFIT
              
              
              3,921
              
              
              3,209OPERATING
                  EXPENSESSelling
                  expenses
              
              
              246
              
              
              65General
                  and administrative expenses
              
              
              988
              
              
              928TOTAL
                  OPERATING EXPENSES
              
              
              1,234
              
              
              993INCOME
                  FROM OPERATIONS
              
              
              2,687
              
              
              2,216OTHER
                  INCOME (EXPENSE)Rental
                  income, net of land right amortization of $60
              
              
              1,318
              
              
              —Gain
                  on sale of investment
              
              
              1,737
              
              
              —Loss
                  from non-consolidated affiliates
              
              
              (6
              )
              
              —Other,
                  net
              
              
              (297
              )
              
              —Interest
                  expense, net of capitalized interest of $542 in 2008
              
              
              (217
              )
              
              (123
              )Estimated
                  liquidated damages payable under registration rights
                  agreement
              
              
              (513
              )
              
              —OTHER
                  INCOME (EXPENSE), NET
              
              
              2,022
              
              
              (123
              )INCOME
                  BEFORE INCOME TAXES AND MINORITY INTEREST
              
              
              4,709
              
              
              2,093Provision
                  for income taxes
              
              
              (677
              )
              
              (44
              )INCOME
                  BEFORE MINORITY INTEREST
              
              
              4,032
              
              
              2,049Minority
                  interest
              
              
              (16
              )
              
              (103
              )NET
                  INCOME
              
              $
              4,016
              
              $
              1,946OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation adjustments
              
              
              1,422
              
              
              177COMPREHENSIVE
                  INCOME
              
              $
              5,438
              
              $
              2,123Net
                  Income Per Common ShareBasic
              
              $
              0.26
              
              $
              0.14Diluted
              
              $
              0.24
              
              $
              0.13Weighted
                  Average Common Shares OutstandingBasic
              
              
              15,709
              
              
              13,890Diluted
              
              
              19,619
              
              
              14,579
  The
        accompanying notes are an integral part of these financial
        statements.
 
 4
 
 **Sinoenergy
        Corporation and Subsidiaries**
 **Consolidated
        Statements of Operations and Comprehensive Income
        (Unaudited)**
 **(In
        thousands, except per share data)**
  Nine Months Ended June
                  30,2008
              
              2007NET
                  REVENUE
              
              $
              26,745
              
              $
              11,436COST
                  OF REVENUE
              
              
              (15,190
              )
              
              (5,494
              )GROSS
                  PROFIT
              
              
              11,555
              
              
              5,942OPERATING
                  EXPENSESSelling
                  expenses
              
              
              540
              
              
              143General
                  and administrative expenses
              
              
              2,963
              
              
              2,175TOTAL
                  OPERATING EXPENSES
              
              
              3,503
              
              
              2,318INCOME
                  FROM OPERATIONS
              
              
              8,052
              
              
              3,624OTHER
                  INCOME (EXPENSE)Rental
                  income, net of land right amortization of $118
              
              
              2,503Gain
                  on sale of investment
              
              
              1,737Earnings
                  from non-consolidated affiliates
              
              
              97Other,
                  net
              
              
              (150
              )
              
              35Interest
                  expense, net of capitalized interest of $1,334 in 2008
              
              
              (1,497
              )
              
              (241
              )Estimated
                  liquidated damages payable under registration rights agreement
              
              
              (653
              )OTHER
                  INCOME (EXPENSE), NET
              
              
              2,037
              
              
              (206
              )INCOME
                  BEFORE INCOME TAXES AND MINORITY INTEREST
              
              
              10,089
              
              
              3,418Provision
                  (benefit) Income taxes
              
              
              (722
              )
              
              65INCOME
                  BEFORE MINORITY INTEREST
              
              
              9,
                  367
              
              
              3,483Minority
                  interest
              
              
              (189
              )
              
              (71
              )NET
                  INCOME
              
              
              9,178
              
              
              3,412OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation adjustments
              
              
              5,155
              
              
              374COMPREHENSIVE
                  INCOME
              
              $
              14,333
              
              $
              3,786Net
                  Income Per Common ShareBasic
              
              $
              0.58
              
              $
              0.34Diluted
              
              $
              0.54
              
              $
              0.26Weighted
                  Average Common Shares OutstandingBasic
              
              
              15,709
              
              
              9,981Diluted
              
              
              16,950
              
              
              13,261
  The
        accompanying notes are an integral part of these financial
        statements.
 
 5
  **Sinoenergy
        Corporation and Subsidiaries**
 **Consolidated
        Statement of Stockholders’ Equity**
 **(In
        thousands)**
 .
 Number of
                Common
                Shares
                Issued
              
              Par Value
                Common
                Stock
              
              Additional
                Paid-in
                Capital
              
              Statutory
                Surplus
                Reserve
                Fund
              
              Accumulated
                Other
                Comprehensive
                Income
              
              Retained
                Earnings
              
              Capital
                Surplus
              
              Total
                Stock-
                holder’s
                  Equity**Balance, September 30, 2007**
              
              
              15,709
              
              $
              16
              
              $
              22,015
              
              $
              1,140
              
              $
              1,312
              
              $
              8,217
              
              $
              20
              
              $
              32,720Warrants issued for
                  services
              
              
              
              
              
              
              
              
              64
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              64Stock
                  options issued
              
              
              
              
              
              
              
              
              310
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              310Adjustment
                  to record reduction in conversion price of 3% senior convertible
                  notes
              
              
              
              
              
              
              
              
              3,361
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,361Capital
                  contribution
              
              
              
              
              
              
              
              
              191
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              191Net
                  income for the period
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,178
              
              
              
              
              
              9,178Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,155
              
              
              
              
              
              
              
              
              5,155**Balance,
                  June 30, 2008**
              
              
              15,709
              
              $
              16
              
              $
              25,941
              
              $
              1,140
              
              $
              6,467
              
              $
              17,395
              
              $
              20
              
              $
              50,979
 .
 The
        accompanying notes are an integral part of these financial
        statements.
 
 6
 
 **Sinoenergy
        Corporation and Subsidiaries**
 **Consolidated
        Statements of Cash Flows (Unaudited)**
 **(In
        thousands)**
 
 Nine Months Ended June
                  30,2008
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              9,178
              
              $
              3,412Adjustments
                  to reconcile net income to net cash provided by (used in) operating
                  activities:Gain
                  on sale of investment
              
              
              (1,737
              )Warrants
                  issued for services
              
              
              64
              
              
              67Stock
                  options granted
              
              
              310
              
              
              345Amortization
                  of note discount
              
              
              270
              
              
              —Non-cash
                  portion of interest expense
              
              
              1,719
              
              
              —Earnings
                  from non-consolidated affiliates
              
              
              (97
              )Minority
                  interest
              
              
              189
              
              
              72Depreciation
              
              
              492
              
              
              348Amortization
                  of intangible assets
              
              
              1,538
              
              
              197Provision
                  for (recovery of) doubtful accounts
              
              
              (1
              )
              
              83Changes
                  in operating assets and liabilities:(Increase)
                  decrease in -Accounts
                  receivable
              
              
              (13,954
              )
              
              (1,094
              )Other
                  receivables, deposits and prepayments
              
              
              (9,574
              )
              
              (1,418
              )Inventories
              
              
              (2,535
              )
              
              (395
              )Increase
                  (decrease) in -Accounts
                  payable
              
              
              1,882
              
              
              848Accrued
                  expenses
              
              
              28
              
              
              55Deferred
                  expenses
              
              
              
              
              
              (13
              )Advances
                  from customers
              
              
              1,687
              
              
              2,277Other
                  payables
              
              
              4,915
              
              
              (538
              )Estimated
                  liquidated damages payable under registration rights
                  agreement
              
              
              653
              
              
              —Income
                  taxes payable
              
              
              571
              
              
              28Net
                  cash provided by (used in) operating activities
              
              
              (4,402
              )
              
              4,274CASH
                  FLOWS FROM INVESTING ACTIVITESPayable
                  to investors in subsidiary
              
              
              14,590Purchase
                  of property, plant and equipment
              
              
              (15,255
              )
              
              (5,468
              )Purchase
                  of land use right
              
              
              (13,889
              )
              
              (6,718
              )Purchase
                  of minority interest in subsidiaries
              
              
              (1,595
              )
              
              (2,684
              )Net
                  proceeds related to investment activities
              
              
              1,210
              
              
              —Net
                  cash used in investing activities
              
              
              (14,939
              )
              
              (14,870
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESNet
                  proceeds received from note subscription receivable
              
              
              29,840
              
              
              —Proceeds
                  from bank loan
              
              
              —
              
              
              1,342Cash
                  received from exercise of warrants
              
              
              —
              
              
              11,725Payments
                  on bank loan
              
              
              (3,180
              )
              
              —Net
                  cash provided by financing activities
              
              
              26,660
              
              
              13,067Effect
                  on cash of changes in exchange rate
              
              
              5,155
              
              
              206Net
                  increase in cash
              
              
              12,474
              
              
              2,677Cash
                  at beginning of period
              
              
              4,547
              
              
              1,627Cash
                  at end of period
              
              $
              17,021
              
              $
              4,304Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              1,322
              
              $
              242Income
                  taxes paid
              
              $
              172
              
              $
              (858
              )
  The
        accompanying notes are an integral part of these financial
        statements.
  7
 
 **Sinoenergy
        Corporation and Subsidiaries**
 
 **Notes
        to Consolidated Financial Statements (Unaudited)**
 
 **June
        30, 2008 and 2007**
 
 
 **1.**
              **The
                  Company**
  **(a)
        Recapitalization Transaction**
 Sinoenergy
        Corporation (“Sinoenergy” or the “Company”) was incorporated in Nevada on March
        2, 1999 under the name Franklyn Resources III, Inc. (“Franklyn”). The Company’s
        corporate name was changed to Sinoenergy Corporation on September 28,
        2006.
  On
        June
        2, 2006, the Company entered into the following agreements:
  ·
              An
                  agreement with Sinoenergy Holding Limited (“Sinoenergy Holding”), a
                  British Virgin Islands corporation, and its stockholders, pursuant
                  to
                  which the Company issued 7,107,693 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 1,652,500 shares of common
                  stock
                  for $213,525, using the proceeds of the financing as described
                  below.
  ·
              In
                  connection with the acquisition of Sinoenergy Holding, the Company
                  entered
                  into a securities purchase agreement, as amended on July 6, 2006,
                  and the
                  Company issued and sold, for $3,700,000, 6% convertible notes in
                  the
                  principal amount of $3,700,000, 195,044 shares of common stock,
                  and
                  warrants to purchase 3,171,429 shares of common stock at $1.70
                  per share,
                  3,171,429 shares of common stock at $2.40 per share and
                  3,171,429 shares of common stock at $3.50 per share. The conversion
                  price of the notes and the exercise price of the warrants were
                  subject to
                  adjustment. The $3.50 warrants expired unexercised on December
                  31, 2006.
                  The convertible notes were automatically converted into 2,846,154
                  shares
                  of Series A preferred stock on September 28, 2006 when the Company
                  amended
                  its articles of incorporation and filed a certificate of designation
                  for
                  the Series A preferred stock. Each share of Series A preferred
                  stock was
                  convertible into one share of common stock. At September 30, 2007,
                  the
                  shares of Series A preferred stock had been converted into 2,846,154
                  shares of common stock.
  Under
        generally accepted accounting principles, both acquisitions described above
        are
        considered to be capital transactions in substance, rather than business
        combinations. With respect to such acquisitions, they are equivalent to the
        issuance of stock by Sinogas for the net monetary assets of Sinoenergy Holding,
        and the issuance of stock by Sinoenergy Holding for the net monetary assets
        of
        Sinoenergy. Each transaction was, in essence, a recapitalization, and was
        accounted for as a change in capital structure. The accounting for the
        acquisitions is identical to that resulting from a reverse acquisition, and
        no
        goodwill is recorded. Under reverse takeover accounting, the comparative
        historical financial statements in the Sinoenergy/Sinoenergy Holding acquisition
        of the “legal acquirer”, Sinoenergy, are those of the “accounting acquirer”,
        which is Sinogas. The accompanying financial statements reflect the
        recapitalization of the shareholders’ equity section as if the transactions
        occurred as of the beginning of the first period presented. Earnings per
        share
        are restated for all period presented to reflect this recapitalization.
 
 8
  **(b)
        Issuance of Senior Notes and Senior Convertible Notes**
 
 On
        September 28, 2007, pursuant to a note purchase agreement (the “Note Purchase
        Agreement”) dated September 1, 2007, among the Company and Abax Lotus Ltd. and
        CCIP Petrol Limited, the investors purchased the Company’s 12% Guaranteed Senior
        Notes due 2012 in the principal amount of $16,000,000 and 3.0% Guaranteed
        Senior
        Convertible Notes due 2012 in the principal amount of $14,000,000. On October
        8,
        2007, the Company received the net proceeds from the sale of the notes in
        the
        amount of $29,840,000. This amount was shown as note subscription receivable
        on
        the balance sheet at September 30, 2007. See Note 16 for additional information
        with respect to these financing transactions.
 
 **(c)
        Reverse Split**
 
 The
        Company amended its articles of incorporation on June 17, 2008 by a certificate
        of change. The certificate of change effected a one-for-two reverse split
        on the
        common stock and reduced the Company’s authorized shares from 100,000,000 shares
        of common stock to 50,000,000 shares without changing the par value. This
        reverse stock split became effective on July 9, 2008. All
        share
        and per share information in these financial statements retroactively reflects
        the reverse split for all periods presented.
 
 **(d)
        Change of Fiscal Year**
 
 The
        Company changed its fiscal year end to September 30. The Company has filed
        a
        Form 10-KSB for the transitional period from January 1, 2007 to September
        30,
        2007. The fiscal year ending September 30, 2008 will be the Company’s first full
        fiscal year ending on September 30.
 
 **(e)
        Subsidiaries of the Company**
 
 Company
              Ownership
                  %
              Fiscal
                  Year Acquired
              Accounting
                  method
              Business
                  activitiesSinogas
              100%
              1994
              Consolidated
              Production
                  of Compressed Natural Gas facilities, technical consulting in CNG
                  construction, manufacturing of CNG vehicle conversion
                  kitYuhan
              100%
              2005
              Consolidated
              Manufacturing
                  of customized pressure containersWuhan
                  Sinoenergy
              90%
              2006
              Consolidated
              Construction
                  and operating of CNG stations and the manufacturing and sales of
                  automobile conversion kitsPingdingshan
                  Sinoenergy
              90%
              2006
              Consolidated
              Construction
                  and operating of CNG stations and the manufacturing and sales of
                  automobile conversion kitsJiaxing
                  Lixun
              100%
              2007
              Consolidated
              Design
                  and manufacturing of electric control devices for alternative
                  fuelHubei
                  Gather
              55%
              2007
              Consolidated
              Construction
                  and operating of natural gas processing plantsXuancheng
                  Sinoenergy
              100%
              2007
              Consolidated
              Construction
                  and operating of CNG stations and the manufacturing and sales of
                  automobile conversion kitsJingrun
              100%
              2007
              Consolidated
              Design
                  and manufacturing of petroleum refinery equipment and petroleum
                  machineryQingdao
                  Sinoenergy
              100%
              2007
              Consolidated
              Manufacturing
                  and installation of general machinery equipmentAnhui
                  Gather
              45%
              2007
              Equity
              Construction
                  and operating of natural gas processing
                  plants
 
 **2.
        Summary of Significant Accounting Policies**
 
 Basis
        of Presentation
 
 The
        accompanying unaudited consolidated financial statements have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America for interim financial information and with the instructions to Form
        10-QSB and Item 310 Regulation S-B. In the opinion of management, the
        consolidated financial statements reflect all adjustments (including normal
        recurring adjustments) considered necessary for a fair presentation of the
        Company’s results of operations and financial position as of and for the periods
        presented. Operating results for interim periods are not necessarily indicative
        of results that may be expected for the fiscal year as a whole. These
        consolidated financial statements should be read in conjunction with the
        summary
        of significant accounting policies and notes to consolidated financial
        statements included in the Company’s Form 10-KSB Annual Report for the
        transition period ended September 30, 2007.
 
 9
 Principles
        of Consolidation
  The
        accompanying consolidated financial statements include the financial statements
        of Sinoenergy Corporation and its wholly owned subsidiaries and majority
        owned
        subsidiaries as to which it exercises control. Intercompany transactions
        and
        balances have been eliminated in consolidation.
 
 Use
        of
        Estimates
 
 In
        preparing financial statements in conformity with accounting principles
        generally accepted in the United States of America, management is required
        to
        make estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and the disclosure of contingent assets and liabilities at the
        date
        of the financial statements and revenues and expenses during the reported
        periods. Significant estimates include depreciation and the allowance for
        doubtful accounts and other receivables, asset impairment, valuation of warrants
        and options and inventory valuation. Actual results could differ from those
        estimates.
 
