| x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|--------------------------------------------------------------------------------|

|  ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------|

| Delaware                                                      | 98-0231607                             |
|---------------------------------------------------------------|----------------------------------------|
| (State or other jurisdiction ofIncorporation or organization) | (I.R.S. EmployerIdentification Number) |

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| Large accelerated filer            ̈                                                  | Accelerated filer                x |
|---------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
| Non-accelerated filer             ̈(Do not check if a smaller reporting company) | Smaller reporting company        ̈                                          |

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|   | · | The Company did not maintain personnel with a sufficient level of accounting knowledge, experience and training in the application of the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and SEC requirements in the application thereof. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | failure to disclose the Loan, the Pledge and the Guarantee as subsequent events in the footnotes to its consolidated financial statements included in the 2009 Form 10-K, and to file a current report on Form 8-K within four business days after entry into the Loan, the Pledge and the Guarantee; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | failure to disclose the Loan, the Pledge and the Guarantee in the quarterly report on Form 10-Q for the quarter ended March 31, 2010, which led to an understatement of restricted cash in the amount of $13.2 million and the understatement of bank loans in the amount of $13.2 million in the consolidated balance sheet included therein; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | incorrect determination that the Pledge constituted a breach of the indenture (the “Indenture”) governing the Company’s 5% guaranteed senior notes issued to Abax Lotus Ltd. dated January 29, 2008 (the "Senior Notes"), which led the Company to erroneously (i) reclassify from long-term liabilities to short-term liabilities the Senior Notes and the fair value of the redeemable warrants (the “Reclassification”) and file related amendments to the Annual Report on Form 10-K for the year ended December 31, 2009 (the “Amended 10-K”) and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (the “Amended 10-Q), (ii) disclose in the Amended 10-K, Amended 10-Q and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 that the Pledge constituted a breach of the Indenture and (iii) make the Reclassification; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | failure to document and communicate to the Board of Directors and members of management the evaluation of disclosure requirements in connection with acquisitions of four natural gas stations in the second quarter of 2010 and the acquisition of Hanchun Makou Yuntong Compressed Natural Gas Co., Ltd. in the third quarter of 2010. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The Company did not maintain personnel with a sufficient level of accounting knowledge, experience and training in the application of U.S. GAAP and SEC requirements in the application thereof. |
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| · | Our Audit Committee and Board of Directors held meetings promptly after being notified of the material weaknesses in internal controls identified above to address such weaknesses, and determined to meet regularly specifically for the purpose of monitoring and discussing with management the remediation of such weaknesses. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In early September 2010, we engaged a professional internal control consultant through February 2011 to review and test our existing internal controls procedures, evaluate and identify inadequacies with our existing internal control procedures, and recommended changes as necessary and appropriate for the improvement of internal controls. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | Our Audit Committee and Board of Directors adopted a written internal authorization policy establishing approval procedures for various corporate actions. The policy lists various operational, administrative and financial corporate events and actions and for each such event and action, identifies whether prior approval or discussion with particular executive officers, the Board of Directors or legal counsel is required. The policy also sets quantitative limits on specific types of transactions that management may approve without Board approval. After adopting such policy, our Audit Committee and Board of Directors discussed the policy with management. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | We have established an internal audit function, with a Senior Internal Control Auditing Specialist, supported by six other employees. The Senior Internal Control Auditing Specialist, a Certified Internal Auditor (CIA) with ten years of internal audit-related work experience, is responsible for coordinating and evaluating the effectiveness of the Company's internal control over financial reporting, and he works closely with the third-party internal control consultant hired by the Company to establish and improve the internal control system and evaluate its effectiveness. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | We appointed a new Chief Financial Officer at the end of 2010 to improve and enhance our corporate governance and internal control systems. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

| · | We are now developing a comprehensive training and development plan for our accounting personnel, including our Chief Financial Officer, Financial Controller and others, in the knowledge of the principles and rules of U.S. GAAP and the SEC requirements in the application thereof. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Number |   | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 1.1    |   | Underwriting Agreement, dated September 2, 2009 (incorporated by reference to same Exhibit 1.1 filed with the Registrant’s Form 8-K filed on September 3, 2009).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.1    |   | Form of Equity Ownership Transfer Agreement (incorporated by reference to same exhibit filed with the Registrant’s Form 8-K filed on December 31, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1    |   | Articles of Incorporation, dated March 31, 1999 (incorporated by reference to same exhibit filed with the Company's Form 10SB Registration Statement filed September 15, 2000, SEC file no. 000-31539); Certificate of Amendment to the Articles of Incorporation, dated May 25, 2000 (incorporated by reference to same exhibit filed with the Registrant's Form 10SB Registration Statement filed September 15, 2000, SEC file no. 000-31539); Certificate of Amendment to the Articles of Incorporation, dated October 26, 2007 (incorporated by reference to Exhibit 4 to the Registrant's Registration Statement on Form 8-A12B filed June 3, 2009, SEC File No. 001-34373); Certificate of Amendment to the Articles of Incorporation, dated April 20, 2009 (incorporated herein by reference to Exhibit 5 to the Registrant's Registration Statement on Form 8-A12B filed June 3, 2009, SEC File no. 001-34373). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.2    |   | Registrant's Amended and Restated By-Laws, dated June 14, 2006 (incorporated by reference to Exhibit 3.1 filed with the Registrant's Form 8-K filed June 16, 2006, SEC file no. 000-31539); Amended and Restated By-Laws, dated September 24, 2008 (incorporated by reference to Exhibit 7 to the Registrant's Registration Statement on Form 8-A12B filed June 3, 2009, SEC File No. 001-34373).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.3    |   | Certificate of Ownership and Merger, dated February 14, 2002 (incorporated by reference to Exhibit 2 to the Registrant's Registration Statement on Form 8-A12B filed June 3, 2009, SEC File No. 001-34373).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.4    |   | Certificate of Ownership, dated December 12, 2005 (incorporated by reference to Exhibit 3 to the Registrant's Registration Statement on Form 8-A12B filed June 3, 2009, SEC File No. 001-34373).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1    |   | Registrant’s 2009 Employee Stock Option and Stock Award Plan (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 (333-166422) filed April 30, 2010); Registrant’s 2009 Employee Stock Option and Stock Award Plan – Award Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q filed July 20, 2009).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1   |   | Share Purchase Agreement made as of December 6, 2005 among Coventure International Inc., Xi’an Xilan Natural Gas Co., Ltd. and each of Xilan's shareholders (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on December 9, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2   |   | Return to Treasury Agreement between Coventure International Inc. and John Hromyk, dated December 6, 2005 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on December 9, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3   |   | Purchase Agreement made as of December 20, 2005 between China Natural Gas, Inc. and John Hromyk (incorporated by reference to the exhibit to Registrant’s Form 8-K filed on December 23, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4   |   | Form of Securities Purchase Agreement (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 12, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5   |   | Form of Warrant (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 12, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

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| Number |   | Description of Exhibit                                                                                                                                                                                                                                                                                                  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.6   |   | Form of Registration Rights Agreement (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 12, 2006).                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.7   |   | CNG Product Purchase and Sale Agreement between Xi’an Xilan Natural Gas Co., Ltd. and Zhengzhou Zhongyou Hengran Petroleum Gas Co., Ltd. made as of July 20, 2006, (translated from the original Mandarin) (incorporated by reference to the exhibits to Registrant’s Form 10-KSB filed on April 17, 2007). |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.8   |   | Securities Purchase Agreement, dated August 2, 2007, between the Company and the Investors named therein (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on August 8, 2007).                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.9   |   | Registration Rights Agreement, dated August 2, 2007, between the Company and the Investors named therein (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on August 8, 2007).                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.10  |   | Consulting Services Agreement, dated August 17, 2007, between Shaanxi Xilan Natural Gas Equipment Co., Ltd. and Xi’an Xilan Natural Gas Co., Ltd. (incorporated by reference to the exhibits to Registrant’s Form 10-QSB filed on August 20, 2007).                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.11  |   | Operating Agreement, dated August 17, 2007, between Shaanxi Xilan Natural Gas Equipment Co., Ltd. and Xi’an Xilan Natural Gas Co., Ltd. (incorporated by reference to the exhibits to Registrant’s Form 10-QSB filed on August 20, 2007).                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.12  |   | Equity Pledge Agreement, dated August 17, 2007, between Shaanxi Xilan Natural Gas Equipment Co., Ltd. and Xi’an Xilan Natural Gas Co., Ltd. (incorporated by reference to the exhibits to Registrant’s Form 10-QSB filed on August 20, 2007).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.13  |   | Option Agreement, dated August 17, 2007, between Shaanxi Xilan Natural Gas Equipment Co., Ltd. and Xi’an Xilan Natural Gas Co., Ltd. (incorporated by reference to the exhibits to Registrant’s Form 10-QSB filed on August 20, 2007).                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.14  |   | Proxy Agreement, dated August 17, 2007, between Shaanxi Xilan Natural Gas Equipment Co., Ltd. and Xi’an Xilan Natural Gas Co., Ltd. (incorporated by reference to the exhibits to Registrant’s Form 10-QSB filed on August 20, 2007).                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.15  |   | Securities Purchase Agreement, dated December 30, 2007, between the Company and Abax Lotus Ltd. (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.16  |   | Amendment to Securities Purchase Agreement, dated January 29, 2008, between the Company and Abax Lotus Ltd. (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.17  |   | Indenture, dated January 29, 2008, by and among the Company and DB Trustees (Hong Kong) Limited, as trustee, relating to the 5.00% Guaranteed Senior Notes due 2014 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                               |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.18  |   | Warrant Agreement, dated January 29, 2008, by and among the Company, Mr. Qinan Ji, Deutsche Bank AG, Hong Kong Branch as Warrant Agent and Deutsche Bank Luxembourg S.A. as Warrant Agent (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                         |
|   |   |                                                                                                                                                                                                                                                                                                                    |
| 10.19  |   | Equity Registration Rights Agreement, dated January 29, 2008, by and between the Company and Abax Lotus Ltd. (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                                                                                      |

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| Number      |   | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.20       |   | Investor Rights Agreement, dated January 29, 2008, by and among the Company, its subsidiaries, Mr. Qinan Ji, and Abax Lotus Ltd. (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                                                                                                                                                                                                                                                                                                                                                                               |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.21       |   | Information Rights Agreement, dated January 29, 2008, between the Company and Abax Lotus Ltd. (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.22       |   | Onshore Share Pledge Agreement, dated January 29, 2008, between the Company and DB Trustees (Hong Kong) Limited, as security agent (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                                                                                                                                                                                                                                                                                                                                                                             |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.23       |   | Account Pledge and Security Agreement, dated January 29, 2008, by and between the Company and DB Trustees (Hong Kong) Limited as Security Agent (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on January 31, 2008).                                                                                                                                                                                                                                                                                                                                                                                |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.24       |   | Natural Gas Purchase Agreement entered by and between Xi' An Xilan Natural Gas Co., Ltd. and China Petroleum Co., Ltd., Changqing Branch, dated July 30, 2006 (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                       |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.25       |   | Natural Gas Purchase Agreement entered by and between Jiyuan Yuhai Natural Gas Co., Ltd. and Xi' An Xilan Natural Gas Co., Ltd. dated, February 28, 2008 (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|  10.26 |   | Natural Gas Supply Agreement between Jincheng Ming Shi Natural Gas Co., Ltd., Jinan Branch and Xi' An Xilan Natural Gas Co., Ltd. dated March 20, 2008 (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.27       |   | Natural Gas Purchase Agreement entered by and between Shaanxi Natural Gas Co., Ltd. and Xi' An Xilan Natural Gas Co., Ltd., dated July 17, 2008 (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                                     |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.28       |   | Independent Director Agreement dated January 1, 2008, by and between China Natural Gas., Inc. and Zhiqiang Wang (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                                                                     |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.29       |   | Independent Director Agreement dated July 1, 2008, by and between China Natural Gas., Inc. and Carl Yeung (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.30       |   | Independent Director Agreement dated August 5, 2008, by and between China Natural Gas., Inc. and Lawrence W. Leighton (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                                                               |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.31       |   | Employment Agreement, dated October 10, 2008, by and between China Natural Gas., Inc. and Richard Peidong Wu (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009).                                                                                                                                                                                                                                                                                                                                                                                                        |
|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.32       |   | Employment Agreement, dated May 10, 2005, by and between China Natural Gas., Inc. and Qinan Ji (incorporated herein by reference to the exhibits to the Registrant’s Form 10-K/A filed on July 20, 2009); Employment Agreement, dated January 1, 2009, by and between China Natural Gas., Inc. and Qinan Ji (incorporated herein by reference to the Exhibit 10.4 to the Registrant’s Form 10-Q/A filed on July 20, 2009); Employment Agreement dated January 1, 2010, by and between the Company and Qinan Ji (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on November 9, 2010). |

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| Number      |   | Description of Exhibit                                                                                                                                                                                                                                                                                               |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.33       |   | Equity Ownership Transfer Agreement, dated October 2, 2008, by and between Xi'an Xilan Natural Gas Co., Ltd., Zhihe Zhang and Lingjun Hu (incorporated by reference to the Registrant’s Form 8-K filed on December 31, 2008).                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.34       |   | Joint Venture Agreement dated July 22, 2009 by and between Xi’an Xilan Natural Gas Co., Ltd. and China National Petroleum Corporation Kunlun Natural Gas Co., Ltd. (incorporated by reference to the Registrant’s Form 8-K filed on July 28, 2009).                                                      |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.35       |   | Strategic Cooperation Framework Agreement dated as of July 6, 2009 by and between Xi’an Xilan Natural Gas Co., Ltd. and China National Petroleum Corporation Kunlun Natural Gas Co., Ltd. (incorporated by reference to the Registrant’s Form 8-K filed on July 8, 2009).                                |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.36       |   | Employment Agreement dated December 20, 2010 between the Company and Shaocheng Xu (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on December 23, 2010).                                                                                                                         |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.37       |   | Independent Director Agreement dated November 25, 2010 between the Company and Frank Waung (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on November 26, 2010).                                                                                                                |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.38       |   | Waiver dated February 4, 2009, executed by DB Trustees (Hong Kong) Limited, as trustee under the Indenture governing the Company's 5.0% Guaranteed Senior Notes due 2014 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on November 9, 2010).                                   |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.39       |   | Waiver dated August 14, 2009, by and among the Company and the holders of the Company's 5.0% Guaranteed Senior Notes due 2014 signatory thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on November 9, 2010).                                                            |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.40       |   | Loan Contract of Fixed Asset dated February 26, 2010, by the between Jingbian Xi’an Xilan Liquefied Natural Gas Co. Ltd. and Xi’an Branch Shanghai Pudong Development Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 13, 2010). |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.41       |   | Mortgage Contract of Movables dated February 26, 2010, by and between Xi’an Xilan Natural Gas Co. Ltd. and Xi’an Branch Shanghai Pudong Development Bank (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 13, 2010).                   |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.42       |   | Contract of Guarantee dated February 26, 2010, by and between Xi’an Xilan Natural Gas Co. Ltd. and Xi’an Branch Shanghai Pudong Development Bank (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 13, 2010).                           |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.43       |   | Employment Agreement of Veronica Chen dated May 1, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on July 20, 2009).                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.44  |   | Supply Agreement between CNP Changqing Oil Field Branch Company dated November 25, 2010 and Jingbian LNG Company (incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K filed on December 1, 2010).                                                                                           |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.45**     |   | Coal Bed Methane Purchase Agreement entered by and between Henan Xilan Natural Gas Co., Ltd. and Qinshui Lanyan Coal Bed Methane Co., Ltd. dated January 12, 2009 (English translation attached).                                                                                                                    |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 10.46**     |   | Natural Gas Supply Agreement between Huojia Hualong Petrochemical Co., Ltd., and Xi' An Xilan Natural Gas Co., Ltd. dated  November  16, 2009 (English translation attached).                                                                                                                    |
|        |   |                                                                                                                                                                                                                                                                                                                 |
| 14.1        |   | Code of Ethics adopted by the Company on June 14, 2006 (incorporated by reference to the exhibits to Registrant’s Form 8-K filed on June 16, 2006).                                                                                                                                                            |