 Goodwill
 
 Goodwill
        represents the excess of the purchase price of business combinations over
        the
        fair value of the net assets acquired and is tested for impairment at least
        annually unless circumstances or events indicate an impairment test is required.
        The impairment test requires allocating goodwill and all other assets and
        liabilities to assigned reporting units. The fair value of each reporting
        unit
        is estimated and compared to the net book value of the reporting unit. If
        the
        estimated fair value of the reporting unit is less than the net book value,
        including goodwill, then goodwill is written down to the implied fair value
        of
        goodwill through a charge to operations. Because quoted market prices are
        not
        available for the Company’s reporting units, the fair values of the reporting
        units are estimated based upon several valuation analyses, including comparable
        companies, comparable transactions and premiums paid. The goodwill on the
        Company’s financial statements was a result of the transactions pursuant to
        which the Company acquired Yuhan, Jiaxing Lixun and Xuancheng Sinoenergy,
        and
        relates to the pressure container, vehicle conversion kits, and CNG station
        operation reporting segments.
 
 Cash
        and Cash Equivalents
 
 The
        Company considers all highly liquid investments with original maturities
        of
        three months or less at the time of purchase to be cash equivalents. As of
        June
        30, 2008 and September 30, 2007, the Company did not have any cash
        equivalents.
 
 Allowance
        for Doubtful Accounts
 
 An
        allowance for doubtful accounts is maintained for all customers based on
        a
        variety of factors, including the length of time the receivables are past
        due,
        significant one-time events and historical experience. An additional reserve
        for
        individual accounts is recorded when the Company becomes aware of a customer’s
        inability to meet its financial obligations, such as in the case of bankruptcy
        filings or deterioration in the customer’s operating results or financial
        position. When circumstances related to customers change, estimates of the
        recoverability of receivables are further adjusted.
 
 Inventories
 
 10
 Inventories
        are comprised of raw materials, work in process, finished goods and low value
        consumable articles. Amounts are stated at the lower of cost or market value.
        Substantially all inventory costs are determined using the weighted average
        basis. Costs of finished goods include direct labor, direct materials, and
        production overhead before the goods are ready for sale. Inventory costs
        do not
        exceed net realizable value.
 
 Long-Term
        Investments
 
 Investments
        in entities in which the Company owns more than 20% but less than 50% of
        the
        equity and does not have the ability to control, but has the ability to exert
        significant influence, are accounted for using the equity method, resulting
        in
        the recognition of gain or loss with respect to the operations of such entities
        based on the Company’s equity interest during the respective
        period.
 
 Property,
        Plant and Equipment
 
 Property,
        plant and equipment are stated at cost. Depreciation is provided principally
        by
        use of the straight-line method over the useful lives of the related assets.
        Expenditures for maintenance and repairs, which do not improve or extend
        the
        expected useful life of the assets, are expensed to operations while major
        repairs are capitalized.
 
 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 proceeds from disposition 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, and acquired and land use
        rights, are stated at cost less accumulated amortization and impairment losses.
        Amortization is calculated on the straight-line method over the estimated
        useful
        lives of the assets which range from 10 to 50 years.
 
 There
        is
        no private ownership of land in the PRC. All land is owned by the government
        and
        the government grants what is known as a land use right, which is a transferable
        right to use the land. The land use right for the land on which the Sinogas,
        Xuancheng, Jingrun, and Qingdao Sinoenergy facilities are located is recorded
        as
        an intangible asset.
 
 Impairment
        of Assets
 
 In
        accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
        "Accounting for Impairment or Disposal of Long-Lived Assets" (“SFAS No. 144”),
        impairment of assets is monitored on a periodic basis, and is assessed based
        on
        the undiscounted cash flows expected to be generated by the underlying assets.
        In the event that the carrying amount of assets exceeds the undiscounted
        future
        cash flows, then the carrying amount of such assets is adjusted to their
        fair
        value.
 
 Capitalization
        of Interest
 
 The
        Company capitalizes interest cost incurred during the period required to
        complete the asset. The interest rate for capitalization is based on the
        rates
        on the Company’s outstanding borrowings. A weighted average interest rate is
        used to determine the amount of interest to capitalize.
 
 11
 The
        Company capitalized $542,847 and $1,334,847 of interest during the three
        months
        and nine months ended June 30, 2008, respectively. Interest capitalized is
        recorded as an increase to construction in progress. The Company did not
        capitalize any interest during the three months or nine months ended June
        30,
        2007.
 
 Revenue
        Recognition
 
 The
        Company recognizes revenue when the significant risks and rewards of ownership
        have been transferred to the customer, including factors such as when persuasive
        evidence of an arrangement exists, delivery has occurred, the sales price
        is
        fixed or determinable, and collectability is reasonably assured.
 
 The
        Company recognizes product sales generally at the time the product is shipped.
        CNG construction and building technical consulting service revenue is recognized
        on the percentage of completion basis. Revenue is measured by reference to
        the
        proportion of construction work completed to the total estimated work according
        to reports provided by the technical department of the Company, and
        simultaneously, the cost is recognized based on total contracted cost and
        the
        completion basis. Receivables and payables are recorded accordingly. Revenue
        is
        presented net of any sales tax and value added tax.
 
 Value
        added tax (“VAT”) is collected from customers by the Company on behalf of the
        PRC tax authorities and is not recorded as income or expense in the consolidated
        statements of operations.
 
 Warranty
        Reserves
 
 Warranty
        reserves represent the Company’s obligation to repair or replace defective
        products under certain conditions.  The estimate of the warranty reserves
        is based on historical experience.  Based on experience and industry
        practice, the Company has established a warranty reserve rate of 0.2 % of
        gross
        sales. The Company periodically reviews this rate and revises it as
        necessary.
 
 Income
        Taxes
 
 The
        Company accounts for income taxes under SFAS No. 109, “Accounting for Income
        Taxes”. Under SFAS No. 109, deferred tax assets and liabilities are recognized
        for the future tax consequences attributable to differences between the
        financial statement carrying amounts of existing assets and liabilities and
        their respective tax bases. Deferred tax assets and liabilities are measured
        using enacted tax rates expected to apply to taxable income in the years
        in
        which those temporary differences are expected to be recovered or settled.
        Under
        SFAS No. 109, the effect on deferred tax assets and liabilities of a change
        in
        tax rates is recognized in income in the period that includes the enactment
        date.
 
 The
        Company has reviewed the differences between the tax basis under PRC tax
        laws
        and financial reporting under US GAAP. Temporary differences, resulting in
        deferred tax assets or liabilities, have been recognized in the financial
        statements.
 
 Advertising,
        Shipping and Handling Costs
 
 Advertising
        costs, which were not significant in 2008 or 2007, are included in selling
        expenses. Shipping and handling costs are included in cost of sales for
        inventory and in selling expenses for customer sales.
 
 Foreign
        Currency Translations
 
 The
        Company’s functional currency is Renminbi (“RMB”) and its reporting currency is
        U.S. dollars. The Company’s balance sheet accounts are translated using the
        closing exchange rate in effect at the balance sheet date and operating accounts
        are translated using the average exchange rate prevailing during each
        quarter. Equity accounts are translated using the historical rate as incurred.
        Translation gains and losses are deferred and accumulated as a component
        of
        accumulated other comprehensive income in stockholders’ equity. Transaction
        gains and losses that arise from exchange rate fluctuations from transactions
        denominated in a currency other than the functional currency are included
        in the
        statement of operations as incurred.
 
 12
 Fair
        Value of Financial Instruments
 
 SFAS
        No.
        107, “Disclosures about Fair Values of Financial Instruments”, requires
        disclosing fair value to the extent practicable for financial instruments
        that
        are recognized or unrecognized in the balance sheet. The fair value of the
        financial instruments disclosed herein is not necessarily representative
        of the
        amount that could be realized or settled, nor does the fair value amount
        consider the tax consequences of realization or settlement.
 
 For
        certain financial instruments, including cash, accounts receivable, related
        party and other receivables, accounts payable, other payables and accrued
        expenses, it has been assumed that the carrying amounts approximate fair
        value
        because of the short- term maturities of such obligations.
 
 Minority
        Interest
 
 Minority
        interest refers to the percentage of a consolidated subsidiary, which is
        not
        wholly-owned by the Company. The Company records the minority interest portion
        of any related profits and losses in consolidation.
 
 Stock-Based
        Compensation
 
 The
        Company may issue stock options to employees and stock options or warrants
        to
        non-employees in non-capital raising transactions for services and for financing
        costs. The Company has adopted SFAS No. 123R, “Share-Based Payment,” which
        establishes standards for the accounting for transactions in which an entity
        exchanges its equity instruments for goods or services. 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
        Company
        utilizes the Black-Scholes option pricing model to determine fair value.
        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
        collectability of outstanding accounts receivable.
 
 The
        Company maintains its cash accounts with major banks in China, which do not
        provide deposit insurance.
 
 Earnings
        per Share
 
 The
        Company computes earnings per share (“EPS’) in accordance with Statement of
        Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”),
        and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS
        No. 128 requires companies with complex capital structures to present basic
        and diluted EPS.  Basic EPS is measured as net income divided by the
        weighted average common shares outstanding for the period.  Diluted EPS is
        similar to basic EPS but presents the dilutive effect on a per share basis
        of
        potential common shares (e.g., convertible securities, options and warrants)
        as
        if they had been converted at the beginning of the periods presented, or
        issuance date, if later.  Potential common shares that have an
        anti-dilutive effect (i.e., those that increase income per share or decrease
        loss per share) are excluded from the calculation of diluted EPS.
 
 The
        calculation of diluted weighted average common shares outstanding for the
        three
        months and nine months ended June 30, 2008 and 2007 is based on the average
        of
        the closing price of the Company’s common stock during such periods, and is
        applied to options and warrants using the treasury stock method to determine
        if
        they are dilutive. The common stock issuable upon conversion of the convertible
        preferred stock and convertible notes payable is included on an “as if
        converted” basis when the preferred stock and convertible notes are dilutive.
        For the nine months ended June 30, 2008, 2,735 shares issuable pursuant to
        convertible notes payable were excluded from the fully diluted calculation
        as
        they were anti-dilutive for that period .
 
 13
 The
        following table is a reconciliation of the weighted average shares used in
        the
        computation of basic and diluted earnings per share for the periods presented
        (amounts in thousands, except per share data):
 Three Months Ended June
                    30,2008
                
                2007Weighted
                
                
                
                
                
                WeightedNet
                
                Average
                
                
                
                Net
                
                AverageIncome
                
                Shares
                
                Per
                    Share
                
                Income
                
                Shares
                
                Per
                    ShareNet
                    income per share - basic
                
                $
                4,016
                
                
                15,709
                
                $
                0.26
                
                $
                1,946
                
                
                13,890
                
                $
                0.14Effect
                    of dilutive securities:Convertible
                    notes payable
                
                
                635
                
                
                2,735
                
                
                
                
                
                —
                
                
                —Options
                    and warrants
                
                
                
                
                
                1,175
                
                
                
                
                
                —
                
                
                572Convertible
                    preferred stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                117Net
                    income per share - diluted
                
                $
                4,651
                
                
                19,619
                
                $
                0.24
                
                $
                1,946
                
                
                14,579
                
                $
                0.13
  Nine Months Ended June
                    30,2008
                
                2007Weighted
                
                
                
                
                
                WeightedNet
                
                Average
                
                
                
                Net
                
                AverageIncome
                
                Shares
                
                Per
                    Share
                
                Income
                
                Shares
                
                Per
                    ShareNet
                    income per share - basic
                
                $
                9,178
                
                
                15,709
                
                $
                0.58
                
                $
                3,412
                
                
                9,981
                
                $
                0.34Effect
                    of dilutive securitiesConvertible
                    notes payable
                
                
                —
                
                
                —
                
                
                
                
                
                —
                
                
                —Options
                    and warrants
                
                
                
                
                
                1,241
                
                
                
                
                
                —
                
                
                1,441Convertible
                    preferred stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,839Net
                    income per share - diluted
                
                $
                9,178
                
                
                16,950
                
                $
                0.54
                
                $
                3,412
                
                
                13,261
                
                $
                0.26
  Comprehensive
        Income (Loss)
 
 The
        Company has adopted the provisions of SFAS 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 or loss to include all changes in equity except those
        resulting from investments by owners and distributions to owners, including
        adjustments to minimum pension liabilities, accumulated foreign currency
        translation, and unrealized gains or losses on marketable securities.
 
 The
        Company’s only component of other comprehensive income is foreign currency
        translation gain of $1,422,,000 and $177,000 for the three months ended June
        30,
        2008 and 2007, respectively, and $5,155,,000 and $374,000 for the nine months
        ended June 30, 2008 and 2007, respectively. This foreign currency translation
        gain has been recorded as a separate component of stockholders’ equity.
  14
  Reclassification
 
 Certain
        amounts have been reclassified from their presentation in 2007 to conform
        to the
        current year’s presentation. Such reclassification did not have any effect on
        total assets, total liabilities, income from operations or net
        income.
 
 New
        Accounting Pronouncements
 
 In
        September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
        No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
        establishes a framework for measuring fair value, and expands disclosures
        about
        fair value measurements. SFAS 157 is effective as of the beginning of the
        first
        fiscal year that begins after November 15, 2007. As such, the Company is
        required to adopt these provisions at the beginning of the fiscal year beginning
        October 1, 2008. The Company is currently evaluating the impact of SFAS 157
        on
        its consolidated financial statements.
 
 In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No. 159, “The Fair Value Option for Financial Assets and Financial
        Liabilities” (“SFAS No. 159”), which provides companies with an option
        to report selected financial assets and liabilities at fair value.
        SFAS No. 159’s objective is to reduce both complexity in accounting
        for financial instruments and the volatility in earnings caused by measuring
        related assets and liabilities differently. Generally accepted accounting
        principles have required different measurement attributes for different assets
        and liabilities that can create artificial volatility in earnings.
        SFAS No. 159 helps to mitigate this type of accounting-induced
        volatility by enabling companies to report related assets and liabilities
        at
        fair value, which would likely reduce the need for companies to comply with
        detailed rules for hedge accounting. SFAS No. 159 also establishes
        presentation and disclosure requirements designed to facilitate comparisons
        between companies that choose different measurement attributes for similar
        types
        of assets and liabilities. SFAS No. 159 requires companies to provide
        additional information that will help investors and other users of financial
        statements to more easily understand the effect of the company’s choice to use
        fair value on its earnings. SFAS No. 159 also requires companies to
        display the fair value of those assets and liabilities for which the company
        has
        chosen to use fair value on the face of the balance sheet.
        SFAS No. 159 does not eliminate disclosure requirements included in
        other accounting standards, including requirements for disclosures about
        fair
        value measurements included in SFAS No. 157 and
        SFAS No. 107. SFAS 159 is effective as of the beginning of the first
        fiscal year that begins after November 15, 2007. As such, the Company is
        required to adopt these provisions at the beginning of the fiscal year beginning
        October 1, 2008. The Company is currently evaluating the impact of SFAS 159
        on
        its consolidated financial statements.
 