----

| Number |   | Description of Exhibit                                                                                                                                                           |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                             |
| 16.1   |   | Letter of Moore Stephens Wurth Frazer and Torbet, LLP dated January 7, 2010 (incorporated by reference to Exhibit 16.1 to Registrant’s Form 8-K filed on January 7, 2010). |
|   |   |                                                                                                                                                                             |
| 16.2   |   | Letter from Frazer Frost, LLP dated December 6, 2010 (incorporated by reference to the exhibits to Exhibit 16.1 to the Registrant’s Form 8-K filed on December 7, 2010).   |
|   |   |                                                                                                                                                                             |
| 21.1** |   | List of Subsidiaries.                                                                                                                                                            |
|   |   |                                                                                                                                                                             |
| 23.1*  |   | Written consent of Frazer Frost, LLP.                                                                                                                                            |
|   |   |                                                                                                                                                                             |
| 31.1*  |   | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.                  |
|   |   |                                                                                                                                                                             |
| 31.2*  |   | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.                  |
|   |   |                                                                                                                                                                             |
| 32.1*  |   | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).                                |
|   |   |                                                                                                                                                                             |
| 32.2*  |   | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).                                |

----

| CHINA NATURAL GAS, INC.                                                      |                                                                                        |
|------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                                                         |                                                                                        |
| /s/ Qinan Ji                                                                 | /s/ Bode Xu                                                                                 |
| Name: Qinan Ji                                                               | Name: Bode Xu                                                                               |
| Title:   Chief Executive Officer(Principal Executive Officer) | Title:   Chief Financial Officer(Principal Financial and Accounting Officer) |

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|                                                                                                                 |   | Pages                 |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------|
|                                                                                                                 |   |                  |
| Reports of Independent Registered Public Accounting Firms                                                            |   | F-2                   |
|                                                                                                                 |   |                  |
| Consolidated Balance Sheets as of December 31, 2010 and 2009                                                         |   | F-5                   |
|                                                                                                                 |   |                  |
| Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2010, 2009 and 2008 |   | F-6                   |
|                                                                                                                 |   |                  |
| Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2010, 2009 and 2008           |   | F-7                   |
|                                                                                                                 |   |                  |
| Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008                           |   | F-8                   |
|                                                                                                                 |   |                  |
| Notes to Consolidated Financial Statements                                                                           |   | F-9 – F-32 |

----

----

| · | As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and in Amendment No. 2 to the 2009 Form 10-K/A), in February 2010, the Company obtained a bank loan in the amount of $17.7 million (the “Loan”) and, in connection with the Loan, Xi’an Xilan Natural Gas Co. Ltd., the Company’s variable interest entity, pledged its equipment and vehicles located within China to secure the Loan (the “Pledge”) and guaranteed the repayment of the Loan (the “Guarantee”).  Management failed to disclose the Loan, the Pledge and the Guarantee as subsequent events in the footnotes to its consolidated financial statements included in the annual report on Form 10-K for the year ended December 31, 2009, and to file a current report on Form 8-K within four business days after entry into the Loan, the Pledge and the Guarantee; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Management failed to disclose the Loan, the Pledge and the Guarantee in the quarterly report on Form 10Q for the quarter ended March 31, 2010, which led to an understatement of restricted cash in the amount of $13.2 million and the understatement of bank loans in the amount of $13.2 million in the consolidated balance sheet included therein; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Management incorrectly determined that the Pledge constituted a breach of the indenture (the “Indenture”) governing the Company’s 5% guaranteed senior notes issued to Abax Lotus Ltd. dated January 29, 2008 (the “Senior Notes”), which led the Company to erroneously (i) reclassify from long-term liabilities to short-term liabilities the Senior Notes and the fair value of the redeemable warrants (the “Reclassification”) and file related amendments to the Annual Report on Form 10-K for the year ended December 31, 2009 (the “Amended 10-K”) and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (the “Amended 10-Q), (ii) disclose in the Amended 10-K, Amended 10-Q and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 that the Pledge constituted a breach of the Indenture and (iii) make the Reclassification; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Management failed to document and communicate to the Board of Directors and members of management the evaluation of disclosure requirements in connection with acquisitions of four natural gas stations in the second quarter of 2010 and the acquisition of Hanchun Makou Yuntong Compressed Natural Gas Co., Ltd. in the third quarter of 2010; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The Company did not maintain personnel with a sufficient level of accounting knowledge, experience and training in the application of U.S. GAAP and SEC requirements in the application thereof. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                                                                                          |   | December, 31 |        |   | December, 31 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-------------------|--------|
|                                                                                                                                                          |   | 2010              |        |   | 2009              |   |
|                                                                                                                                                          |   |              |        |   |              |   |
| ASSETS                                                                                                                                                        |   |              |        |   |              |   |
| CURRENT ASSETS:                                                                                                                                               |   |              |        |   |              |   |
| Cash and cash equivalents                                                                                                                                     |   | $                 | 10,046,249  |   |              | $      | 48,177,794 |   |
| Accounts receivable, net                                                                                                                                      |   |              | 1,821,595   |   |              |   | 1,289,116 |   |
| Other receivable                                                                                                                                              |   |              | 188,364     |   |              |   | 709,741 |   |
| Employee advances                                                                                                                                             |   |              | 302,532     |   |              |   | 338,689 |   |
| Inventories                                                                                                                                                   |   |              | 815,884     |   |              |   | 841,837 |   |
| Advances to suppliers                                                                                                                                         |   |              | 8,434,995   |   |              |   | 596,868 |   |
| Prepaid expense and other current assets                                                                                                                      |   |              | 4,249,353   |   |              |   | 1,076,915 |   |
| Loan receivable                                                                                                                                               |   |              | -           |   |              |   | 293,400 |   |
| Total current assets                                                                                                                                          |   |              | 25,858,972  |   |              |   | 53,324,360 |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| Investment in unconsolidated joint ventures                                                                                                                   |   |              | 1,517,000   |   |              |   | 1,467,000 |   |
| Property and equipment, net                                                                                                                                   |   |              | 82,769,171  |   |              |   | 72,713,012 |   |
| Construction in progress                                                                                                                                      |   |              | 116,569,871 |   |              |   | 52,918,236 |   |
| Deferred financing cost, net                                                                                                                                  |   |              | 927,166     |   |              |   | 1,336,998 |   |
| Other assets                                                                                                                                                  |   |              | 19,806,375  |   |              |   | 15,854,910 |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| TOTAL ASSETS                                                                                                                                                  |   | $                 | 247,448,555 |   |              | $      | 197,614,516 |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                          |   |              |        |   |              |   |   |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                          |   |              |        |   |              |   |   |   |
| Notes payable - current maturities                                                                                                                            |   |              | 2,551,306   |   |              |   | - |   |
| Accounts payable and accrued liabilities                                                                                                                      |   | $                 | 5,428,668   |   |              | $      | 2,162,049 |   |
| Unearned revenue                                                                                                                                              |   |              | 2,376,563   |   |              |   | 1,813,641 |   |
| Accrued interest                                                                                                                                              |   |              | 646,528     |   |              |   | 786,052 |   |
| Taxes payable                                                                                                                                                 |   |              | 2,377,765   |   |              |   | 1,901,577 |   |
| Total current liabilities                                                                                                                                     |   |              | 13,380,830  |   |              |   | 6,663,319 |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| LONG-TERM LIABILITIES:                                                                                                                                        |   |              |        |   |              |   |   |   |
| Notes payable, net of current portion                                                                                                                         |   |              | 28,064,363  |   |              |   | 27,292,287 |   |
| Long-term debt                                                                                                                                                |   |              | 18,204,000  |   |              |   |   |   |
| Derivative liabilities - warrants                                                                                                                             |   |              | 17,752,066  |   |              |   | 19,545,638 |   |
| Total long-term liabilities                                                                                                                                   |   |              | 64,020,429  |   |              |   | 46,837,925 |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| Total liabilities                                                                                                                                             |   |              | 77,401,259  |   |              |   | 53,501,244 |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                 |   |              |        |   |              |   |   |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| STOCKHOLDERS' EQUITY:                                                                                                                                         |   |              |        |   |              |   |   |   |
| Preferred stock, par value $0.0001 per share, 5,000,000 authorized, none issued                                                                               |   |              | -           |   |              |   | - |   |
| Common stock, par value $0.0001 per share, 45,000,000 authorized, 21,321,904 and 21,183,904 issued and outstanding at December 31,2010 and 2009, respectively |   |              | 2,132       |   |              |   | 2,118 |   |
| Additional paid-in capital                                                                                                                                    |   |              | 81,611,763  |   |              |   | 79,851,251 |   |
| Accumulative other comprehensive income                                                                                                                       |   |              | 15,667,145  |   |              |   | 8,714,019 |   |
| Statutory reserves                                                                                                                                            |   |              | 7,918,634   |   |              |   | 5,962,695 |   |
| Retained earnings                                                                                                                                             |   |              | 64,847,622  |   |              |   | 49,583,189 |   |
| Total stockholders' equity                                                                                                                                    |   |              | 170,047,296 |   |              |   | 144,113,272 |   |
|                                                                                                                                                          |   |              |        |   |              |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                    |   | $                 | 247,448,555 |   |              | $      | 197,614,516 |   |

----

|                                |   | Years Ended December 31, |       |
|-------------------------------------|--------|-----------------------------------------|------------|
|                                |   | 2010                                    |       |   | 2009 |   |   | 2008 |   |
|                                |   |                                    |       |   |   |   |   |   |   |
| Revenue                             |   |                                    |       |   |   |   |   |   |   |
| Natural gas                         |   | $                                       | 71,367,502 |   |   | $ | 62,236,342 |   |   | $ | 55,746,893 |   |
| Gasoline                            |   |                                    | 7,522,412  |   |   |   | 6,384,172 |   |   |   | 4,616,052 |   |
| Installation and other              |   |                                    | 11,063,709 |   |   |   | 12,445,604 |   |   |   | 7,357,714 |   |
|                                |   |                                    | 89,953,623 |   |   |   | 81,066,118 |   |   |   | 67,720,659 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Cost of revenue                     |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Natural gas                         |   |                                    | 38,651,298 |   |   |   | 29,478,854 |   |   |   | 27,234,508 |   |
| Gasoline                            |   |                                    | 7,050,003  |   |   |   | 5,993,207 |   |   |   | 4,277,458 |   |
| Installation and other              |   |                                    | 4,838,858  |   |   |   | 5,432,978 |   |   |   | 3,469,671 |   |
|                                |   |                                    | 50,540,159 |   |   |   | 40,905,039 |   |   |   | 34,981,637 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Gross profit                        |   |                                    | 39,413,464 |   |   |   | 40,161,079 |   |   |   | 32,739,022 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Operating expenses                  |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Selling                             |   |                                    | 13,254,923 |   |   |   | 10,607,596 |   |   |   | 7,651,948 |   |
| General and administrative          |   |                                    | 7,131,543  |   |   |   | 4,500,676 |   |   |   | 4,024,882 |   |
|                                |   |                                    | 20,386,466 |   |   |   | 15,108,272 |   |   |   | 11,676,830 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Income from operations              |   |                                    | 19,026,998 |   |   |   | 25,052,807 |   |   |   | 21,062,192 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Other income (expense)              |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Interest income                     |   |                                    | 418,763    |   |   |   | 125,287 |   |   |   | 209,502 |   |
| Interest expense                    |   |                                    | -          |   |   |   | (747,172 | ) |   |   | (2,228,244 | ) |
| Other income (expense), net         |   |                                    | (137,817   | ) |   |   | (186,805 | ) |   |   | 111,859 |   |
| Change in fair value of warrants    |   |                                    | 1,793,572  |   |   |   | (1,031,330 | ) |   |   | - |   |
| Foreign currency exchange loss      |   |                                    | (88,613    | ) |   |   | (69,077 | ) |   |   | (397,299 | ) |
|                                |   |                                    | 1,985,905  |   |   |   | (1,909,097 | ) |   |   | (2,304,182 | ) |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Income before income tax            |   |                                    | 21,012,903 |   |   |   | 23,143,710 |   |   |   | 18,758,010 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Provision for income tax            |   |                                    | 3,792,531  |   |   |   | 4,312,923 |   |   |   | 3,567,642 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Net income                          |   |                                    | 17,220,372 |   |   |   | 18,830,787 |   |   |   | 15,190,368 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Other comprehensive income          |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Foreign currency translation gain   |   |                                    | 6,953,126  |   |   |   | 52,959 |   |   |   | 5,184,035 |   |
| Comprehensive income                |   | $                                       | 24,173,498 |   |   | $ | 18,883,746 |   |   |   | 20,374,403 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Basic                               |   |                                    | 21,268,972 |   |   |   | 16,624,294 |   |   |   | 14,600,154 |   |
| Diluted                             |   |                                    | 21,430,867 |   |   |   | 16,830,907 |   |   |   | 14,645,070 |   |
|                                |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Earnings per share                  |   |                                    |       |   |   |   |   |   |   |   |   |   |
| Basic                               |   | $                                       | 0.81       |   |   | $ | 1.13 |   |   | $ | 1.04 |   |
| Diluted                             |   | $                                       | 0.80       |   |   | $ | 1.12 |   |   | $ | 1.04 |   |