 In
        December 2007, the FASB issued SFAS No. 141(R), “Business
        Combinations” (“SFAS No. 141(R)”), which requires an acquirer to
        recognize in its financial statements as of the acquisition date (i) the
        identifiable assets acquired, the liabilities assumed, and any noncontrolling
        interest in the acquiree, measured at their fair values on the acquisition
        date,
        and (ii) goodwill as the excess of the consideration transferred plus the
        fair value of any noncontrolling interest in the acquiree at the acquisition
        date over the fair values of the identifiable net assets acquired.
        Acquisition-related costs, which are the costs an acquirer incurs to effect
        a
        business combination, will be accounted for as expenses in the periods in
        which
        the costs are incurred and the services are received, except that costs to
        issue
        debt or equity securities will be recognized in accordance with other applicable
        GAAP. SFAS No. 141(R) makes significant amendments to other Statements
        and other authoritative guidance to provide additional guidance or to conform
        the guidance in that literature to that provided in SFAS No. 141(R).
        SFAS No. 141(R) also provides guidance as to what information is to be
        disclosed to enable users of financial statements to evaluate the nature
        and
        financial effects of a business combination. SFAS No. 141(R) is
        effective for financial statements issued for fiscal years beginning on or
        after
        December 15, 2008. Early adoption is prohibited. The adoption of
        SFAS No. 141(R) will affect how the Company accounts for a business
        combination concluded after September 30, 2009.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
        in Consolidated Financial Statements — an amendment of ARB No. 51”
(“SFAS No. 160”), which revises the relevance, comparability, and
        transparency of the financial information that a reporting entity provides
        in
        its consolidated financial statements by establishing accounting and reporting
        standards that require (i) the ownership interests in subsidiaries held by
        parties other than the parent be clearly identified, labeled, and presented
        in
        the consolidated statement of financial position within equity, but separate
        from the parent’s equity, (ii) the amount of consolidated net income
        attributable to the parent and to the noncontrolling interest be clearly
        identified and presented on the face of the consolidated statement of income,
        (iii) changes in a parent’s ownership interest while the parent retains its
        controlling financial interest in its subsidiary be accounted for consistently
        as equity transactions, (iv) when a subsidiary is deconsolidated, any
        retained noncontrolling equity investment in the former subsidiary be initially
        measured at fair value, with the gain or loss on the deconsolidation of the
        subsidiary being measured using the fair value of any noncontrolling equity
        investment rather than the carrying amount of that retained investment, and
        (v) entities provide sufficient disclosures that clearly identify and
        distinguish between the interests of the parent and the interests of the
        noncontrolling owners. SFAS No. 160 amends FASB No. 128 to
        provide that the calculation of earnings per share amounts in the consolidated
        financial statements will continue to be based on the amounts attributable
        to
        the parent. SFAS No. 160 is effective for financial statements issued
        for fiscal years, and interim periods within those fiscal years, beginning
        on or
        after December 15, 2008. Early adoption is prohibited.
        SFAS No. 160 shall be applied prospectively as of the beginning of the
        fiscal year in which it is initially applied, except for the presentation
        and
        disclosure requirements which shall be applied retrospectively for all periods
        presented. The Company has not yet determined the affect on its consolidated
        financial statements, upon adoption of SFAS No. 160.
  15
 In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
        and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS No.
        161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No.
        133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
        133”). The objective of SFAS No. 161 is to provide users of financial statements
        with an enhanced understanding of how and why an entity uses derivative
        instruments, how derivative instruments and related hedged items are accounted
        for under SFAS No. 133 and its related interpretations, and how derivative
        instruments and related hedged items affect an entity’s financial position,
        financial performance, and cash flows. SFAS No. 161 requires qualitative
        disclosures about objectives and strategies for using derivatives, quantitative
        disclosures about fair value amounts of and gains and losses on derivative
        instruments, and disclosures about credit-risk-related contingent features
        in
        derivative agreements. SFAS No. 161 applies to all derivative financial
        instruments, including bifurcated derivative instruments (and nonderivative
        instruments that are designed and qualify as hedging instruments pursuant
        to
        paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted
        for
        under SFAS No. 133 and its related interpretations. SFAS No. 161 also amends
        certain provisions of SFAS No. 131. SFAS No. 161 is effective for financial
        statements issued for fiscal years and interim periods beginning after November
        15, 2008, with early application encouraged. SFAS No. 161 encourages, but
        does
        not require, comparative disclosures for earlier periods at initial adoption.
        The Company has not yet determined the affect on its consolidated financial
        statements, if any, upon adoption of SFAS No. 161.
 
 
 **3.
        Account Receivables and Allowance for Doubtful Receivables**
 
 Details
        of the allowance for doubtful receivables deducted from accounts receivable
        are
        as follows (dollars in thousands):
 
 June
                  30, 2008(Unaudited)
              
              September 30, 2007Accounts
                  receivable
              
              $
              20,098
              
              $
              6,105Notes
                  receivable-bank acceptance
              
              
              130
              
              
              —Less:
                  allowance for doubtful accounts
              
              
              (308
              )
              
              (278
              )Balance
              
              $
              19,920
              
              $
              5,827
 
 16
 
 **4.
        Other Receivables and Allowance for Doubtful Receivables**
 
 Details
        of the allowance for doubtful receivables deducted from other receivables
        are as follows (dollars in thousands):
 
 June
                  30, 2008
                (Unaudited)
              
              September 30, 2007Other
                  receivables
              
              $
              11,954
              
              $
              3,800Less:
                  allowance for doubtful accounts
              
              
              (15
              )
              
              (46
              )Balance
              
              $
              11,939
              
              $
              3,754
 
 Other
        receivables from third parties at June 30 2008 include $1,507,420 due from
        Shanghai CNPC for a short term unsecured loan; $218,678 due from Beijing
        Boken
        Compressor for a short term unsecured loan; a $1,179,323 deposit for CNG
        transportation vehicle rental; and $7,642,758 due from Greka for the sales
        of HK
        Power, which is received on July 4, 2008.
 
 The
        balance at September 30, 2007 also includes a $1,946,530 unsecured loan to
        Qingdao Jingrun General Machinery Company (“Jingrun”), which was repaid on
        November 29, 2007, and $532,566 due from CNPC Xingxing Energy for an unsecured
        loan.
 
 **5.
        Due from related parties**
 June
                    30, 2008
                  (Unaudited)
                
                September 30, 2007Accounts
                    receivable
                
                
                
                
                $
                169Other
                    receivables
                
                $
                42
                
                $
                332Balance
                
                $
                42
                
                $
                501
 
 The
        balance of accounts receivable as of September 30, 2007 includes
        receivables from Kangtai, the minority shareholder of Yuhan, for sales made
        by
        Kangtai on behalf Yuhan in the amount of $169,030.
 
 The
        balance of other receivables as of September 30, 2007 includes
        $186,431 from an unsecured loan due from Kangtai, the minority shareholder
        of
        Yuhan, and $145,595 rental fee receivable from Kangtai.
 
 **6.
        Deposits and Prepayments**
 
 The
        balance at June 30, 2008, primarily represents prepayments of $2,508,205
        to
        suppliers for purchases of raw material for CNG truck trailer manufacturing;
        $324,411 for the CNG construction; and a $597,720 deposit for CNG transportation
        vehicle rental.
 
 The
        balance at September 30, 2007, primarily represents prepayments of $2,795,000
        to
        raw material suppliers and service providers for routine manufacturing and
        CNG
        station operations.
 
 17
 **7.
        Other Long-Term Assets**
 
 The
        balance at June 30, 2008 represents prepayments for long-lived assets. The
        balance mainly consists of the following prepayments:
  (a)
              $3,081,046
                  for CNG station equipment. This equipment will be used to construct
                  CNG
                  filling stations as long-term fixed assets;(b)
              $2,801,306
                  for land rental for CNG station building and
                  operation;
 (c)
              $750,000
                  to Hong Kong China New Energy Development Investment Co. Ltd. as
                  an
                  advance for the purchase of 400 million cubic meters natural gas
                  quota
                  from Sinopec.
  The
        balance at September 30, 2007 represents prepayments for long-lived assets.
        The
        balance mainly consists of the following prepayments:
 
 (a)
              $3,962,701
                  for CNG station equipment;(b)
              $4,087,175
                  for acquisition 100% of the equity of
                  Jingrun;
 (c)
              $750,000
                  to Hong Kong China New Energy Development Investment Co. Ltd. as
                  an
                  advance for the purchase of 400 million cubic meters natural gas
                  quota
                  from Sinopec;(d)
              $732,278
                  to Shanghai CNPC Enterprises for 70% equity purchase of Xuancheng
                  Sinoenergy Vehicle Gas Company;
 (e)
              $66,570
                  to Mr.Fuqing Zhu for his five year consulting service agreement
                  with the
                  Company from April 2007 to April
                  2012.
 
 **8.
        Inventories**
  Inventories
        at June 30, 2008 and September 30, 2007 are summarized as follows (dollars
        in
        thousands):
  June
                  30, 2008
                (Unaudited)
              
              September 30, 2007Raw
                  materials
              
              $
              2,718
              
              $
              1,936Work
                  in progress
              
              
              1,819
              
              
              538Finished
                  goods
              
              
              894
              
              
              426Low
                  value consumables
              
              
              5
              
              
              1Total
              
              $
              5,436
              
              $
              2,901
 
 **9.
        Long-Term Investments**
 
 Anhui
        Gather
 
 Anhui
        Gather was incorporated on March 23, 2007, with Hong Kong China New Energy
        Development Investment Co. Ltd. owning a 55% equity interest and Tianjin
        Green
        Fuel (“Green Fuel”) owning a 45% equity interest. On July 4, 2007, the Company
        purchased a 45% equity interest in Anhui Gather from Green Fuel for $2,750,000,
        of which $844,330 was to be paid to Green Fuel for capital paid and its costs
        incurred in obtaining the right to receive 200 million cubic meters of natural
        gas from Sinopec, and $1,905,670 to be paid to Anhui Gather as a capital
        contribution. As of June 30, 2008, the Company has paid $844,330 to Green
        Fuel
        and contributed $439,097 in paid-in capital to Anhui Gather, for a total
        of
        $1,283,427, and has recorded an investment loss of $40,419 under the equity
        method for the 9-month ended June 30, 2008. As of June 30, 2008, Anhui Gather
        is
        in the development stage and has not yet commenced
        operations.
  Hong
        Kong
        Giant Power International Investment Ltd.
 
 Hong
        Kong
        Giant Power International Investment Ltd is a holding company, that, through
        its
        four subsidiaries, specializes in investing in CNG in China. On January 24,
        2008, the Company acquired all of the equity of Hong Kong Giant Power
        International Investment Ltd. (“HK Power”) from its shareholders, who were
        unrelated to the Company. The acquisition cost was RMB64 million (equivalent
        to
        $8,865,713 at the date of acquisition ) in cash,. In June 2008, the Company
        signed an equity transfer agreement with an unrelated party to sell its 100%
        equity interest in HK Power for $10.68 million, which the Company received
        the
        first payment on June 24, 2008 and the second payment on July 4, 2008
        respectively. The Company recorded a gain of $1,737,955 on the sale of its
        interest, which the Company recorded as a line item in other income (expense)
        in
        the statement of operations.
 
 18
 Sinogas
 
 On
        April
        24, 2008, Sinogas entered into an agreement with five investors pursuant
        to
        which the investors agreed to invest RMB 116,760,000 (approximately $16,819,360)
        in Sinogas to increase its registered capital. As a result of the transaction,
        the Company, through Sinoenergy Holding, will own a 75.05% equity interest
        in
        Sinogas, Jiaxing Li Ou will own a 3.95% equity interest in Sinogas, and the
        investors will own a 21% equity interest in Sinogas. The sale of the equity
        interest contemplated by the agreement is subject to government approval,
        which
        is currently pending.
 
 The
        Company has received $14,590,000 from the investors in anticipation of
        government approval. In the event that the government approval is not obtained,
        the Company will be required to refund the payment to the investors. As a
        result, this payment to the investors is reflected as “Payable to investors in
        subsidiary” on the balance sheet. Upon receipt of government approval, this
        transaction will be accounted for as sale of the subsidiary’s shares and a
        minority interest, the Company will calculate the gain or loss on sale of
        the
        shares when the final approval is received based on operations of the subsidiary
        to the date of the approval.
 
 The
        dollar equivalents of the payments designated in RMB are based on the currency
        exchange rate of RMB7.00 per US$1.00, which was the exchange rate on April
        14 **,** 2008.
        Since the payments are made in RMB, the value in United States dollars is
        provided for information purposes only.
 
 
 **10.
        Property, Plant and Equipment**
 
 As
        of
        June 30, 2008 and September 30, 2007, property, plant and equipment consist
        of
        the following (dollars in thousands):
 
 June
                  30, 2008 (Unaudited)
              
              September 30, 2007**Cost**Buildings
                  and facility
              
              $
              4,269
              
              $
              3,173Machinery
                  equipment
              
              
              4,642
              
              
              1,501Motor
                  vehicles
              
              
              821
              
              
              621Office
                  equipment and other
              
              
              287
              
              
              180Construction
                  in process
              
              
              16,470
              
              
              3,879Total
              
              
              26,489
              
              
              9,354**Accumulated
                  depreciation**
              
              
              (1,494
              )
              
              (966
              )**Net
                  Book Value**
              
              $
              24,995
              
              $
              8,388
 
 **11.
        Intangible Assets**
 
 As
        of
        June 30, 2008 and September 30, 2007, intangible assets consist of the following
        (dollars in thousands):
 
 June
                  30, 2008
                (Unaudited)
              
              September 30, 2007**Cost**Patent
                  and technology know-how
              
              $
              379
              
              $
              350Land
                  use rights
              
              
              32,716
              
              
              18,856Total
              
              
              33,095
              
              
              19,206**Accumulated
                  amortization**
              
              
              (2,213
              )
              
              (675
              )**Net
                  Book value**
              
              $
              30,882
              
              $
              18,531
 
 19
 Patents
        and technology know-how is being amortized over 10 years through September
        2014.
        Included in the cost of patent and technology know-how is $91,000, which
        represents the technical know-how purchased, while $226,000 represents the
        technical know-how contributed from Kangtai (minority shareholder) when Yuhan
        was incorporated. An additional $42,000 represents the patent and know-how
        of
        Jiaxing Lixun.
 
 The
        land
        use right represents four parcels of land purchased by the Company, which
        are
        held by Sinogas, Jingrun, Xuancheng, Qingdao Sinoenergy and Jiaxing Lixun.
        The
        land use rights are being amortized over the following periods for which
        they
        are transferable and renewable:
 
 Owner
              
              Cost
              
              TermLand
                  use right owned by Sinogas
              
              $
              20,647
              
              
              50
                  years from May 2007Land
                  use right owned by Jingrun
              
              
              5,198
              
              
              50
                  years from December 2007Land
                  use right owned by Xuancheng Sinoenergy
              
              
              948
              
              
              50
                  years from June 2008Land
                  use right owned by Qingdao Sinoenergy
              
              
              5,557
              
              
              (1)Land
                  use right owned by Jiaxing Lixun
              
              
              366
              
              
              50
                  years from June 2008Total
              
              $
              32,716
 
 (1)
        These
        land use rights have not yet been transferred to the Company. The Company
        has
        applied to the applicable government agency and is awaiting government approval.
        The transfer will be made upon receipt of government approval. The Company
        believes that the approvals will be obtained.
  The
        land
        use right owned by Sinogas represents two parcels of land located in the
        central
        portion of Qingdao City, on which Sinogas and Yuhan’s offices and
        manufacturing facilities are located. The land use right was purchased by
        the
        Company from Beijing Sanhuan, the predecessor shareholder of Sinogas, for
        a
        price of RMB160 million, equivalent to US$22.80 million based on the current
        exchange rate. The land is being amortized from May 2007 over a 50-year
        term. On March 1, 2008, Sinogas entered into a land lease agreement with
        Qingdao
        Mingcheng Real Estate Co., Ltd. (“Qingdao Mingcheng”), an unrelated party, for a
        term of three years beginning in January 2008 and expiring on December 31,
        2010,
        for a price of RMB40 million per year, equivalent to approximately $5.7 million
        per year based on the current exchange rate. The lease also gives Qingdao
        Mingcheng a right of first refusal to purchase the property at a value to
        be
        negotiated if Sinogas proposes to sell the property during the term of the
        lease.
 
 On
        December 15, 2007, the Company purchased all of the equity of Jingrun, whose
        sole asset is the land use right and construction in progress, for approximately
        RMB60 million ($8.5 million based on the current exchange rate). The cost
        of the land use right paid by the Company was approximately RMB35 million
        ($4.99
        million based on the current exchange rate.) The land is being amortized
        from
        the beginning of calendar year 2008 over a 50-year term.
 
 The
        land
        use right owned by Xuancheng was purchased by the Company from Shanghai CNPC
        Enterprises Group at a price of RMB6.5 million ($926,058 based on the current
        exchange rate). The Company has paid the purchase price, and obtained the
        title
        deed for the land.
 
 20
 On
        January 4, 2008, the Company purchased all of the equity of Qingdao Shan
        Yang
        Tai Chemistry Resources Development Co., Ltd. (“QDSY”), whose sole asset is the
        land use right and construction in progress,  for approximately RMB43
        million. The cost of the land use right paid by the Company was approximately
        RMB30 million ($4.31 million based on the current exchange rate.) The land
        is
        being amortized from the beginning of calendar year 2008 over a 50-year
        term.
 
 In
        June
        2008, Jiaxing Lixun acquired new land for $366,000, which will be used for
        construction of a new plant.
 
 **12.
        Goodwill**
 
 The
        amount of goodwill in the consolidated financial statements at June 30, 2008
        and
        September 30, 2007 is as follows (dollars in thousands):
 
 Transactions
              
              June
                  30, 2008
                (Unaudited)
              
              September 30, 2007Purchase
                  of an additional 35% interest in Yuhan
              
              $
              676
              
              $
              676Purchase
                  of 90% equity in Jiaxing Lixun
              
              
              646
              
              
              53Purchase
                  of a 70% equity in Xuancheng Sinoenergy
              
              
              29
              
              
              —Total
              
              $
              1,351
              
              $
              729
  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. The agreement, as amended, gave the company
        the
        right to buy the remaining 10% interest in Yuhan during the first six months
        of
        2008 for approximately $640,000. The consolidated balance sheet reflects
        goodwill of $676,000, which represents the excess of the purchase price for
        35%
        of Yuhan’s equity over 35% of Yuhan’s tangible assets at date of acquisition. In
        January 2008, the Company paid the remainder of the purchase price and now
        owns
        100% of Yuhan. As of June 30, 2008, the Company’s financial statements
        reflect a 100% ownership of Yuhan.
 