----

|                                                          |   |              |       |   |    |   |   | Additional    |   |   | AccumulativeOther |   |   | Retained Earnings |       |   | Total         |   |
|--------------------------------------------------------------------|--------|-------------------|------------|--------|---------|--------|--------|---------------|--------|--------|-------------------|--------|--------|------------------------|------------|--------|---------------|--------|
|                                                               |   | Common Stock |       |   | Paid-in |   |   | Comprehensive |   |   | Statutory         |   |   |                   |       |   | Stockholders' |   |
|                                                               |   | Shares            |       |   | Amount  |   |   | Capital       |   |   | Income            |   |   | Reserve                |       |   | Unrestricted  |   |   | Equity |   |
|                                                               |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |
| Balance December 31, 2007                                          |   |              | 14,600,154 |   |    | $      | 1,460  |          |   | $      | 32,048,339        |   |   | $                      | 3,477,025  |   |          | $      | 1,802,735 |   |   | $ | 13,877,755 |   |   | $ | 51,207,314 |   |
|                                                               |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Options issued for services                                        |   |              |       |   |    |   |   |          |   |   | 66,704            |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | 66,704 |   |
| Cumulative translation adjustment                                  |   |              |       |   |    |   |   |          |   |   |              |   |   |                   | 5,184,035  |   |          |   |   |   |   |   |   |   |   |   | 5,184,035 |   |
| Net income                                                         |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   | 15,190,368 |   |   |   | 15,190,368 |   |
| Transfer to statutory reserve                                      |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   | 1,927,348 |   |   |   | (1,927,348 | ) |   |   | - |   |
|                                                               |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2008                                          |   |              | 14,600,154 |   |    | $      | 1,460  |          |   | $      | 32,115,043        |   |   | $                      | 8,661,060  |   |          | $      | 3,730,083 |   |   | $ | 27,140,775 |   |   | $ | 71,648,421 |   |
|                                                               |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Reclassification of warrants from equity to derivative liabilities |   |              |       |   |    |   |   |          |   |   | (6,858,547        | )      |   |                   |       |   |          |   |   |   |   |   | 5,844,239 |   |   |   | (1,014,308 | ) |
| Issuance of common stock                                           |   |              | 6,583,750  |   |    |   | 658    |          |   |   | 57,607,155        |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | 57,607,813 |   |
| Offering costs                                                     |   |              |       |   |    |   |   |          |   |   | (3,237,452        | )      |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | (3,237,452 | ) |
| Options issued for services                                        |   |              |       |   |    |   |   |          |   |   | 66,535            |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | 66,535 |   |
| Stock based compensation                                           |   |              |       |   |    |   |   |          |   |   | 158,517           |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | 158,517 |   |
| Cumulative translation adjustment                                  |   |              |       |   |    |   |   |          |   |   |              |   |   |                   | 52,959     |   |          |   |   |   |   |   |   |   |   |   | 52,959 |   |
| Net income                                                         |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   | 18,830,787 |   |   |   | 18,830,787 |   |
| Transfer to statutory reserve                                      |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   | 2,232,612 |   |   |   | (2,232,612 | ) |   |   | - |   |
|                                                               |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2009                                          |   |              | 21,183,904 |   |    | $      | 2,118  |          |   | $      | 79,851,251        |   |   | $                      | 8,714,019  |   |          | $      | 5,962,695 |   |   | $ | 49,583,189 |   |   | $ | 144,113,272 |   |
|                                                               |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Exercise of stock  options                               |   |              | 138,000    |   |    |   | 14     |          |   |   | 676,186           |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | 676,200 |   |
| Options issued for services                                        |   |              |       |   |    |   |   |          |   |   | 66,024            |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | 66,024 |   |
| Stock based compensation                                           |   |              |       |   |    |   |   |          |   |   | 1,018,302         |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   | 1,018,302 |   |
| Cumulative translation adjustment                                  |   |              |       |   |    |   |   |          |   |   |              |   |   |                   | 6,953,126  |   |          |   |   |   |   |   |   |   |   |   | 6,953,126 |   |
| Net income                                                         |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   | 17,220,372 |   |   |   | 17,220,372 |   |
| Transfer to statutory reserve                                      |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   | 1,955,939 |   |   |   | (1,955,939 | ) |   |   | - |   |
|                                                               |   |              |       |   |    |   |   |          |   |   |              |   |   |                   |       |   |          |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2010                                          |   |              | 21,321,904 |   |    | $      | 2,132  |          |   | $      | 81,611,763        |   |   | $                      | 15,667,145 |   |          | $      | 7,918,634 |   |   | $ | 64,847,622 |   |   | $ | 170,047,296 |   |

----

|                                                                               |   | For the Years ended December 31, |        |
|------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|-------------|
|                                                                               |   | 2010                                                      |        |   | 2009 |   |   | 2008 |   |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |                                                      |        |   |   |   |   |   |   |
| Net income                                                                         |   | $                                                         | 17,220,372  |   |   | $ | 18,830,787 |   |   |   | 15,190,368 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:  |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                      |   |                                                      | 6,644,843   |   |   |   | 5,571,772 |   |   |   | 3,474,905 |   |
| Recovery of doubtful accounts                                                      |   |                                                      | (149,859    | ) |   |   | - |   |   |   | - |   |
| Loss on disposal of equipment                                                      |   |                                                      | 123,553     |   |   |   | 21,373 |   |   |   | 24,806 |   |
| Amortization of discount on senior notes                                           |   |                                                      | -           |   |   |   | 280,250 |   |   |   | 1,004,677 |   |
| Amortization of financing costs                                                    |   |                                                      | -           |   |   |   | 63,940 |   |   |   | 227,989 |   |
| Options issued for services                                                        |   |                                                      | 66,024      |   |   |   | 66,535 |   |   |   | 66,704 |   |
| Stock-based compensation                                                           |   |                                                      | 1,018,302   |   |   |   | 158,517 |   |   |   | - |   |
| Change in fair value of warrants                                                   |   |                                                      | (1,793,572  | ) |   |   | 1,031,330 |   |   |   | - |   |
| Change in assets and liabilities:                                                  |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                |   |                                                      | (326,573    | ) |   |   | (387,948 | ) |   |   | (568,370 | ) |
| Other receivables                                                                  |   |                                                      | 531,970     |   |   |   | (644,083 | ) |   |   | 247,349 |   |
| Employee advances                                                                  |   |                                                      | 46,174      |   |   |   | (6,425 | ) |   |   | (55,747 | ) |
| Inventories                                                                        |   |                                                      | 53,292      |   |   |   | (322,099 | ) |   |   | (267,470 | ) |
| Advances to suppliers                                                              |   |                                                      | (7,624,015  | ) |   |   | 240,724 |   |   |   | (125,896 | ) |
| Prepaid expense and other current assets                                           |   |                                                      | (2,973,865  | ) |   |   | (306,445 | ) |   |   | (642,857 | ) |
| Accounts payable and accrued liabilities                                           |   |                                                      | 3,144,057   |   |   |   | 2,526 |   |   |   | 339,168 |   |
| Unearned revenue                                                                   |   |                                                      | 488,687     |   |   |   | 869,239 |   |   |   | 583,940 |   |
| Accrued interest                                                                   |   |                                                      | (139,524    | ) |   |   | (75,062 | ) |   |   | 861,114 |   |
| Taxes payable                                                                      |   |                                                      | 372,136     |   |   |   | 38,991 |   |   |   | 556,121 |   |
| Net cash provided by operating activities                                          |   |                                                      | 16,702,002  |   |   |   | 25,433,922 |   |   |   | 20,916,801 |   |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Payment on investment in unconsolidated joint ventures                             |   |                                                      | -           |   |   |   | (1,467,000 | ) |   |   | - |   |
| Purchase of property and equipment                                                 |   |                                                      | (6,060,287  | ) |   |   | (1,074,066 | ) |   |   | (43,225,673 | ) |
| Proceeds from sales of property and equipment                                      |   |                                                      | 96,141      |   |   |   | 41,325 |   |   |   | 194,891 |   |
| Loan receivable                                                                    |   |                                                      | (14,379,768 | ) |   |   | - |   |   |   | - |   |
| Proceeds from loan receivable                                                      |   |                                                      | 14,675,648  |   |   |   | - |   |   |   | - |   |
| Proceeds from short term investments                                               |   |                                                      | -           |   |   |   | - |   |   |   | 250,821 |   |
| Additions to construction in progress                                              |   |                                                      | (44,830,638 | ) |   |   | (28,020,498 | ) |   |   | (19,012,750 | ) |
| Return (payment) of acquisition deposit                                            |   |                                                      | 1,627,340   |   |   |   | (283,200 | ) |   |   | - |   |
| Prepayment on long-term assets                                                     |   |                                                      | (10,274,357 | ) |   |   | (6,139,766 | ) |   |   | (5,729,833 | ) |
| Payment for acquisition of business                                                |   |                                                      | (3,077,031  | ) |   |   | - |   |   |   | - |   |
| Payment for intangible assets                                                      |   |                                                      | (6,159,474  | ) |   |   | (161,486 | ) |   |   | (53,826 | ) |
| Payment for land use rights                                                        |   |                                                      | (4,283,789  | ) |   |   | (432,566 | ) |   |   | (30,354 | ) |
| Excess of cost over fair value of net assets acquired                              |   |                                                      | (505,225    | ) |   |   | - |   |   |   | - |   |
| Net cash used in investing activities                                              |   |                                                      | (73,171,440 | ) |   |   | (37,537,257 | ) |   |   | (67,606,724 | ) |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Proceeds from the issuance of common stock                                         |   |                                                      | -           |   |   |   | 57,607,813 |   |   |   | - |   |
| Proceeds from exercise of stock options                                            |   |                                                      | 676,200     |   |   |   | - |   |   |   | - |   |
| Proceeds from long-term debt                                                       |   |                                                      | 17,752,800  |   |   |   | - |   |   |   | 40,000,000 |   |
| Debt issuance costs                                                                |   |                                                      | -           |   |   |   | - |   |   |   | (2,122,509 | ) |
| Stock issuance costs                                                               |   |                                                      | -           |   |   |   | (3,237,454 | ) |   |   | - |   |
| Net cash provided by financing activities                                          |   |                                                      | 18,429,000  |   |   |   | 54,370,359 |   |   |   | 37,877,491 |   |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Effect of exchange rate changes on cash and cash equivalents                       |   |                                                      | (91,107     | ) |   |   | 56,387 |   |   |   | 1,375,086 |   |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS                             |   |                                                      | (38,131,545 | ) |   |   | 42,323,411 |   |   |   | (7,437,346 | ) |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                       |   |                                                      | 48,177,794  |   |   |   | 5,854,383 |   |   |   | 13,291,729 |   |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF YEAR                                             |   | $                                                         | 10,046,249  |   |   | $ | 48,177,794 |   |   |   | 5,854,383 |   |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                  |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Interest paid, including capitalized interest                                      |   | $                                                         | 2,908,661   |   |   | $ | 503,845 |   |   | $ | 902,777 |   |
| Income taxes paid                                                                  |   | $                                                         | 3,863,788   |   |   | $ | 4,178,066 |   |   | $ | 2,998,627 |   |
|                                                                               |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Non-cash transactions for investing and financing activities:                      |   |                                                      |        |   |   |   |   |   |   |   |   |   |
| Construction in progress transferred to property and equipment                     |   | $                                                         | 5,057,958   |   |   | $ | - |   |   | $ | 823,464 |   |
| Prepayment on long-term assets transferred to property and equipment               |   | $                                                         | 18,431,526  |   |   | $ | - |   |   | $ | 405,630 |   |
| Purchase of equipment through accounts payable                                     |   | $                                                         | -           |   |   | $ | 1,234,603 |   |   | $ | - |   |
| Capitalized interest - amortization of discount of notes payable and issuance cost |   | $                                                         | 3,733,214   |   |   | $ | 2,836,324 |   |   | $ | 1,164,618 |   |

----

----

|   | · | Consulting Service Agreement, dated August 17, 2007. Under this agreement entered into between SXNGE and XXNGC, SXNGE provides XXNGC exclusive consulting services with respect to XXNGC’s general business operations, human resources and research and development. In return, XXNGC pays a quarterly service fee to SXNGE, which is equal to XXNGC’s revenue for such quarter. The term of this agreement is indefinite unless SXNGE notifies XXNGC of its intention to terminate this agreement. XXNGC may not terminate this agreement during its term. This agreement is retroactive to March 8, 2006. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Operating Agreement, dated August 17, 2007. Under this agreement entered into between SXNGE, on the one hand, and XXNGC and certain shareholders of XXNGC, on the other hand, SXNGE agrees to fully guarantee XXNGC’s performance of all operations-related contracts, agreements or transactions with third parties and, in return, XXNGC agrees to pledge all of its assets, including accounts receivable, to SXNGE. The XXNGC shareholders party to this operating agreement agree to, among other things, appoint as XXNGC’s directors, individuals recommended by XXNGC, and appoint SXNGE’s senior officers as XXNGC’s general manager, chief financial officer and other senior officers. The term of this agreement is indefinite unless SXNGE notifies XXNGC of its intention to terminate this agreement with 30 days prior notice. XXNGC may not terminate this agreement during its term. This agreement is retroactive to March 8, 2006. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Equity Pledge Agreement, dated August 17, 2007. Under this agreement entered into between SXNGE, on the one hand, and XXNGC and certain shareholders of XXNGC, on the other hand, to secure the payment obligations of XXNGC under the consulting service agreement described above, the XXNGC shareholders party to this equity pledge agreement have pledged to SXNGE all of their equity ownership interests in XXNGC. Upon the occurrence of certain events of default specified in this agreement, SXNGE may exercise its rights and foreclose on the pledged equity interest. Under this agreement, the pledgors may not transfer the pledged equity interest without SXNGE’s prior written consent. This agreement will also be binding upon successors of the pledgor and transferees of the pledged equity interest. The term of the pledge is two years after the obligations under the Consulting Service Agreement have been fulfilled. This agreement is retroactive to March 8, 2006. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Option Agreement, dated August 17, 2007. Under this agreement entered into between SXNGE, on the one hand, and XXNGC and certain shareholders of XXNGC, on the other hand, the XXNGC shareholders party to this option agreement irrevocably granted to SXNGE, or any third party designated by SXNGE, the right to acquire, in whole or in part, the respective equity interests in XXNGC of these XXNGC shareholders. The option agreement can be terminated by SXNGE by notifying XXNGC of its intention to terminate this agreement with 30 days prior notice. The option agreement is retroactive to March 8, 2006. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Addendum to the Option Agreement, dated August 8, 2008. Under this addendum to the option agreement entered into between SXNGE, on the one hand, and XXNGC and certain shareholders of XXNGC, on the other hand, the XXNGC shareholders irrevocably granted to SXNGE an option to purchase the XXNGC shareholders’ additional equity interests in XXNGC (the “Additional Equity Interest”) in connection with any increase in XXNGC’s registered capital subsequent to the execution of the option agreement described above, at $1.00 or the lowest price permissible under applicable law at the time that SXNGE exercises the option to purchase the Additional Equity Interest. The option agreement can be terminated by SXNGE by notifying XXNGC of its intention to terminate this agreement with 30 days prior notice. This addendum is retroactive to June 30, 2008. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Proxy Agreement, dated August 17, 2007. Under this agreement entered into between SXNGE, on the one hand, and XXNGC and certain shareholders of XXNGC, on the other hand, the XXNGC shareholders irrevocably granted to SXNGE the right to exercise their shareholder voting rights, including attendance at and voting of their shares at shareholders meetings in accordance with the applicable laws and XXNGC’s articles of association. This agreement is retroactive to March 8, 2006. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                   |    | December 31, 2010 |    |    | December 31, 2009 |    |
|-----------------------------|--------------|-----------------------------|--------------|--------------|-----------------------------|--------------|
| Materials and supplies |         | $                           | 524,934      |         |                        | $            | 345,611 |   |
| Gasoline                    |         |                        | 290,950      |         |                        |         | 496,226 |   |
|                        |         | $                           | 815,884      |         |                        | $            | 841,837 |   |