 In
        March
        2007, the Company purchased a 60% interest in Jiaxing Lixun Automotive
        Electronic Co, Ltd (“Lixun”) from its shareholders, for a total cash
        payment of $310,310. The consolidated balance sheet at September 30, 2007
        reflects goodwill of $52,385, which represents the excess of the purchase
        price over the tangible assets of Lixun at the date of acquisition. In July
        2007, the shareholders provided a further contribution to capital of $700,000
        which increased the Company’s interest to 70%. In May 2008, the Company
        purchased the remaining 30% interest with a total cash payment of $1,144,852,
        including goodwill of $593,047. As of June 30, 2008, the company’s financial
        statements reflect a 100% ownership of Lixun
 
 Xuancheng
        Sinoenergy was established on March 26, 2007. Upon incorporation, Shanghai
        CNPC
        owned a 70% interest and Sinogas owned a 30% interest. On November 6, 2007,
        the
        Company purchased the 70% equity interest owned by Shanghai CNPC for $958,000.
        The consolidated balance sheet as of June 30, 2008 reflects goodwill of $28,614,
        which represents the excess of the purchase price over the tangible
        assets of Xuancheng at the date of acquisition.
 
 The
        Company monitors the impairment of goodwill on a continuous basis. As of
        June
        30, 2008, there were no indications that the carrying amount of the goodwill
        was
        impaired.
  21
 **13.
        Short Term Bank Loans**
 
 The
        following table summarizes the contracted short-term borrowings between the
        banks and the Company as of June 30, 2008 (dollars in thousands):
 
 Bank Name
              
              Purpose
              
              BorrowingDate
              
              Maturity date
              
              Annual
                Interest
                Rate
              
              AmountBank
                  of Communication
              
              
              Working
                  Capital
              
              
              14-Aug-2007
              
              
              14-Aug-2008
              
              
              7.29
              %
              
              5,831Bank
                  of Communication
              
              
              Working
                  Capital
              
              
              9-Sep-2007
              
              
              9-Sep-2008
              
              
              7.29
              %
              
              5,832Total
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              11,663
 
 
 The
        following table summarizes the contracted short-term borrowings between the
        banks and the Company as of September 30, 2007 (dollars in
        thousands):
 
 Bank Name
              
              Purpose
              
              Borrowing Date
              
              Maturity date
              
              Annual
                Interest
                Rate
              
              AmountShenzhen
                  Development Bank
              
              
              Working
                  Capital
              
              
              27-Nov
                  -2006
              
              
              27-Nov
                  -2007
              
              
              5.58
              %
              $
              863CITIC
                  Bank
              
              
              Working
                  Capital
              
              
              29-March-2007
              
              
              29-March-2008
              
              
              7.02
              %
              
              666Bank
                  of Communication
              
              
              Working
                  Capital
              
              
              30-April-2007
              
              
              30-April-2008
              
              
              6.39
              %
              
              2,662Bank
                  of Communication
              
              
              
              
              
              14-Aug-2007
              
              
              14-Aug-2008
              
              
              7.29
              %
              
              5,326Bank
                  of Communication
              
              
              Working
                  Capital
              
              
              9-Sep-2007
              
              
              9-Sep-2008
              
              
              7.29
              %
              
              5,326Total
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              14,843
 
 The
        Company repaid the short term bank loans as scheduled.
 
 **14.
        Other Payables**
 
 Other
        payables to third parties at June 30, 2008 primarily consist of (i) $1,364,656
        payable for the acquisition of QingDao Shan Yang Tai; (ii) $1,494,777 payable
        for the acquisition of HK Power; (iii) $1,314,090 for an unsecured loan payable
        to Hubei Yinghua; and (iv) $867,416 of taxes payable.
 
 Other
        payables to third parties at September 30, 2007 primarily consist of $145,500
        payable for professional fees, and $928,166 payable for value added tax,
        business tax and other surtaxes.
 
 **15.
        Due to related parties**
 
 Other
        payables to related parties at June 30, 2008 primarily consist of $2,167,535
        payable to Beijing Sanhuan for the balance of the purchase price of the land
        use
        right; and $3,717 payable to Kangtai for the unsecured loan.
 
 Other
        payables to related parties at September 30, 2007 includes $3,235,671 payable
        to
        Beijing Sanhuan for the balance of the purchase price of the land use right;
        $310,664 payable to Kangtai for the unpaid portion of the 35% acquisition
        of the
        equity of Yuhan by the Company; $44,895 payable to Xuancheng Sinoenergy for
        an
        unsecured loan; $67,000 payable for a know-how fee payable to Beijing
        Sanhuan; $1,331 payable due to Mr. Guiqiang Shi, a stockholder of Kangtai;
        and $19,128 due to Mr. Tanzhou Deng, the chairman of the Company.
 
 22
  **16.
        Advances from Customers**
 
 Advances
        from customers at June 30, 2008 and September 30, 2007 consist primarily
        of
        advances received for future sales.
  **17.
        Income Taxes Payable**
 
 Pursuant
        to the PRC income tax laws, the Company’s PRC subsidiaries are generally subject
        to enterprise income tax at a statutory rate of 33%, which comprises 30%
        national income tax and 3% local income tax. Beginning January 1, 2008, the
        Company’s PRC subsidiaries are generally subject to enterprise income tax at a
        statutory rate of 25%.
 
 As
        PRC
        subsidiaries that qualify as wholly foreign owned manufacturing enterprises,
        Sinogas, Yuhan and Jiaxing Lixun were granted tax preferences. Sinogas and
        Yuhan
        are entitled to a 100% enterprise income tax exemption for calendar years
        2006
        and 2007 and a 50% enterprise income tax exemption for the following three
        years
        (2008 through 2010). Jiaxing Lixun is entitled to a 100% tax
        exemption from August 2007 through 2008 and a 50% enterprise
        income tax exemption for the following three calendar years (2009 through
        2011).
  Under
        the
        current tax laws of the PRC, the Company’s other PRC subsidiaries, Wuhan
        Sinoenergy and, Pingdingshan Sinoenergy will each be entitled to a two-year
        100%
        tax exemption followed by three years of a 50% tax exemption
        once they become profitable.
 
 No
        provision for United States or other overseas tax is made as Sinoenergy
        Corporation and Sinoenergy Holding Limited are both investment holding
        companies, and have no taxable income in the United States or the British
        Virgin
        Islands for the three months and nine months ended June 30, 2008 and
        2007.
 
 The
        reconciliation between the income tax computed at the United States statutory
        tax rate and the Company’s provision for income tax is as follows:
  Three months
                ended
                  June
              
              Three months
                ended
                  June30, 2008
              
              30,
                  2007U.S.
                  statutory rate
              
              
              34
              %
              
              34
              %Foreign
                  income not recognized in the U.S.
              
              
              (34
              )%
              
              (34
              )%PRC
                  Enterprise Income Tax
              
              
              25
              %
              
              33
              %Tax
                  holiday granted to the subsidiaries in PRC
              
              
              (20
              )%
              
              (33
              )%Effective
                  tax rate
              
              
              5
              %
              
              —
              %
 
 
 
 Nine
                  months ended June
              
              Nine months
                  ended June30, 2008
              
              30, 2007U.S.
                  statutory rate
              
              
              34
              %
              
              34
              %Foreign
                  income not recognized in the U.S.
              
              
              (34
              )%
              
              (34
              )%PRC
                  Enterprise Income Tax
              
              
              25
              %
              
              33
              %Tax
                  holiday granted to the subsidiaries in PRC
              
              
              (20
              )%
              
              (33
              )%Effective
                  tax rate
              
              
              5
              %
              
              —
              %
 
 23
  In
        accordance with the relevant tax laws and regulations of PRC, the corporation
        statutory income tax rate is 25%. However, the Company’s subsidiaries have
        been granted has exemption’s from all or part of the corporate income tax
        for various periods. The pro forma effect of this exemption is as
        follows:
 
 Nine
                   months ended
                June
                  30, 2008
              
              Three months ended
                June
                  30 , 2008
              
              Nine months ended
                June
                  30, 2007
              
              Three months ended
                June
                  30 , 2007Statutory
                  income tax rate
              
              
              25
              %
              
              25
              %
              
              25
              %
              
              25
              %Estimated
                  exempted income tax rate
              
              
              5
              %
              
              5
              %
              
              5
              %
              
              5
              %Income
                  tax exemption
              
              $
              2,092
              
              $
              1,016
              
              $
              684
              
              $
              419Tax
                  effect derived from exemption
                (per
                  share)
              
              $
              0.07
              
              $
              0.03
              
              $
              0.02
              
              $
              0.01
 
 **18.
        Long Term Notes Payable**
 
 On
        September 1, 2007, the Company entered into a note purchase agreement (the
“Note
        Purchase Agreement”) pursuant to which two investors agreed to purchase the
        Company’s 12% guaranteed senior notes due 2012 in the principal amount of
        $16,000,000 and 3.0% guaranteed senior convertible notes due 2012 in the
        principal amount of $14,000,000. The convertible notes were initially
        convertible into common stock at an initial conversion price of $6.34 per
        share,
        which represents a 25% premium of the 30 trading days volume weighted average
        price ending August 31, 2007. The conversion price has been reduced to $5.125
        as
        described below.
 
 The
        closing pursuant to the Note Purchase Agreement occurred on September 28,
        2007,
        and the Company received the net proceeds from the financing on October 8,
        2007.
        In addition, the Company’s chief executive officer and its chairman, both of
        whom are directors, executed non-competition agreements with the
        Company.
  The
        Company paid the investors an arrangement fee of $160,000, which was deducted
        from the proceeds payable to the Company.
  The
        convertible notes were issued pursuant to an indenture between the Company
        and
        with DB Trustees (Hong Kong) Limited, as trustee. The convertible notes are
        due
        in September 2012 and bear interest at the stated interest rate of 3% per
        annum.
        Although the stated interest rate is 3% per annum, if the convertible notes
        are
        not redeemed or converted or purchased and cancelled by the maturity date,
        the
        Company is required to redeem the convertible notes at the amount which results
        in a yield to maturity of 13.8% per annum, net of interest previously received,
        plus any interest accrued on overdue principal (and, to the extent lawful,
        on
        overdue interest) and premium, if any, at a rate which is 3% per annum in
        excess
        of the rate of interest then in effect. As a result, the Company is accruing
        interest at the rate of 13.8% per annum. Since the Company is only required
        to
        pay interest currently at the interest rate of 3%, the remaining 10.8% interest
        rate is accrued and treated as deferred interest payable. If the convertible
        notes are converted, the deferred interest payable will be credited to
        additional paid in capital.
 
 The
        convertible note indenture requires the Company to offer to purchase the
        Notes
        at a price which would generate a 13.8% yield if either of the following
        events
        shall occur:
  24
  •
              The
                  occurrence at any time after the Company’s common stock is listed on the
                  Nasdaq Stock Market of any event in connection with which all or
                  substantially all of the Company’s common stock is exchanged for,
                  converted into, acquired for or constitutes solely the right to
                  receive,
                  consideration which is not all or substantially all common stock
                  or other
                  equity securities listed on the Nasdaq Stock Market or any similar
                  United
                  States system of automated dissemination of quotations of securities
                  prices.
  •
              At
                  any time after the Company’s common stock is listed on the Nasdaq Stock
                  Exchange, the common stock is neither listed for trading on a United
                  States national or regional securities exchange or the Nasdaq Stock
                  Market.
  •
              Trading
                  in the Company’s common stock on any exchange or market has been suspended
                  for ten or more consecutive trading
                  days.
  The
        indenture also requires the Company to pay additional interest as
        follows:
  •
              At
                  the rate of 3.0% per annum if the Company has not obtained a listing
                  of
                  its common stock on the Nasdaq Global Market or the Nasdaq Capital
                  Market
                  by September 19, 2008 and maintained such listing continuously
                  thereafter
                  as long as the Notes are
                  outstanding.
  •
              At
                  the rate of 1.0% for each 90-day period in which the Company has
                  failed to
                  comply with the registration obligations under the registration
                  rights
                  agreement.
  The
        holders of the Notes have the right to convert their Notes into common stock
        at
        a conversion price of $6.34 per share, subject to adjustment. In June 2008,
        as a
        result of the provisions of the indenture that provided for an adjustment
        in the
        conversion price based on the market price as of March 23, 2008 and pursuant
        to
        a supplemental indenture dated as of June 23, 2008, the conversion price
        was
        reduced to $2.5625, which is subject to adjustment. The provisions for
        adjustment in the conversion price include adjustments for the
        following.
  •
              A
                  stock distribution or dividend, a reverse split or combination
                  of shares
                  and the distribution of shares, warrants, assets or indebtedness
                  to our
                  stockholders;
  •
              A
                  sale of common stock at a price, or the issuance of options, warrants
                  or
                  other convertible securities with an exercise or conversion price,
                  which
                  is less than the conversion price at the time, subject to limitations
                  provided in the investor rights agreement;
                  and
  •
              An
                  adjustment based on the volume weighted average price of the common
                  stock
                  on September 28, and March 28, of each year during the term of the
                  notes, commencing March 28, 2008, such that if the volume weighted
                  average
                  price of the common stock for the 15 trading days preceding the
                  applicable
                  September 28 or March 28 is made is less than the conversion price
                  then in
                  effect, then the conversion price is reduced to the greater of
                  the volume
                  weighted average price or $4.20 per share;
                  and
  •
              An
                  adjustment based on the Company’s failure to have consolidated net income,
                  as defined in the indenture, of $7.5 million for 2007, $14.0 million
                  for
                  2008 and $22.5 million for 2009, or the equivalent in RMB. The
                  investors
                  have waived the right to any adjustment based on 2007 net
                  income.
  If
        the Company’s consolidated net income does not reach the stated level for 2008
        or 2009, the conversion rate, which is the number of shares of common stock
        issuable upon conversion of $100,000 principal amount of convertible notes,
        shall be adjusted in accordance with the following formula. Conversion rate
        then
        in effect + [(A x B)/ C], where
  25
 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 15,773 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 issued and outstanding
        common stock immediately prior to such issuance or grants.
  The
        investors have waived the right to an adjustment in the conversion rate for
        2007. The following table sets forth a computation of the resulting conversion
        price if (a) the target levels are not met for both 2008 and 2009, (b) the
        number of fully diluted shares of common stock (other than shares issuable
        upon
        conversion of the convertible notes) through the end of 2009, and (c) none
        of
        the notes are converted. Any change in any of these components will affect
        the
        amount of any adjusted conversion rate and conversion price.
  Conversion Rate
              
              Conversion Price
              
              Conversion Rate
              
              Conversion PriceYear
              
              Beginning of
                Year*
              
              Beginning of
                Year
              
              As Adjusted
              
              As Adjusted2008
              
              
              19,512
              
              
              5.125
              
              
              23,814
              
              
              4.1992009
              
              
              23,814
              
              
              4.199
              
              
              28,245
              
              
              3.540
  *
        The
        conversion rate at the beginning of the year has been adjusted to reflect
        the
        adjustment made pursuant to the indenture as supplemented by a supplemental
        indenture dated as of June 23, 2008.
 
 If
        the Company’s common stock is not listed on the Nasdaq Global Market or the
        Nasdaq Capital Market by September 19, 2008, the Company is required to pay
        by
        September 28, 2008, an additional payment on each convertible note in the
        amount
        of 3.3% of the principal amount of such note. The Company has complied with
        this
        requirement.
 
 The
        senior notes mature on September 28, 2012. The Company is required to make
        mandatory prepayments on the senior notes on the following dates and in the
        following amounts:
  
 Date
              
              Principal
                  AmountMarch
                  28, 2010
              
              $
              2,000,000September
                  28, 2010
              
              $
              2,000,000March
                  28, 2011
              
              $
              4,000,000September
                  28, 2011
              
              $
              4,000,000March
                  28, 2012
              
              $
              2,000,000
  26
  Commencing
        September 28, 2008, the Company may redeem the senior notes at the following
        percentage of the principal amount:
  Twelve Months Commencing
                September 28,
              
              Percent of
                Principal2008
              
              
              108.0
              %2009
              
              
              106.0
              %2010
              
              
              104.0
              %2011
                  and thereafter
              
              
              100.0
              %
  The
        indentures for both the convertible notes and the senior notes have certain
        covenants, including the following:
 
 •
              If
                  the Company sells assets and does not reinvest the proceeds in
                  its
                  business within 180 days (270 days in the case of a sale of real
                  property), to the extent that such proceeds not so reinvested exceed
                  $5,000,000, the Company is required to offer the holders of the
                  notes the
                  right to have the Company use such excess proceed to purchase their
                  notes
                  at the principal amount plus accrued
                  interest..
  •
              If
                  there is a change of control, the Company is required to offer
                  to
                  repurchase the notes at 103% of the principal of the note, plus
                  accrued
                  interest. A change of control will occur if Bo Huang or Tianzhou
                  Deng own
                  less than 25% of the voting power of the Company’s voting stock or, with
                  certain exceptions, a merger or consolidation or sale of substantially
                  all
                  of the Company’s and its subsidiaries’
assets.
 