----

|                                                                                                          |   | December31,2010 |   |   | December31, 2009 |   |
|--------------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|--------|-----------------------|--------|
| Shanxi Tuojin Mining Company, due on November 30, 2009, extended to November 30, 2010, annual interest at 5.84%(1) |   |            | -      |   |                  | $      | 293,400 |   |
| Total                                                                                                              |   |            | -      |   |                  | $      | 293,400 |   |

| (1) | Shanxi Tuojin Mining Company paid off this loan on March 11, 2010. |
|-----|--------------------------------------------------------------------|

|                    |   | December 31,2010 |      |   | December 31,2009 |   |
|------------------------------|--------|-----------------------|-----------|--------|-----------------------|--------|
| Current assets               |   | $                     | 3,095,918 |   |                  | $      | 2,993,878 |   |
| Noncurrent assets            |   |                  | -         |   |                  |   | - |   |
| Total assets                 |   | $                     | 3,095,918 |   |                  | $      | 2,993,878 |   |
| Current liabilities          |   |                  | -         |   |                  |   | - |   |
| Noncurrent liabilities       |   |                  | -         |   |                  |   | - |   |
| Equity                       |   | $                     | 3,095,918 |   |                  | $      | 2,993,878 |   |
| Total liabilities and equity |   | $                     | 3,095,918 |   |                  | $      | 2,993,878 |   |

----

| Office equipment           | 5 years    |
|----------------------------|------------|
| Operating equipment        | 5-20 years |
| Vehicles                   | 5 years    |
| Buildings and improvements | 5-30 years |

|                     |    | December 31, 2010 |    |    | December 31, 2009 |    |
|-------------------------------|--------------|-----------------------------|--------------|--------------|-----------------------------|--------------|
| Office equipment         |         | $                           | 580,688      |         |                        | $            | 439,055 |   |
| Operating equipment           |         |                        | 71,163,466   |         |                        |         | 61,350,503 |   |
| Vehicles                      |         |                        | 3,308,624    |         |                        |         | 2,486,614 |   |
| Buildings and improvements    |         |                        | 27,861,655   |         |                        |         | 21,414,553 |   |
| Total property and equipment  |         |                        | 102,914,433  |         |                        |         | 85,690,725 |   |
| Less accumulated depreciation |         |                        | (20,145,262  | )            |                        |         | (12,977,713 | ) |
| Property and equipment, net   |         | $                           | 82,769,171   |         |                        | $            | 72,713,012 |   |

----

| Project Description         |   | Location                                      |   | December 31,2010 |              | Commencementdate |          | Expectedcompletiondate |          | Estimatedadditional cost tocomplete |   |
|----------------------------------|--------|-----------------------------------------------|--------|-----------------------|-------------------|------------------|---------------|------------------------|---------------|-----------------------------------------------|--------|
| Phase I of LNG Project           |   | Jingbian County, Shaanxi Province, PRC        |   | $                     | 65,309,335        | (1)              | December 2006 |                   | June 2011(2)  |                                          | $      | 1,760,278 | (3) |
| Phases II and III of LNG Project |   | Jingbian County, Shaanxi Province, PRC        |   |                  | 35,860,914        | (4)              | December 2006 |                   | December 2015 |                                          |   | 206,840,695 | (5) |
| Sa Pu Mother Station             |   | Henan Province, PRC                           |   |                  | 925,328           |             | July 2008     |                   | June 2011     |                                          |   | 6,300,000 |   |
| International port(6)            |   | International Port District, Xi’an, PRC |   |                  | 5,440,515         |             | May 2009      |                   | December 2020 |                                          |   |   299,400,000 |   |
| Other projects                   |   | PRC                                           |   |                  | 9,033,779         |             | Various       |                   | Various       |                                          |   | 9,447,266 |   |
|                             |   |                                          |   |                  |              |             |          |                   |          |                                          |   |   |   |
|                             |   |                                          |   | $                     |  116,569,871 |             |          |                   |          |                                          | $      |  523,748,239 |   |

| Project Description       |   | Location                               |   | December 31, 2009 |       | CommencementDate |           | Expectedcompletiondate |       | Estimatedadditionalcost tocomplete |   |
|--------------------------------|--------|----------------------------------------|--------|-----------------------------|------------|------------------|----------------|------------------------|------------|-----------------------------------------|--------|
| Jingbian LNG                   |   | Jingbian County, Shaanxi Province, PRC |   | $                           | 44,411,503 |             | December 2006  |                   | June 2010  |                                    | $      | 11,150,000 |   |
| Sa Pu mother station           |   | Henan Province, PRC                    |   |                        | 814,822    |             | July 2008      |                   | June 2011  |                                    |   | 6,300,000 |   |
| Zijing Energy mother station   |   | Sanyuan County, Shaanxi Province, PRC  |   |                        | 4,213,074  |             | September 2008 |                   | March 2010 |                                    |   | 513,450 |   |
| Xi'an Cangsheng mother station |   | Xi’an, Shaanxi Province, PRC     |   |                        | 1,891,584  |             | September 2008 |                   | May 2011   |                                    |   | 3,227,400 |   |
| Other CIP projects             |   | PRC                                    |   |                        | 1,587,253  |             | Various        |                   | Various    |                                    |   | 450,000 |   |
|                           |   |                                   |   |                        |       |             |           |                   |       |                                    |   |   |   |
|                           |   |                                   |   | $                           | 52,918,236 |             |           |                   |       |                                    | $      | 21,640,850 |   |

| (1) | Includes $57,844,070 of construction cost and $7,465,265 of capitalized interest for phase I of the LNG Project. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (2) | The Company has completed the trial run in December 2010. Currently we are in the production preparation period. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (3) | Includes $717,602of construction cost and $1,042,676 of capitalized interest that the Company currently expects to expend to complete test runs and make installment payments to contractors. The total expected cost of $67.07 million exceeds the amount originally anticipated by the Company. The increased costs to build a LNG processing capacity of 500,000 cubic meters are attributable to unforeseen cost overruns and escalations, including increases in material and labor costs incurred to reinforce pilings based upon modified engineering analyses, as well as rising land use rights prices, which the Company believes resulted from recent energy resource exploration activities in nearby areas. Phase I construction has also experienced delays due to changes in government policies with respect to tariff exemptions for core equipment imported by the Company and related additional document requirements of the customs agency of Shaanxi Province, and increased international shipment times for ordered equipment due to the modification by international shipping companies of traditional shipment routes to avoid pirates along the Coast of Somalia. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Includes $31,761,788 of construction cost and $4,099,126 of capitalized interest for phase II and phase III of the LNG project. |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

| (5) | This amount reflects management’s current estimate that an investment in phases II and III through December 15, 2015, including an estimated $186.8 million of construction cost and $20 million of capitalized interest, may be able to finance the construction of a facility capable of processing 3,000,000 cubic meters of LNG per day, or approximately 900 million cubic meters per year. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (6) | Xi’an International Port District Committee, a local government agency in the PRC, has appointed XXNGC pursuant to a conditional non-binding agreement to be the developer of natural gas infrastructure for Xi’an International Port District, a former agricultural area that has been zoned for urbanization. If XXNGC chooses to proceed with the project, it will be responsible for constructing, and all costs related to the construction of, a natural gas pipeline network that will service residential, commercial and industrial buildings and users, as well as fueling stations and related infrastructure. The estimated cost to complete the project of $299,400,000 is based upon a third-party feasibility study and management’s current estimates. The Company is currently the only natural gas provider in the surrounding area and expects that it would supply natural gas to the International Port District once construction is completed. If the Company determines not to proceed further with this project, it expects to be able to obtain a refund from subcontractors of the $5,440,515 invested as of December 31, 2010 or transfer the construction-in-progress assets. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
|--------|---------|------------------------------------------------------------------------------------------------------------------|