 •
              The
                  Company is restricted from incurring additional debt unless, after
                  giving
                  effect to the borrowing, (i) the fixed charge coverage ratio would
                  be
                  greater than 2.75 to 1.00 for the first year and 3.5 to 1.0 if
                  the debt is
                  incurred thereafter, and (ii) the leverage ratio would not exceed
                  4.25 to
                  1.00 for the first year and 3.75 to 1.00 if the debt is incurred
                  thereafter, provided, that the certain subsidiaries may continue
                  to
                  maintain debt under credit facilities of not more than $15,000,000
                  for the
                  first year and $10,000,000 thereafter, and may incur purchase money
                  indebtedness. The fixed charge coverage ratio is the ratio of the
                  Company’s earnings before interest, taxes, depreciation and amortization,
                  which is generally known as EBITDA, to consolidated interest expense,
                  as
                  defined. Leverage ratio means the ration of outstanding debt to
                  EBITDA,
                  with the interest component being the consolidated interest expense,
                  as
                  defined.
  •
              The
                  Company is subject to restriction in paying dividends, purchasing
                  its own
                  securities or those of its subsidiaries, prepaying subordinated
                  debt, and
                  making any investment other than any investments in itself and
                  its
                  subsidiaries engaged in the Company’s business and certain other permitted
                  investments.
 
 •
              The
                  Company is subject to restrictions on incurring
                  liens.
 
 •
              The
                  Company cannot enter into, or permit its subsidiaries to enter
                  into,
                  transactions with affiliates unless it is in writing, in the Company’s
                  best interest and not less favorable to the Company than it could
                  obtain
                  from a non-affiliate in an arms’ length transaction, with any transaction
                  involving more than $1,000,000 requiring audit committee approval
                  and any
                  transaction involving more than $5,000,000 requiring a written
                  opinion
                  from an independent financial
                  advisor.
 
 •
              The
                  Company shall maintain, as of the last day of each fiscal quarter,
                  (i) a
                  fixed charge coverage ratio of 1.75 to 1.00 for the first six months,
                  2.75
                  to 1.00 for the next six months and 3.0 to 1.00 thereafter, (ii)
                  a
                  leverage ratio of 7.5 to 1.00 through March 31, 2008, 5.0 to 1.00
                  from
                  April 1, 2008 to September 30, 2008, and 4.5 to 1.00 thereafter,
                  and (iii)
                  a consolidated subsidiary debt to consolidated net tangible asset
                  ratio of
                  not more than 0.2 through September 30, 2008 and 0.15 thereafter.The
                  Company was in compliance with such debt covenants at June 30,
                  2008.
  27
  •
              The
                  Company shall make all payments of principal, interest and premium,
                  if
                  any, without withholding or deduction for taxes, and must offer
                  to
                  repurchase the notes if they are adversely affected by changes
                  in tax laws
                  that affect the payments to the
                  holders.
  The
        indentures provide for an event of default in the event that the Company
        fails
        to comply with its obligations under the indentures and certain events of
        bankruptcy or similar relief.
  The
        Company’s obligations are guaranteed by its subsidiaries and are secured by a
        charge on the stock of Sinoenergy Holding.
  The
        Company also entered into an investor rights agreement, as clarified, pursuant
        to which, as long as an investor holds at least $2,000,000 principal amount
        of
        notes or at least 3% of the issued and outstanding stock:
  •
              The
                  investor has the right to approve the Company’s annual budget, and the
                  Company cannot deviate by more than 15% of the amount in the approved
                  budget.
  •
              The
                  Company and its subsidiaries cannot replace or change the substantive
                  responsibilities of the chief executive officer except in the event
                  of his
                  incapacity, resignation or
                  retirement.
  •
              The
                  Company and its subsidiaries cannot take any action that would
                  result in a
                  change of control, as defined in the
                  indentures.
  •
              The
                  Company and its subsidiaries cannot change the number of board
                  members or
                  the composition or structure of the board or board committees or
                  delegate
                  powers to a committee or change the responsibilities and powers
                  of any
                  committee.
 
 •
              The
                  Company shall, by April 1, 2008, have appointed an independent
                  public
                  accountant from a list of 16 firms provided by the investors, failing
                  which the Company shall pay the investors the sum of $2,500,000
                  on April 1
                  of each year in which this condition is not met, and the Company
                  shall not
                  terminate the engagement of such auditor without prior investor
                  approval.
                  The Company has complied with this
                  condition.
  •
              The
                  investors have a right of first refusal on future financings by
                  us and
                  proposed transfers, with limited exceptions, by Mr. Huang and Mr.
                  Deng.
                  The investors also have a tag-along right in connection with proposed
                  sales by Mr. Huang and Mr. Deng.
  The
        investor rights agreement, as clarified, also provides that (i) the Company
        will
        not sell shares of its common stock or grant options or warrants or issue
        convertible securities with an exercise or conversion price that is less
        than
        $0.80 per share, (ii) the minimum conversion price for the convertible debenture
        would be $0.80 per share, (iii) the holders of the convertible notes may
        call an
        event of default if the Company breaches its covenant not to issue shares
        at a
        price which is less than $0.40 per share. If the Company increases its
        authorized common stock, the conversion price would decrease to an amount
        not
        less than $0.05 per share. The Company and the investors agreed to use their
        commercially reasonable efforts to modify the indenture for the convertible
        notes to reflect these provisions of the investor rights agreement.
 
 Management
        reviewed the accounting for these transactions and concluded that the conversion
        option did not constitute an embedded derivative under SFAS No. 133, as the
        Company has sufficient authorized but unissued shares to meet its maximum
        share
        obligations upon conversion, including any reductions in the conversion price.
        However, the transaction includes a beneficial conversion feature pursuant
        to
        EITF 98-5 and 00-27, and the total beneficial conversion feature of $176,656
        was
        charged to additional paid in capital and is being amortized over the life
        of
        the notes commencing October 1, 2007.
 
 As
        a
        result of the reduction in the conversion price from $6.34 to $5.125, which
        caused the Company to recorded an additional beneficial conversion feature
        of
        $3,360,905 as a discount to the notes and additional paid in capital, which
        is
        being amortized as interest expense over the remaining term of the notes
        commencing April 1, 2008.
 
 28
 Mr.
        Huang
        and Mr. Deng are also prohibited from transferring any shares, with limited
        exceptions, until the investors shall have sold, singly or in the aggregate,
        more than 5% of the Company’s total outstanding equity on a fully-diluted
        basis.
  From
        the
        closing date and as long as long as Abax continues to hold more than 5% of
        the
        outstanding shares of common stock on an as-converted basis, (i) Abax shall
        be
        entitled to appoint up to 20% of the voting members (or the next higher whole
        number if such percentage does not yield a whole number) of the Company’s board
        of directors, and (ii) if the Company fails to meet the net income requirements
        under the indenture for the convertible notes, Abax has the right to appoint
        an
        additional director. The Abax director shall be entitled to serve on each
        committee of the board, except that, the Abax director shall not serve on
        the
        audit committee unless he or she is an independent director. Mr. Huang and
        Mr.
        Deng have agreed to vote their shares for the election of the Abax directors.
        The Company is required to amend its by-laws to provide that a quorum for
        action
        by the board shall include at least one Abax director.
  The
        Company is required to prepare and file a registration statement covering
        the
        sales of all of the shares of common stock issuable upon conversion of the
        convertible notes, subject to any limitation required by applicable of Rule
        415
        of the SEC pursuant to the Securities Act of 1933 and to have the registration
        statement declared effective by March 28, 2008. In the event that the
        registration statement has not been declared effective by the SEC on or before
        March 28, 2008 or if effectiveness of the Registration Statement is suspended
        at
        any time other than pursuant to a suspension notice, for each 90-day period
        during which the registration default remains uncured, the Company is required
        to pay additional interest at the rate of one percent 1% of the convertible
        notes, as described above. As of June 30, 2008, the common stock issuable
        upon
        conversion of the notes had not been registered under the Securities Act of
        1933, as amended.
 
 The
        Company has accounted for registration rights liquidated damages in accordance
        with EITF 00-19-2, “Accounting for Registration Payment Arrangements”, and SFAS
        No. 5, “Accounting for Contingencies”.  Accordingly, the Company recorded
        $140,000 and $653,333 as an estimate of liquidated damages payable under
        registration rights agreements for the three months and nine months ended
        June
        30, 2008. The Company will review and adjust this accrual at each subsequent
        period end.
 
 A
        reconciliation of the original principal amount of the 12% senior notes to
        the
        amounts shown on the balance sheet at June 30, 2008 and September 30, 2007
        is as
        follows (amounts in thousands):
 Original
                    amount
                
                $
                16,000Less:
                    note discount
                
                
                (378
                )Balance,
                    September 30, 2007
                
                
                15,622Less:
                    amortization of beneficial conversion feature
                
                
                57Balance,
                    June 30, 2008
                
                $
                15,679
 
 A
        reconciliation of the original principal amount of the 3% senior convertible
        notes to the amounts shown on the balance sheet at June 30, 2008 and September
        30, 2007 is as follows (amounts in thousands):
 Original
                    amount
                
                $
                14,000Less:
                    beneficial conversion feature
                
                
                (177
                )Balance,
                    September 30, 2007
                
                
                13,823Less:
                    amortization of beneficial conversion feature
                
                
                26Add:
                    interest accrued for guaranteed 13.8% return
                
                
                378Add:
                    discount resulting from reset adjustment effective March 28,
                    2008
                
                
                (3,361
                )Less:
                    amortization of discount resulting from reset
                
                
                187Balance,
                    June 30, 2008
                
                $
                11,053
   29
 
 **19.**  **Related
        Party Relationships and Transactions**
  The
        related parties with which the Company had had transactions in the three
        months
        and nine months ended June 30, 2008 and 2007, are as follows:
 
 Name
                  of related party
              
              RelationshipBeijing
                  Sanhuan Technology Development Co., Ltd (Beijing Sanhuan)
              
              Parent
                  company of a subsidiary before November 8, 2005. Legal representative
                  of
                  Beijing Sanhuan is the Company’s CEO before July 2007.****Qingdao
                  Kangtai Machinery Equipment Manufacture Co. Limited
                  (Kangtai)
              
              Minority
                  shareholder of a subsidiary (Yuhan) from May 2005Xuancheng
                  Sinoenegy Vehicle Gas Company
              
              30%
                  equity owner as at September 30, 2007Mr.
                  Guiqiang Shi
              
              Shareholder
                  of KangtaiMr.
                  Tianzhou Deng
              
              Chairman
                  of the Company
  Significant
        transactions between the Company and its related parties during the three
        months
        and nine months ended June 30, 2008 and 2007 are as follows:
 
 (1)  Sales
        and
        purchase transactions with related parties
 
 Name
                  of the Company
              
              For
                  the three months ended June 30,
              
              For
                  the nine months ended June 30,2008
              
              2007
              
              2008
              
              2007Mr.
                  Guili Shi
              
              -None
              
              -None
              
              -None
              
              -Sole
                  25% of equity of Yuhan to the CompanyKangtai
              
              -None
              
              -None
              
              -None
              
              -Sales
                  of $73,837
 
 (2)  Related-company
        receivables
 
 Name
                  of the Company
              
              June
                  30, 2008 (Unaudited)
              
              September
                  30, 2007Kangtai
              
              -None
              
              -$186,431
                  inter-company loan
                -$169,030
                  sales receivable on behalf of the Company
                -$145,595
                  rental fee receivables
 
 (3)  Related-company
        and related party payables
 
 Name
                  of the Company
              
              June
                  30, 2008 (Unaudited)
              
              September
                  30, 2007Beijing
                  Sanhuan
              
              -$2,167,535
                  for the current account balance
              
              -$3,235,671
                  payables to Beijing Sanhuan for balance of the purchase price of
                  the land
                  use right
                -$67,000
                  for use of know-how for CNG station system integrationKangtai
              
              -$3,7173
                  of unsecured loan
              
              -$310,664
                  unpaid balance for 35% equity purchase of YuhanXuancheng
                  Sinoenergy
              
              -None
              
              -$44,895
                  unsecured loanMr.Tianzhou
                  Deng
              
              -None
              
              -$19,128
                  current accountMr.
                  Guiqiang Shi
              
              -None
              
              -$1,331
                  current account
 
 The
        amounts due from and to related parties are interest free, unsecured and
        have no
        fixed term.
 
 30
 **20.
        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.
 
 **21.
        Segment Information**
 
 Operating
        segments are defined by SFAS No.131, “Disclosure about Segments of an Enterprise
        and Related Information”, as components of an enterprise for which separate
        financial information is available that is evaluated regularly by the Company
        in
        deciding how to allocate resources and in assessing performance. At June
        30,
        2008 and 2007, the Company has four operating segments: (i) non-standard
        pressure containers, (ii) CNG station construction and CNG station service,
        (iii) CNG operation business, which is in the development stage, and (iv)
        CNG
        vehicle conversion kits.
  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 and nine months ended June 30, 2008 and 2007 (dollars in
        thousands).
 Three
                    months ended June 30, 2008 (Unaudited)
                
                Non-standard
                  pressure
                  containers
                
                CNG
                  station
                  facilities
                  and
                  construction
                
                CNG
                  station
                  operation
                
                Vehicle
                  conversion
                  kits
                
                TotalNet
                    revenue
                
                $
                1,729
                
                $
                5,270
                
                $
                542
                
                $
                2,663
                
                $
                10,204Cost
                    of revenues
                
                
                938
                
                
                3,235
                
                
                336
                
                
                1,774
                
                
                6,283Gross
                    profit
                
                
                791
                
                
                2,035
                
                
                206
                
                
                889
                
                
                3,921Gross
                    margin
                
                
                46
                %
                
                39
                %
                
                38
                %
                
                33
                %
                
                38
                %Operating
                    expenses:Selling
                    expenses
                
                $
                76
                
                $
                16
                
                $
                51
                
                $
                102
                
                $
                246General
                    and administrative expenses
                
                
                213
                
                
                380
                
                
                138
                
                
                258
                
                
                988Total
                    operating expense
                
                
                289
                
                
                396
                
                
                189
                
                
                360
                
                
                1,234Income
                    from operations
                
                $
                502
                
                $
                1,639
                
                $
                17
                
                $
                529
                
                $
                2,687
 
 
 Three
                  months ended June 30, 2007 (Unaudited)
              
              Non-standard
                  pressure containers
              
              CNG
                  station facilities and construction
              
              CNG
                  station Operation
              
              Vehicle
                  conversion kits
              
              TotalNet
                  revenue
              
              $
              1,236
              
              $
              2,345
              
              
              —
              
              $
              2,600
              
              $
              6,181Cost
                  of revenues
              
              
              615
              
              
              672
              
              
              —
              
              
              1,685
              
              
              2,972Gross
                  profit
              
              
              621
              
              
              1,673
              
              
              —
              
              
              915
              
              
              3,209Gross
                  margin
              
              
              50
              %
              
              71
              %
              
              
              
              
              35
              %
              
              52
              %Operating
                  expenses:Selling
                  expenses
              
              $
              22
              
              $
              10
              
              $
              7
              
              $
              26
              
              $
              65General
                  and administrative expenses
              
              
              214
              
              
              327
              
              
              209
              
              
              178
              
              
              928Total
                  operating expense
              
              
              236
              
              
              337
              
              
              216
              
              
              204
              
              
              993Income
                  (loss) from operations
              
              $
              385
              
              $
              1,336
              
              
              -216
              
              $
              711
              
              $
              2,216
 
 
 31
 
 Nine
                  months ended June 30,
                2008
                  (Unaudited)
              
              Non-standard
                  pressure
                containers
              
              CNG
                  station facilities
                and
                construction
              
              CNG
                station
                operation
              
              Vehicle
                  conversion
                kits
              
              TotalNet
                  revenue
              
              $
              5,400
              
              $
              13,659
              
              $
              892
              
              $
              6,794
              
              $
              26,745Cost
                  of revenues
              
              
              3,076
              
              
              7,140
              
              
              559
              
              
              4,415
              
              
              15,190Gross
                  profit
              
              
              2,324
              
              
              6,519
              
              
              333
              
              
              2,379
              
              
              11,555Gross
                  margin
              
              
              43
              %
              
              48
              %
              
              37
              %
              
              35
              %
              
              43
              %Operating
                  expenses:Selling
                  expenses
              
              $
              169
              
              $
              49
              
              $
              88
              
              $
              233
              
              $
              540General
                  and administrative expenses
              
              
              470
              
              
              1,453
              
              
              240
              
              
              800
              
              
              2,963Total
                  operating expense
              
              
              640
              
              
              1,502
              
              
              328
              
              
              1,033
              
              
              3,503Income
                  from operations
              
              $
              1,685
              
              $
              5,017
              
              $
              5
              
              $
              1,346
              
              $
              8,052
 
 Nine
                  months ended June 30, 2007 (Unaudited)
              
              Non-standard
                  pressure containers
              
              CNG
                  station facilities and construction
              
              CNG
                  station Operation
              
              Vehicle
                  conversion kits
              
              TotalNet
                  revenue
              
              $
              3,132
              
              $
              5,704
              
              
              0
              
              $
              2,600
              
              $
              11,436Cost
                  of revenues
              
              
              1,827
              
              
              1,982
              
              
              0
              
              
              1,685
              
              
              5,494Gross
                  profit
              
              
              1,305
              
              
              3,722
              
              
              —
              
              
              915
              
              
              5,942Gross
                  margin
              
              
              42
              %
              
              65
              %
              
              
              
              
              35
              %
              
              52
              %Operating
                  expenses:Selling
                  expenses
              
              $
              52
              
              $
              58
              
              $
              7
              
              $
              26
              
              $
              143General
                  and administrative expenses
              
              
              579
              
              
              849
              
              
              569
              
              
              178
              
              
              2175Total
                  operating expense
              
              
              631
              
              
              907
              
              
              576
              
              
              204
              
              
              2,318Income
                  (loss) from operations
              
              $
              674
              
              $
              2,815
              
              
              (576
              )
              $
              711
              
              $
              3,624
 
 **22.
        Capital Stock**
 
 As
        of
        June 30, 2008 and September 30, 2007, the Company had the following shares
        of
        common stock reserved for issuance:
  32
  •
              873,214
                  shares issuable upon exercise of the warrants issued in the June
                  2006
                  private placement and issued for services of investment relations
                  company;•
              2,208,202
                  shares issuable upon conversion of 3% senior guaranteed convertible
                  notes;
 •
              1,000,000
                  shares issuable upon exercise of stock options or other equity-based
                  incentives pursuant to the Company’s 2006 long-term incentive
                  plan.
 
 Number of shares issuable on exercise of warrants$1.70
                Warrants
              
              $2.40
                Warrants
              
              $3.50
                Warrants
              
              $4.20
                Warrants
                for
                services
                outsourced
              
              TotalBalance
                  at September 30, 2007
              
              
              342,858
              
              
              455,357
              
              
              —
              
              
              75,000
              
              
              873,215Issued
                  during the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Exercised
                  during the period
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Balance
                  at June 30, 2008
              
              
              342,858
              
              
              455,357
              
              
              —
              
              
              75,000
              
              
              873,215
 
 As
        at
        June 30, 2008, the average exercise price for the above mentioned warrants
        is
        $2.28.
 
 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
        15,000 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 2,500 shares of common stock on the first trading day
        in April of each calendar year, at market price, subject to stockholder approval
        of the plan, commencing in 2007. Pursuant to the automatic grant provisions
        of
        the plan, in June 2006, the Company issued to its independent directors,
        options
        to purchase an aggregate of 60,000 shares of common stock at $1.30 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 2,500 shares of common stock on
        the first trading day in April of each calendar year at market price. On
        April 1, 2007, the four independent directors were granted 10,000 stock options
        at an exercise price of $4.06 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 590,000 shares of common stock at $4.00 per
        share, being the fair market value on the date of grant. These options vest
        as
        to 50% of the underlying shares of common stock on August 3, 2007 and as
        to the
        remaining 50% on August 3, 2008.
 
 On
        January 9, 2008, pursuant to 2006 long-term incentive plan, the stock option
        committee of the board of directors granted five year options to its senior
        managers and key management to acquire 60,000 shares of common stock at $8.20
        per share, being the fair market value on the date of grant. These options
        vest
        as to 50% of the underlying shares of common stock on January 9, 2009 and
        as to
        the remaining 50% on January 9, 2010.
 
 On
        March
        10, 2008, pursuant to 2006 long-term incentive plan, the stock option committee
        of the board of directors granted five year options to its senior mangers
        and
        key management to acquire 40,000 shares of common stock at $6.20 per share,
        being the fair market value on the date of grant. The options vest as to
        42% of
        the underlying shares of common stock on December 31, 2008, 50% on December
        31,
        2009 and as to the remaining 8% on March 9, 2010.
 
 33
  On
        June
        1, 2008, pursuant to 2006 long-term incentive plan, the stock option committee
        of the board of directors granted five year options to its senior mangers
        and
        key management to acquire 75,000 shares of common stock at $5.36 per share,
        being the fair market value on the date of grant. The options vest as to
        29% of
        the underlying shares of common stock on December 31, 2008, 50% on December
        31,
        2009 and as to the remaining 21% on June 1, 2010.
  Shares subject
                to options
              
              Weighted average
                exercise price
              
              Remaining
                contractual lifeOptions
                  outstanding at September 30, 2007
              
              
              660,000
              
              $
              3.76
              
              
              4.18
                  yearsOptions
                  granted during the period
              
              
              60,000
              
              $
              8.20
              
              
              4.8
                  yearsOptions
                  granted during the period
              
              
              40,000
              
              $
              6.20
              
              
              5
                  yearsOptions
                  outstanding at March 31, 2008
              
              
              760,000
              
              $
              4.24
              
              
              3.93
                  yearsOptions
                  granted during the period
              
              
              75,000
              
              
              5.36
              
              
              2.97
                  yearsOptions
                  outstanding at June 30, 2008
              
              
              835,000
              
              
              4.34
              
              
              3.62
                  yearsOptions
                  exercisable at June 30, 2008
              
              
              1,000,070
              
              $
              3.90
              
              
              3.93
                  years
  The
        fair
        value of options granted is estimated on the date of grant using the
        Black-Scholes option-pricing model utilizing the assumptions shown in the
        following table:
 Stock Options Granted OnGrant Date
                
                June
                    1, 2008
                
                March 10, 2008
                
                January 9, 2008
                
                April 9, 2007
                
                April 1,
                    2007
                
                June 2, 2006Expected
                    volatility
                
                
                46.10
                %
                
                68.32
                %
                
                80.06
                %
                
                26.39
                %
                
                35.16
                %
                
                50
                %Risk-free
                    rate
                
                
                2.93
                %
                
                4.64
                %
                
                4.64
                %
                
                4.64
                %
                
                4.64
                %
                
                4.64
                %Expected
                    term (years)
                
                
                3
                
                
                5
                
                
                5
                
                
                5
                
                
                5
                
                
                3Dividend
                    yield
                
                
                0
                %
                
                0
                %
                
                0
                %
                
                0
                %
                
                0
                %
                
                0
                %Fair
                    value per share
                
                $
                1.94
                
                $
                3.56
                
                $
                5.16
                
                $
                1.24
                
                $
                1.20
                
                $
                0.50
  The
        stock
        compensation expense during the three months and nine months as at June 30,
        2008
        and September 30, 2007 was $137,295 and $328,134, respectively, which was
        recorded as general and administrative expense. The fair value of stock options
        granted during the three months and nine months ended June 30, 2007 was $473,556
        and $661,543, respectively, which was charged to operations as general and
        administrative expense.
 
 As
        of
        June 30, 2008, unrecognized compensation cost related to all unvested stock
        options was $697,544.  The
        intrinsic value of outstanding stock options at June 30, 2008 was approximately
        $3,907,950.
 
 **23.
        Commitments**
 .
  Commitments
        - The Company has the following material contractual obligations and capital
        expenditure commitments at June 30, 2008:
  34
 (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 Equipment Company
        for
        the purchase of steel bottles with total price of $18.1 million.
 
 At
        June
        30, 2008, the Company has paid a total of $13.26 million for the purchase,
        and
        $10.98 million of the goods had been delivered to the Company for the above
        mentioned purchase orders in paragraphs (a), (b) and (c).
  (d)
        Wuhan
        Sinoenergy, the subsidiary of the Company, has leased 10 parcels of land
        in
        Wuhan City for its CNG stations under operating lease agreements. The lease
        terms are from 10 year to 30 years with annual rental fees of approximately
        $462,605. Wuhan Sinoenergy will purchase a land use right for land located
        in
        Wuhan City for its CNG station at a price of RMB8.72 million, equivalent
        to
        $1,271,248 based on the exchange rate as of June 30, 2008. As of reporting
        date,
        RMB3.2 million, equivalent to $466,513, had been paid.
  stations
              Lease
                  termChangqing
                  Lu
              7/30/2007
                  - 7/30/2010Baibuting
              Starting
                  from 07/2007 to over 20 yearsGutian
                  Nan Lu
              Starting
                  from 07/2007 over 20 yearsSan
                  Yanqiao
              Starting
                  from 07/22/2007 over 20 yearsXinchun
              Starting
                  from 08/21/2007 over 20 yearsHan
                  Cai Gong Lu
              Starting
                  from 11/20/2007 over 20 yearsZoujia
                  Wan
              12/1/2007
                  - 11/30/2017Shili
                  Pu
              Starting
                  07/06/2007 over 30 yearsYanjin
                  Da Dao
              Starting
                  08/21/2008 over 20 yearsZhuye
                  Shan
              Starting
                  07/30/2007 over 20 years
 
 (e)
        On
        July 7, 2007, the Company purchased a 45% equity interest in Anhui Gather.
        The
        Company agreed to provide $1,905,670 to Anhui Gather as a capital contribution.
        As of June 30, 2008, the Company had funded $439,097 of its capital contribution
        to Anhui Gather.
  (f)
        On
        March 23, 2007, the Company and Hong Kong China New Energy Development
        Investment Co. Ltd. (“New Energy”) incorporated Hubei Gather Energy Gas Co.,
        Ltd. (“Hubei Gather”) to construct and operate natural gas processing plants.
        The registered capital is $5 million, of which Sinoenergy Holding Ltd. will
        contribute $2,750,000 for a 55% equity interest and New Energy will contribute
        $2,250,000 for a 45% equity interest. As of June 30, 2008, the Company had
        funded $429,284 of its capital contribution to Hubei Gather.
 
 **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 $55,625 and $24,164 for the three months ended June 30, 2008
        and
        2007, respectively, and were recorded as other payables.  The total
        provision for the benefits was $175,429 for the nine months ended June 30,
        2008.
        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.
 
 35
  From
        time
        to time, the Company may hire some part time workers or short term workers
        to
        satisfy the seasonal 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 probationary, and does
        not
        accrue welfare benefits for them. Although the Company believes the common
        practice complies with PRC law, the government may require the Company to
        accrue
        the welfare benefit and may assess a 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.
 
 During
        the three months ended June 30, 2008, there were two customers that accounted
        for 25% and 19% of consolidated sales, respectively.
 
 During
        the nine months ended June 30, 2008 and 2007, two customers accounted for
        32%
        and 36% of consolidated sales, respectively, As of June 30, 2008 and September
        30, 2007, approximately 49% and 7% of accounts receivable were from trade
        transactions with the aforementioned customers.
 
 The
        company maintains its own credit policy and procedures and does not believe
        that
        there is any significant credit risk associated with the customers.
  36
 **Item
          2. Management’s Discussion and Analysis of Financial Condition and Results of
          Operations**
  *The
              following discussion of the results of our operations and financial
              condition
              should be read in conjunction with our financial statements and the
              related
              notes, which appear elsewhere in this report. The following discussion
              includes
              forward-looking statements. For a discussion of important factors that
              could
              cause actual results to differ from results discussed in the forward-looking
              statements, see “Forward Looking Statements.”*
  **Overview**
 
 We
              design, manufacture and market a range of pressurized containers for
              Compressed
              Natural Gas ("CNG"). Although our initial business involved the manufacturing
              of
              non-standard equipment and pressure containers, our business has evolved
              as an
              increasing market is developing in the PRC for the use of CNG. Our
              CNG vehicle
              and gas station construction business consists of two divisions (i)
              the
              manufacturing of CNG vehicle and gas station equipment, and (ii) the
              design of
              construction plans for CNG stations, the construction of the CNG stations,
              and
              the installation of CNG station equipment and related
              systems.
 
 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
              and have
              the capacity to 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.
              The
              business of operating CNG stations requires a substantial capital investment,
              and we raised approximately $30 million from the sale of our convertible
              and
              fixed rate notes in September 2007. As discussed under “Liquidity and Capital
              Resources,” the indentures relating to these notes have restrictions on our
              incurring additional debt. The nature of the operation of the business
              and the
              risks associated with that business are significantly different from
              the
              manufacturing of equipment or the construction of CNG stations for
              third
              parties. One aspect of the operation of CNG stations is the price controls,
              whereby both the price at which we purchase CNG and the price at which
              we sell
              CNG are subject to 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 June  30,
              2008,
              our total commitments under these agreements were approximately $5.0
              million, of
              which we had paid a total of approximately $1.6 million. These two
              companies are
              in the early construction stage, and neither of these ventures has
              commenced
              operations. We also have contracted for the purchase of natural gas
              which is to
              be delivered through a pipeline that is presently under construction
              and 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
              later.
  In
                early
                2007, we established a division to sell and manufacture CNG vehicle
                conversion
                kits to OEM and sale in the after market. These kits are designed
                to enable a
                gasoline powered vehicle to operate on CNG. We began to generate
                revenue from
                this business segment in the second quarter of calendar 2007. In
                March 2007, we
                purchased a 60% interest in Jiaxing Lixun Automotive Electronic Co,
                Ltd (“Lixun”) from its stockholders for $390,000. In July 2007, we paid
                an additional $400,000 to increase our equity ownership in Jiaxing Lixun
                to
                70%, and in April 2008 we acquired the remaining 30%. Lixun designs
                and
                manufactures electric control devices for alternative fuel, such
                as compressed
                natural gas and liquefied petroleum gas vehicles, as well as a full
                range of
                electric devices, such as computer controllers, conversion switches,
                spark
                advancers, tolerance sensors and emulators for use in multi-powered
                vehicles.  The business of manufacturing electronic parts for vehicle
                conversion kits as well as producing conversion kits is reported
                as a separate
                segment.
 37
  Our
          CNG
          vehicle and gas station equipment business include two product
          lines:
 *•*
                  the
                      manufacturing of equipment for CNG vehicles and gas stations
                      and
 
 *•*
                  the
                      design of CNG station and construction plans, construction
                      of CNG stations
                      and installation of CNG station equipment and related
                      systems.
  Our
            original business was the manufacture and sale of nonstandard equipment
            and
            pressure containers operated by our Yuhan subsidiary, of which we had
            been a 55%
            equity owner. During the second half of 2006, we acquired an additional
            35%
            equity interest and in turn became a 90% equity owner of Yuhan. In January
            2008,
            we acquired the remaining 10%, and became a 100% owner of
            Yuhan.
 
 Steel
            and
            steel tubing are major raw material used in manufacturing CNG facilities
            and gas
            station equipment. We purchase steel plate from a Chinese domestic manufacturer,
            and we believe that alternative suppliers are available. We had purchased
            steel
            bottles, a key raw material for CNG truck trailers, from an Italian supplier,
            which carried the risk of delays that could interrupt our manufacturing
            process.
            Accordingly from May 2007, we also began to purchase steel tubes from
            the PRC
            domestic market and engaged a Korean company to manufacture the bottles
            from the
            steel tubes, and in August 2007, we engaged a PRC company to manufacture
            these
            bottles. Although we believe that we have reduced the risks of interruption
            of
            our manufacturing process, we cannot eliminate the risk entirely.
 
 Our
            functional currency is Renminbi (“RMB”), which is the currency of the PRC, and
            our reporting currency is United States dollars. In addition, our purchases
            from
            our Italian supplier are in Euros. When we discuss the amount of our
            future
            obligations, we convert RMB or Euros to dollars at the current exchange
            rate.
            However, since the payment will be made in the future, the amount paid
            in United
            States dollars may be different from the amount set forth in this report
            as a
            result of fluctuations in the currency rates.
 
 **Results
            of Operations**
  **(i)
            Non-standard pressure container business:**
 
 Our
            non-standard equipment and pressure container business has been carried
            over
            from the predecessor since Sinogas was formed. It is a traditional chemical
            equipment manufacturing business with low profit margin. It includes
            design and
            manufacturing of various types of pressure containers:
  ·
                  in
                      the petroleum and chemical industries·
                  in
                      the metallurgy and electricity generation
                      industries
 ·
                    in
                        the food and brewery industries·
                    various
                        types of non-standard
                        containers
  38
  **(ii)
          CNG storage, transportation products and CNG station service construction
          (“CNG
          Station Facilities and Construction”)**
 Our
            CNG
            station construction business represents:
 (1)
            CNG
            vehicle and gas station equipment manufacturing and installation, which
            include
            the following products:
 
 ·
                  CNG
                      trailer·
                  CNG
                      deposited system for gas station usage
 
 ·
                  CNG
                      compressor skid·
                  CNG
                      dispenser (retail measurement
                      system)
  These
            services were provided by us for other companies that operate CNG
            stations.
 
 (2)
            CNG
            station construction service business
  It
            includes the design of CNG station construction plans, construction of
            CNG
            stations, and installation of CNG station equipment and related systems.
            The
            gross margin for CNG gas stations technical consulting service was high,
            as a
            result of our know-how in CNG system design and the absence of significant
            competition. Because of our emergence into the CNG filling station business,
            we
            did not receive any CNG station construction service orders from the
            beginning
            of 2007. We anticipate that, at least in the near term, we will devote
            most, if
            not all, of our CNG construction business to the construction of our
            own CNG
            filling stations.
  **(iii)
            CNG station operation**
  In
            2006,
            we entered the CNG station business, which involves the design, construction
            and
            equipping of CNG stations and the operation of those stations.
  **(iv)
            Vehicle fuel conversion equipment**
  We
            manufacture of CNG vehicle conversion kits and electronic control devices
            for
            alternative fuel.
 
 **Three
            months ended June 30, 2008 compared to three months ended June 30,
            2007**
  The
            following tables set forth information relating to our business segments
            for the
            three months ended June 30, 2008 and 2007 (dollars in thousands).
 Three
                    months ended June 30, 2008
                
                Non-standard
                  pressurecontainers
                
                CNG
                  station
                  facilities
                  and
                  construction
                
                CNG
                  station
                  operation
                
                Vehicle
                  conversion
                  kits
                
                TotalNet
                    revenue
                
                $
                1,729
                
                $
                5,270
                
                $
                542
                
                $
                2,663
                
                $
                10,204Cost
                    of revenues
                
                
                938
                
                
                3,235
                
                
                336
                
                
                1,774
                
                
                6,283Gross
                    profit
                
                
                791
                
                
                2,035
                
                
                206
                
                
                889
                
                
                3,921Gross
                    margin
                
                
                46
                %
                
                39
                %
                
                38
                %
                
                33
                %
                
                38
                %Operating
                    expenses:Selling
                    expenses
                
                $
                76
                
                $
                16
                
                $
                51
                
                $
                102
                
                $
                246General
                    and administrative expenses
                
                
                213
                
                
                380
                
                
                138
                
                
                258
                
                
                988Total
                    operating expense
                
                
                289
                
                
                396
                
                
                189
                
                
                360
                
                
                1,234Income
                    from operations
                
                $
                502
                
                $
                1,639
                
                $
                17
                
                $
                529
                
                $
                2,687
 
 
 39
 
 
 Three
                    months ended June 30, 2007
                
                Non-standard
                    pressure containers
                
                CNG
                    station facilities and construction
                
                CNG
                    station Operation
                
                Vehicle
                    conversion kits
                
                TotalNet
                    revenue
                
                $
                1,236
                
                $
                2,345
                
                
                —
                
                $
                2,600
                
                $
                6,181Cost
                    of revenues
                
                
                615
                
                
                672
                
                
                —
                
                
                1,685
                
                
                2,972Gross
                    profit
                
                
                621
                
                
                1,673
                
                
                —
                
                
                915
                
                
                3,209Gross
                    margin
                
                
                50
                %
                
                71
                %
                
                
                
                
                35
                %
                
                52
                %Operating
                    expenses:Selling
                    expenses
                
                $
                22
                
                $
                10
                
                $
                7
                
                $
                26
                
                $
                65General
                    and administrative expenses
                
                
                214
                
                
                327
                
                
                209
                
                
                178
                
                
                928Total
                    operating expense
                
                
                236
                
                
                337
                
                
                216
                
                
                204
                
                
                993Income
                    (loss) from operations
                
                $
                385
                
                $
                1,336
                
                
                -216
                
                $
                711
                
                $
                2,216
  *Net
            Revenue.* Net
            revenue for three months ended June 30, 2008 (the “June 2008 quarter”) was
            approximately $10.2 million, a 64.5% increase from the net revenue of
            approximately $6.2 million for the three months ended June 30, 2007 (the
“June
            2007 quarter”). This increase results primarily fromour CNG station construction
            service business, which generated revenue of $5.3 million, or 51.6% of
            sales in
            the June 2008 quarter, a 124.7% increase compared with the amount of
            the June
            2007 quarter. In addition, the revenue from the CNG station operation
            also
            contributed approximately $0.5 million of sales in the June 2008 quarter.
            In the
            June 2007 quarter, we were commencing preliminary work relating to the
            opening
            of CNG stations and did not generate any revenue from this segment.
 
 *Cost
            of Revenue.* The cost
            of revenue for the June 2008 quarter was approximately $6.3 million,
            compared
            with approximately $3.0 million in the same period of 2007, a 111.4%
            increase.
            The cost increase trend is higher than the increase in net revenue due
            to gross
            margin decrease, which decreased from 52% of the June 2007 quarter to
            38% of
            current quarter due to the changes in gross margins of the different
            segments.
 
 ·
                  Our
                      gross margin for the CNG station facilities and construction
                      segment
                      decreased to 39% in the June 2008 quarter from 71% in the June
                      2007
                      quarter. In the June 2008 quarter, all of our revenue related
                      to the
                      manufacture of CNG facilities and equipment and no revenue
                      was generated
                      by technical consulting services. In the June 2007 quarter,
                      we generated
                      revenue from technical consulting services which yields a significantly
                      higher gross margin than our manufacturing operations.
 
 ·
                  We
                      commenced the conversion kit business in April 2007, the gross
                      margin of
                      the segment, which accounted for 26.1 % of sales in the June
                      2008 quarter,
                      is 33%, which is lower than the overall gross margin of June
                      quarter.
 
 ·
                  Our
                      CNG station operation generated 5.3% of sales in the June 2008
                      quarter at
                      a gross margin of 38%.
 
 *Operating
            Expenses.* Operating expenses were approximately $1.2 million in the June 2008 quarter,
            an
            increase of $243,000, or 24%, from the June 2007 quarter. The increase
            in
            operating expenses primarily relates to $157,000 of selling, general
            and
            administrative expenses associated with the vehicle conversion kits segment
            in
            the June 2008 quarter.
  *Income
            from Operations.* Income
            from operations was approximately $2.7 million for the June 2008 quarter,
            compared with approximately $2.2 million in the same quarter of 2007
            and
            resulted from the above mentioned reasons.
 
 40
  *Other
          Income.* Other
          income was $1.3 million for the June 2008 quarter, and primarily relates to
          revenues generated from land rental.
 *Interest
            Expense* .
            In the
            June 2008 quarter, we incurred interest costs of approximately $1,175,555
            in
            connection with the $12 million PRC bank loan, the $16 million 12% guaranteed
            senior notes, and the $14 million 3% guaranteed convertible
            notes, including non-cash interest costs of  $378,000, of which
            approximately $542,847 was capitalized,. The un-capitalized portion was
            reflected as interest expense. While in the June 2007 quarter, the $123,000
            interest expense was incurred in connection with the $1.5 million PRC
            bank
            loan.
 
 *Income
            Taxes.* Sinogas
            and Yuhan had a 100% tax exemption for 2007 and 2006. Under present law,
            these
            subsidiaries have a 50% tax exemption for 2008 through 2009. The income
            tax
            reflects a tax rate of 12.5%, which is 50% of the 25% tax rate, resulting
            is
            $690,000 of income tax was accrued in the June 2008 quarter.
  *Net
            Income* .
            As a
            result of the foregoing, we had net income of $4.0 million, or $0.26
            per share
            (basic) and $0.24 per share (diluted) for the June 2008 quarter; as compared
            with net income of $1.9 or $0.14 per share (basic) and $0.13 per share
            (diluted)
            for the same quarter of 2007.
 
 **Nine
            months ended June 30, 2008 compared to Nine months ended June 30,
            2007**
 Nine
                    months ended June 30,2008
                
                Non-standard
                    pressure
                  containers
                
                CNG
                    station facilities
                  and
                  construction
                
                CNG
                  station
                  operation
                
                Vehicle
                    conversion
                  kits
                
                TotalNet
                    revenue
                
                $
                5,400
                
                $
                13,659
                
                $
                892
                
                $
                6,794
                
                $
                26,745Cost
                    of revenues
                
                
                3,076
                
                
                7,140
                
                
                559
                
                
                4,415
                
                
                15,190Gross
                    profit
                
                
                2,324
                
                
                6,519
                
                
                333
                
                
                2,378
                
                
                11,555Gross
                    margin
                
                
                43
                %
                
                48
                %
                
                37
                %
                
                35
                %
                
                43
                %Operating
                    expenses:Selling
                    expenses
                
                $
                169
                
                $
                49
                
                $
                88
                
                $
                233
                
                $
                540General
                    and administrative expenses
                
                
                470
                
                
                1,453
                
                
                240
                
                
                800
                
                
                2,963Total
                    operating expense
                
                
                640
                
                
                1,502
                
                
                328
                
                
                1,033
                
                
                3,503Income
                    from operations
                
                $
                1,685
                
                $
                5,017
                
                $
                5
                
                $
                1,345
                
                $
                8,052
  
 41
   Nine
                    months ended June 30, 2007
                
                Non-standard
                    pressure containers
                
                CNG
                    station facilities and construction
                
                CNG
                    station Operation
                
                Vehicle
                    conversion kits
                
                TotalNet
                    revenue
                
                $
                3,132
                
                $
                5,704
                
                
                —
                
                $
                2,600
                
                $
                11,436Cost
                    of revenues
                
                
                1,827
                
                
                1,982
                
                
                —
                
                
                1,685
                
                
                5,494Gross
                    profit
                
                
                1,305
                
                
                3,722
                
                
                —
                
                
                915
                
                
                5,942Gross
                    margin
                
                
                42
                %
                
                65
                %
                
                
                
                
                35
                %
                
                52
                %Operating
                    expenses:Selling
                    expenses
                
                $
                52
                
                $
                58
                
                $
                7
                
                $
                26
                
                $
                143General
                    and administrative expenses
                
                
                579
                
                
                849
                
                
                569
                
                
                178
                
                
                2175Total
                    operating expense
                
                
                631
                
                
                907
                
                
                576
                
                
                204
                
                
                2,318Income
                    (loss) from operations
                
                $
                674
                
                $
                2,815
                
                
                (576
                )
                $
                711
                
                $
                3,624
  *Net
          Revenue.* Net
          revenue for the nine months ended June 30, 2008 was approximately $26.7
          million,
          a 133.9% increase from the net revenue of approximately $11.4 million for
          the
          nine months ended June 30, 2007. This increase resulted primarily from
          the
          significant increases from all our divisions. The table shows the increase
          in
          revenue for each division and the percentage increase (dollars in
          thousands).
  Nine
                    months Ended June 30,
                
                PercentageDivision
                2008
                2007
                Increase
                IncreaseNon-standard
                    pressure containers
                5,400
                3,132
                2,268
                72.4%CNG
                    facilities and construction
                13,659
                5,704
                7,955
                139.5%CNG
                    station operation
                892
                0
                892
                NAVehicle
                    conversion kit
                6,794
                2,600
                4,194
                161.3%Total
                26,745
                11,436
                15,309
                133.9%
  *Cost
          of Revenue.* The cost
          of revenue for the nine months ended June 30, 2008 was approximately $15.2
          million compared with $5.5 million in the same period of 2007, representing
          a
          176.5% increase. The overall cost of sales increase is primarily the result
          of the following factors:
 ·
                  The
                      non-standard pressure container business and CNG station facilities
                      and
                      construction business: In the nine months ended June 30, 2008,
                      the cost of
                      sales increased with the increase of revenue, resulting in
                      a modest
                      increase in gross margin from 41.7% to
                      43.0%.
  ·
                  The
                      CNG facilities and construction segment maintained a level
                      gross margin,
                      decreasing nominally from 47.9% to
                      47.7%.
  ·
                  The
                      CNG station operation incurred a gross profit for the nine
                      months ended
                      June 30, 2008, while in the same period of 2007, it had no
                      revenue. Its
                      gross margin for the nine months ended June 30, 2008 was
                      37.3%.
 
 ·
                  The
                      vehicle conversion kit business also maintained a level gross
                      margin,
                      decreasing from 35.2% to
                      35.0%.
   42
  *Operating
          Expenses.* Operating
          expenses were approximately $3.5 million in the nine months ended June
          30, 2008,
          an increase of $1.2 million, or 51.2%, compared with the same period of
          2007.
          The increase in operating expenses primarily relates to the following
          factors:
 ·
                  $830,000
                      of selling, general and administrative expenses associated
                      with the
                      vehicle conversion kits segment in the nine months ended June
                      30, 2008.
                      This segment commenced operations in April 2007, and, accordingly,
                      the
                      comparable amount is about $204,000 in the same period of 2007,
                      but
                      represents less than three months of operations, which included
                      start up
                      operations.
  ·
                  $374,081
                      of general and administrative expenses associated with the
                      stock options
                      granted and the amortization of the deferred debt issuance
                      costs relating
                      to the September 2007 $30 million
                      financing.
  ·
                  $596,000
                      increase in selling, general and administrative expenses associated
                      with
                      the CNG station facilities and construction with the increase
                      of
                      revenue.
  *Income
            from Operations.* Income
            from operations was approximately $8.0 million for the nine months ended
            June
            30, 2008 compared with approximately $3.6 million in the same period
            of 2007 and
            resulted from the factors described above.
 
 *Other
            Income.* Other
            income was approximately $2,503,000 for the nine months ended June 30,
            2008, and
            primarily relates to revenues generated from land rental.
 
 *Interest
            Expense* .
            In the
            nine months ended June 30, 2007, interest expense was approximately $1,777,000.
            In the nine months ended June 30, 2008, we incurred interest cost of
            approximately $3,387,578 in connection with the $12 million PRC bank
            loan, the
            $16 million 12% guaranteed senior notes, and the $14 million 3% guaranteed
            convertible notes, including non-cash interest costs
            of  $1,134,000 of which approximately $1,334,870 was capitalized.
            Thebalance is reflected as interest expense.
 
 *Income
            Taxes.* The
            income tax expense for the three months ended December 31, 2007 is 0%,
            and for
            the 6 months ended June 30, 2008 for Sinogas and Yuhan is 12.5%. As Sinogas,
            Yuhan, and Wuhan Sinoenergy had each received an exemption from corporate
            income
            tax in the beginning of 2007, there is no income tax accrued in the nine
            months
            ended June 30, 2007.
 
 *Net
            Income* .
            As a
            result of the foregoing, we had net income of $9.2 million, or $0.58
            per share
            (basic) and $0.54 per share (diluted), for the nine months ended June
            30, 2008;
            as compared with net income of $3.4 million, or $0.34 per share (basic)
            and
            $0.26 per share (diluted) for the nine months ended June 30, 2007.
 
 **Liquidity
            and Capital Resources**
 
 At
            June
            30, 2008, we had cash of approximately $17,021,000, an increase of approximately
            $13,699,000 from September 30, 2007. At June 30, 2008, we had working
            capital of
            approximately $1.3 million and stockholders’ equity of approximately $52.0
            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
            nine months ended June 30, 2008, net cash used in operating activities
            is $4.4
            million, and we used approximately $29.6 million, principally for purchase
            of
            property, plant and equipment ($15.2 million), land use right ($13.9
            million),
            and the purchase of minority interest in subsidiaries (1.6 million),
            and we
            generated cash flow form the investment activities approximately $1.2
            million,
            including gain on sale of investment (HK Power) $1.7 million. For the
            nine
            months ended June 30, 2007, we invested $14.9 million in land use rights
            ($6.7
            million), property, plant and equipment ($5.5 million) and purchase of
            minority
            interest in subsidiaries ($2.7 million). Most of the investment in both
            periods
            related to the construction of CNG stations.
 
 For
            the
            nine months ended June 30, 2008, our cash flow from financing activities
            represented the net proceeds of the $30 million financing in September
            2007
            ($29.8 million), which was received in October 2007, net of bank loan
            payments
            of $3.1 million.
 
 43
  We
          believe that our working capital, together with cash flow generated from
          our
          operations, will provide us with the funds necessary to continue to develop
          our
          business, which, because of efforts to develop the CNG station business,
          is very
          cash intensive. We will continue to incur capital expenditures for this
          business
          segment in the future. Because the CNG business in the PRC is a relatively
          new
          industry, it is necessary for us to plan, construct and equip each CNG
          station
          before we can generate any revenue.
 On
            April
            24, 2008, Sinogas entered into an agreement with five investors pursuant
            to
            which the investors agreed to invest RMB 116,760,000 (approximately $16,819,360)
            in Sinogas to increase its registered capital. The investment is subject
            to
            government approval. Sinogas has received $14,590,000 from the investors
            in
            anticipation of government approval. In the event that the government
            approval
            is not obtained, we will be required to refund the payment to the investors.
            As
            a result, this payment to the investors is reflected as “Payable to investors in
            subsidiary” on the balance sheet. Although we anticipate that we will obtain
            government approval, we cannot give any assurance that the necessary
            approval
            will be obtained.
 
 Our
            agreement relating to the issuance of $16 million principal amount of
            guaranteed
            senior notes and $14 million principal amount of guaranteed senior convertible
            notes have covenants which could impair our ability to raise additional
            funds if
            we require the funds either to develop or expand our present businesses,
            primarily the CNG station business, or to make acquisitions. These covenants
            include the following:
  ·
                  We
                      cannot incur any debt unless, after giving effect to the borrowing,
                      (i)
                      the fixed charge coverage ratio would be greater than 2.75
                      to 1.00 for the
                      first year and 3.5 to 1.0 if the debt is incurred thereafter, and (ii) the
                      leverage ratio would not exceed 4.25 to 1.00 for the first
                      year and 3.75
                      to 1.00 if the debt is incurred thereafter, provided, that
                      certain
                      subsidiaries may continue to maintain debt under credit facilities
                      of not
                      more than $15,000,000 for the first year and $10,000,000 thereafter,
                      and
                      may incur purchase money indebtedness. The fixed charge coverage
                      ratio is
                      the ratio of the Company’s earnings before interest, taxes, depreciation
                      and amortization, which is generally known as EBITDA, to consolidated
                      interest expense, as defined. Leverage ratio means the ratio
                      of
                      outstanding debt to EBITDA, with the interest component being
                      the
                      consolidated interest expense, as
                      defined.
  ·
                  We
                      must maintain, as of the last day of each fiscal quarter, (i)
                      a fixed
                      charge coverage ratio of 1.75 to 1.00 for the first six months,
                      2.75 to
                      1.00 for the next six months and 3.0 to 1.00 thereafter, (ii)
                      a leverage
                      ratio of 7.5 to 1.00 through March 31, 2008, 5.0 to 1.00 from
                      April 1,
                      2008 to September 30, 2008, and 4.5 to 1.00 thereafter, and
                      (iii) a
                      consolidated subsidiary debt to consolidated net tangible asset
                      ratio of
                      not more than 0.2 through September 30, 2008 and 0.15
                      thereafter.
  ·
                  Sinogas
                      cannot incur debt under its credit facilities except to the
                      extent that
                      such debt does not exceed $15.0 million through September 28,
                      2008 or
                      $10.0 million thereafter.
  ·
                  The
                      Company is subject to restriction in paying dividends, purchasing
                      its own
                      securities or those of our subsidiaries, prepaying subordinated
                      debt, and
                      making any investment other any investments in itself and its
                      subsidiaries
                      engaged in our business and certain other permitted
                      investments.
  ·
                  We
                      are subject to restrictions on incurring
                      liens.
  In
            connection with this financing, we paid the lenders a fee of
            $160,000.
 
 **Critical
            Accounting Policies and Estimates**
  The
            discussion and analysis of our financial condition and results of operations
            is
            based upon our financial statements which have been prepared in accordance
            with
            accounting principles generally accepted in the United States. The preparation
            of these financial statements requires us to make estimates and judgments
            that
            affect the reported amounts of assets and liabilities. On an on-going
            basis, we
            evaluate our estimates including the allowance for doubtful accounts
            and other
            receivables, the valuation and costing of inventory, depreciation of
            property,
            plant and equipment, impairment of long-lived assets, income taxes and
            contingencies. We base our estimates on historical experience and on
            other
            assumptions that we believe to be reasonable under the circumstances,
            the
            results of which form our basis for making judgments about the carrying
            values
            of assets and liabilities that are not readily apparent from other sources.
            Actual results may differ from these estimates under different assumptions
            or
            conditions.
   44
  In
          estimating the collectability of accounts receivable we analyze historical
          write-offs, changes in our internal credit policies and customer concentrations
          when evaluating the adequacy of our allowance for doubtful accounts. Differences
          may result in the amount and timing of expenses for any period if we make
          different judgments or use different estimates.
 Inventories
            are comprised of raw materials, work in process, finished goods and low
            value
            consumable articles and are stated at the lower of cost or market. Substantially
            all inventory costs are determined using the weighted average basis.
            Costs of
            finished goods include direct labor, direct materials, and production
            overhead
            before the goods are ready for sale as well as license fees payable to
            Beijing
            Sanhuan. Inventory costs do not exceed net realizable value.
  Property,
            plant and equipment are stated at cost. Depreciation is provided principally
            by
            use of the straight-line method over the useful lives of the related
            assets from
            the time when the assets are in service. Expenditures for maintenance
            and
            repairs, which do not improve or extend the expected useful life of the
            assets,
            are expensed to operations while major repairs are capitalized. The gain
            or loss
            on disposal of property, plant and equipment is the difference between
            the net
            sales proceeds and the carrying amount of the relevant assets, and, if
            any, is
            recognized in the statements of operations. We perform impairment tests
            on our
            long-term assets at least annually.
 
 Intangible
            assets are reviewed at least annually for impairment, or more frequently
            if we
            have reason to believe that there is impairment. Intangible assets are
            tested by
            comparing net book value of the asset to fair value. Our assumptions
            about fair
            values require significant judgment because broad economic factors, industry
            factors and technology considerations can result in variable and volatile
            fair
            values.
 
 Goodwill
            represents the excess of purchase price of business combinations over
            the fair
            value of the net assets acquired and is tested for impairment at least
            annually
            unless business events indicate an impairment test is required. For example,
            an
            impairment test would be conducted if an asset of significant value was
            sold or
            disposed of in the cost center. The impairment test requires allocating
            goodwill
            and all other assets and liabilities to assigned reporting units. The
            fair value
            of each reporting unit is estimated and compared to the net book value
            of the
            reporting unit. If the estimated fair value of the reporting unit is
            less than
            the net book value, including goodwill, then the goodwill is written
            down to the
            implied fair value of the goodwill through a charge to expense. Because
            quoted
            market prices are not available for the Company’s reporting units, the fair
            values of the reporting units are estimated based upon several valuation
            analyses, including comparable companies, comparable transactions and
            premiums
            paid.
 
 Revenue
            Recognition - We recognize product sales generally at the time the product
            is shipped. CNG construction and building technical consulting service
            revenue
            is recognized on the percentage of completion basis. The revenue is measured
            by
            reference to the proportion of construction work completed to the total
            estimated work according to the report provided by technical department
            of the
            Company, and simultaneously, the cost is recognized based on total contracted
            cost and the completion basis. Receivables and payables are recorded
            accordingly. Revenue is presented net of any sales tax and value added
            tax.
 
 Foreign
            Currency Transactions -Our functional currency is Renminbi (“RMB”), which is the
            currency of the PRC, and our reporting currency is United States dollars.
            Our
            balance sheet accounts are translated into United States dollars at the
            year-end
            exchange rates prevailing during the periods in which these items arise.
            Translation gains and losses are deferred and accumulated as a component
            of
            other comprehensive income in stockholders’ equity. Transaction gains and losses
            that arise from exchange rate fluctuations from transactions denominated
            in a
            currency other than the functional currency are included in the statement
            of
            operations as incurred.
  45
  The
          government of the PRC imposes significant exchange restrictions on fund
          transfers out of the PRC that are not related to business operations. These
          restrictions have not had a material impact on our operations because we
          have
          not previously engaged in any significant transactions that are subject
          to the
          restrictions.
 Stock-Based
            Compensation - We grant stock options to employees and stock options or
            warrants to non-employees in non-capital raising transactions for services
            and
            for financing costs. We have adopted Statement of Financial Accounting
            Standards
            (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation,” which establishes
            a fair value method of accounting for stock-based compensation plans.
            In
            accordance with SFAS No. 123R, the cost of stock options and warrants
            issued to
            employees and non-employees is measured at the grant date based on the
            fair
            value. The fair value is determined using the Black-Scholes option pricing
            model. The resulting amount is charged to expense on the straight-line
            basis
            over the period in which the Company expects to receive benefit, which
            is
            generally the vesting period.
 
 **New
            Accounting Pronouncements**
 
 In
            September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
            No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
            establishes a framework for measuring fair value, and expands disclosures
            about
            fair value measurements. SFAS 157 is effective as of the beginning of
            the first
            fiscal year that begins after November 15, 2007. As such, the Company
            is
            required to adopt these provisions at the beginning of the fiscal year
            beginning
            October 1, 2008. The Company is currently evaluating the impact of SFAS
            157 on
            its consolidated financial statements.
 
 In
            February 2007, the FASB issued Statement of Financial Accounting Standards
            No. 159, “The Fair Value Option for Financial Assets and Financial
            Liabilities” (“SFAS No. 159”), which provides companies with an option
            to report selected financial assets and liabilities at fair value.
            SFAS No. 159’s objective is to reduce both complexity in accounting
            for financial instruments and the volatility in earnings caused by measuring
            related assets and liabilities differently. Generally accepted accounting
            principles have required different measurement attributes for different
            assets
            and liabilities that can create artificial volatility in earnings.
            SFAS No. 159 helps to mitigate this type of accounting-induced
            volatility by enabling companies to report related assets and liabilities
            at
            fair value, which would likely reduce the need for companies to comply
            with
            detailed rules for hedge accounting. SFAS No. 159 also establishes
            presentation and disclosure requirements designed to facilitate comparisons
            between companies that choose different measurement attributes for similar
            types
            of assets and liabilities. SFAS No. 159 requires companies to provide
            additional information that will help investors and other users of financial
            statements to more easily understand the effect of the company’s choice to use
            fair value on its earnings. SFAS No. 159 also requires companies to
            display the fair value of those assets and liabilities for which the
            company has
            chosen to use fair value on the face of the balance sheet.
            SFAS No. 159 does not eliminate disclosure requirements included in
            other accounting standards, including requirements for disclosures about
            fair
            value measurements included in SFAS No. 157 and
            SFAS No. 107. SFAS 159 is effective as of the beginning of the first
            fiscal year that begins after November 15, 2007. As such, the Company
            is
            required to adopt these provisions at the beginning of the fiscal year
            beginning
            October 1, 2008. The Company is currently evaluating the impact of SFAS
            159 on
            its consolidated financial statements.
 
 In
            December 2007, the FASB issued SFAS No. 141(R), “Business
            Combinations” (“SFAS No. 141(R)”), which requires an acquirer to
            recognize in its financial statements as of the acquisition date (i) the
            identifiable assets acquired, the liabilities assumed, and any noncontrolling
            interest in the acquiree, measured at their fair values on the acquisition
            date,
            and (ii) goodwill as the excess of the consideration transferred plus the
            fair value of any noncontrolling interest in the acquiree at the acquisition
            date over the fair values of the identifiable net assets acquired.
            Acquisition-related costs, which are the costs an acquirer incurs to
            effect a
            business combination, will be accounted for as expenses in the periods
            in which
            the costs are incurred and the services are received, except that costs
            to issue
            debt or equity securities will be recognized in accordance with other
            applicable
            GAAP. SFAS No. 141(R) makes significant amendments to other Statements
            and other authoritative guidance to provide additional guidance or to
            conform
            the guidance in that literature to that provided in SFAS No. 141(R).
            SFAS No. 141(R) also provides guidance as to what information is to be
            disclosed to enable users of financial statements to evaluate the nature
            and
            financial effects of a business combination. SFAS No. 141(R) is
            effective for financial statements issued for fiscal years beginning
            on or after
            December 15, 2008. Early adoption is prohibited. The adoption of
            SFAS No. 141(R) will affect how the Company accounts for a business
            combination occurring after December 31, 2008.
  46
  In
          December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
          in Consolidated Financial Statements — an amendment of ARB No. 51”
(“SFAS No. 160”), which revises the relevance, comparability, and
          transparency of the financial information that a reporting entity provides
          in
          its consolidated financial statements by establishing accounting and reporting
          standards that require (i) the ownership interests in subsidiaries held by
          parties other than the parent be clearly identified, labeled, and presented
          in
          the consolidated statement of financial position within equity, but separate
          from the parent’s equity, (ii) the amount of consolidated net income
          attributable to the parent and to the noncontrolling interest be clearly
          identified and presented on the face of the consolidated statement of income,
          (iii) changes in a parent’s ownership interest while the parent retains its
          controlling financial interest in its subsidiary be accounted for consistently
          as equity transactions, (iv) when a subsidiary is deconsolidated, any
          retained noncontrolling equity investment in the former subsidiary be initially
          measured at fair value, with the gain or loss on the deconsolidation of
          the
          subsidiary being measured using the fair value of any noncontrolling equity
          investment rather than the carrying amount of that retained investment,
          and
          (v) entities provide sufficient disclosures that clearly identify and
          distinguish between the interests of the parent and the interests of the
          noncontrolling owners. SFAS No. 160 amends FASB No. 128 to
          provide that the calculation of earnings per share amounts in the consolidated
          financial statements will continue to be based on the amounts attributable
          to
          the parent. SFAS No. 160 is effective for financial statements issued
          for fiscal years, and interim periods within those fiscal years, beginning
          on or
          after December 15, 2008. Early adoption is prohibited.
          SFAS No. 160 shall be applied prospectively as of the beginning of the
          fiscal year in which it is initially applied, except for the presentation
          and
          disclosure requirements, which shall be applied retrospectively for all
          periods
          presented. The Company has not yet determined the affect on its consolidated
          financial statements, if any, upon adoption of SFAS No. 160.
 In
            March
            2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
            and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS No.
            161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS
            No.
            133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
            133”). The objective of SFAS No. 161 is to provide users of financial statements
            with an enhanced understanding of how and why an entity uses derivative
            instruments, how derivative instruments and related hedged items are
            accounted
            for under SFAS No. 133 and its related interpretations, and how derivative
            instruments and related hedged items affect an entity’s financial position,
            financial performance, and cash flows. SFAS No. 161 requires qualitative
            disclosures about objectives and strategies for using derivatives, quantitative
            disclosures about fair value amounts of and gains and losses on derivative
            instruments, and disclosures about credit-risk-related contingent features
            in
            derivative agreements. SFAS No. 161 applies to all derivative financial
            instruments, including bifurcated derivative instruments (and nonderivative
            instruments that are designed and qualify as hedging instruments pursuant
            to
            paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted
            for
            under SFAS No. 133 and its related interpretations. SFAS No. 161 also
            amends
            certain provisions of SFAS No. 131. SFAS No. 161 is effective for financial
            statements issued for fiscal years and interim periods beginning after
            November
            15, 2008, with early application encouraged. SFAS No. 161 encourages,
            but does
            not require, comparative disclosures for earlier periods at initial adoption.
            The Company has not yet determined the affect on its consolidated financial
            statements, if any, upon adoption of SFAS No. 161.
  **Item
          3. Controls and Procedures**
  Under
          the
          supervision and with the participation of management, our chief executive
          officer and chief financial officer have carried out an evaluation of the
          effectiveness of our disclosure controls and procedures, as such term is
          defined
          under Rune 13a-15(e) promulgated under the Securities Exchange Act of 1934,
          as
          amended. Based upon that evaluation, our chief executive officer and chief
          financial officer concluded that there were material weaknesses in our
          internal
          controls over financial reporting as of the end of the period covered by
          this
          report. Our chief executive officer and chief financial officer identified
          weaknesses related to our accounting personnel’s ability to identify accounting
          and disclosure issues, calculate accounting entries, and prepare financial
          statements and footnotes in accordance with U.S. GAAP. We, addressing these
          issues by reviewing and revising our internal accounting policies and
          procedures, expanding the resources allocated to our accounting department,
          and
          hiring outside accounting advisors. We expects resolution of these matters
          may
          take several months. Based on the foregoing, the certifying officers have
          concluded that our disclosure controls and procedures are not effective
          at this
          time.
  47
  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
                    Act31.2
                Certification
                    of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                    Act32.1
                Certification
                    of Chief Executive and Financial Officer pursuant to Section
                    906 of the
                    Sarbanes-Oxley Act
   48
  **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:
                    August 14, 2008
                s/
                    Bo HuangBo
                    Huang, Chief Executive Officers/
                    Lan GuDated:
                    August 14, 2008
                Chief
                    Financial Officer
  49