----

|                       |   | December 31, 2010 |   |   | December 31, 2009 |   |    | December 31, 2008 |   |
|----------------------------|--------|-----------------------------|--------|--------|-----------------------------|--------|---------|-----------------------------|--------|
| Annual dividend yield |   |                        | -      |   |                        |   | – |                        |   |   | - |   |
| Expected life (years)      |   |                        | 1.59   |   |                        |   | 2.82    |                        |   |   | 3.82 |   |
| Risk-free interest rate    |   |                        | 0.48   | %      |                        |   | 1.49    | %                           |   |   | 1.13 | % |
| Expected volatility        |   |                        | 84     | %      |                        |   | 90      | %                           |   |   | 90 | % |

|                                   |   | Carrying Value at |       |   | Fair Value Measurement at |   |
|----------------------------------------|--------|-------------------|------------|--------|---------------------------|--------|
|                                   |   | December          |       |   | December 31, 2010         |   |
|                                   |   | 31, 2010          |       |   | Level 1                   |   |   | Level 2 |   |   | Level 3 |   |
| Senior notes                           |   |              | 30,615,669 |   |                      | -      |   |   | - |   |   |   | 30,615,669 |   |
| Redeemable liability – warrants  |   |              | 17,500,000 |   |                      | -      |   |   | - |   |   |   | 17,500,000 |   |
| Derivative liability – warrants  |   |              | 252,066    |   |                      |   | - |   |   |   | 252,066 |   |   |   | - |   |
| Total liability measured at fair value |   | $                 | 48,367,735 |   |                      | $      | - |   |   | $ | 252,066 |   |   | $ | 48,115,669 |   |

----

| Beginning balance    |   | $      | 2,045,638  |   |
|----------------------|--------|--------|------------|--------|
| Change in fair value |   |   | (1,793,572 | )      |
| Ending balance       |   | $      | 252,066    |   |

----

|                          |   | For the years endedDecember 31 |   |
|-------------------------------|--------|--------------------------------|--------|
|                          |   | 2010                           |   |   | 2009 |   |   | 2008 |   |
| US federal statutory tax rate |   |                           | 34     | % |   |   | 34 | % |   |   | 34 | % |
| Foreign tax rate difference   |   |                           | (9     | )% |   |   | (9 | )% |   |   | (9 | )% |
| Effect of favorable tax rate  |   |                           | (9     | )% |   |   | (9 | )% |   |   | (9 | )% |
| Other item (1)                |   |                           | 2      | % |   |   | 3 | % |   |   | 3 | % |
| Effective tax rate            |   |                           | 18     | % |   |   | 19 | % |   |   | 19 | % |

| (1) | The 2%, 3% and 3% represents $1,525,674, $3,444,173 and $3,661,932 in expenses incurred by the Company that are not deductible in the PRC for the years ended December 31, 2010, 2009 and 2008, respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                         |   | For the years ended December 31, |                      |
|------------------------------|--------|-----------------------------------------------------------|---------------------------|
| Valuation allowance     |   | 2010                                                      |                      |   | 2009 |   |   | 2008 |   |
| Balance, beginning of period |   | $                                                         | 917,754                   |   |   | $ | 563,541 |   |   | $ | 322,614 |   |
| Increase (decrease)          |   |                                                      | (157,882                  | )  |   |   | 354,213 |   |   |   | 240,927 |   |
| Balance, end of period       |   | $                                                         |    759,872 |   |   | $ | 917,754 |   |   | $ | 563,541 |   |

----

|                     |   | December 31, 2010 |      |   | December 31, 2009 |   |
|-------------------------------|--------|-----------------------------|-----------|--------|-----------------------------|--------|
| Value-added tax payable       |   | $                           | 1,207,453 |   |                        | $      | 740,772 |   |
| Business tax payable          |   |                        | 252       |   |                        |   | 1,540 |   |
| Income tax payable            |   |                        | 1,084,338 |   |                        |   | 1,127,961 |   |
| Urban maintenance tax payable |   |                        | 45,492    |   |                        |   | 27,442 |   |
| Withholding tax payable       |   |                        | 4,813     |   |                        |   | 3,862 |   |
| Other tax payable             |   |                        | 35,417    |   |                        |   |   |   |
| Total tax payable             |   | $                           | 2,377,765 |   |                        | $      | 1,901,577 |   |

----

----

|                               |   | Net Book Value |      |   | Fair Value |   |
|------------------------------------|--------|--------------------------|-----------|--------|-----------------|--------|
| Property, plant and equipment, net |   |                     | 1,241,992 |   |            |   | 1,241,992 |   |
| Land use rights                    |   |                     | 1,817,567 |   |            |   | 1,817,567 |   |
| Goodwill                           |   |                     | -         |   |            |   | 598,800 |   |
| Total assets                       |   |                     | 3,059,559 |   |            |   | 3,658,359 |   |
| Net assets                         |   | $                        | 3,059,559 |   |            | $      | 3,658,359 |   |

|   | ● | expected synergies from expanding our market share in the natural gas industry; |
|--------|---------|---------------------------------------------------------------------------------|

|   | ● | the existing reputation of the current management team; |
|--------|---------|---------------------------------------------------------|

|   | ● | the experience of the work force; |
|--------|---------|-----------------------------------|

|   | ● | the stable relationship with its existing suppliers; |
|--------|---------|------------------------------------------------------|

|   | ● | the existing operating licenses of shortening our time of starting up a brand new mother station. |
|--------|---------|---------------------------------------------------------------------------------------------------|

----

|                                                          |   | December 31,2010 |       |   | December 31,2009 |   |
|---------------------------------------------------------------|--------|------------------|------------|--------|------------------|--------|
| Prepaid rent – natural gas stations                     |   | $                | 2,317,270  |   |             | $      | 340,211 |   |
| Goodwill                                                      |   |             | 606,924    |   |             |   | - |   |
| Prepayment for acquiring land use right                       |   |             | 3,822,840  |   |             |   | 1,936,440 |   |
| Advances on purchasing equipment and construction in progress |   |             | 3,358,008  |   |             |   | 12,056,964 |   |
| Refundable security deposits                                  |   |             | 2,654,379  |   |             |   | 1,264,283 |   |
| Intangible assets                                             |   |             | 7,046,954  |   |             |   | 257,012 |   |
| Total                                                         |   | $                | 19,806,375 |   |             | $      | 15,854,910 |   |

| Intangible assets | Estimated useful lives |
|-------------------|------------------------|
| Land use rights   | 30 years               |

|             |   | December 31,2010 |      |   | December 31,2009 |   |
|------------------|--------|------------------|-----------|--------|------------------|--------|
| Operating rights |   | $                | 5,032,541 |   |             | $      | - |   |
| Land use rights  |   |             | 2,014,413 |   |             |   | 257,012 |   |
| Total            |   | $                | 7,046,954 |   |             | $      | 257,012 |   |

----

|   | · | indenture with DB Trustees (Hong Kong) Limited, as trustee (the “Trustee”), pursuant to which the Senior Notes were issued (the “Indenture”); |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | warrant agreement with Deutsche Bank AG, Hong Kong Branch, as warrant agent, pursuant to which the Abax Warrants were issued; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | investor rights agreement with Abax, pursuant to which, among other things, Abax had the right to nominate a director for election to the Company’s board of directors so long as Abax held at least 10% of the outstanding shares of common stock on an as-converted, fully diluted basis. Abax no longer holds such amount of the Company’s common stock and therefore no longer has a director nomination right; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | registration rights agreement with Abax, pursuant to which the Company agreed to file a registration statement to register the resale of the shares of common stock issuable upon exercise of the Abax Warrants. The Company filed a registration statement on Form S-1 (File No. 149719), which was declared effective by the Securities and Exchange Commission on May 6, 2008, to register the resale of the shares of common stock issuable upon exercise of the Abax Warrants; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | information rights agreement with Abax, pursuant to which Abax has the right to receive certain information regarding the Company; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | · | onshore share pledge agreement with DB Trustees (Hong Kong) Limited, as pledgee, pursuant to which the Company granted to DB Trustees (Hong Kong) Limited, on behalf of the holders of the Senior Notes, a pledge on 65% of the Company’s equity interests in its PRC subsidiary; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | account pledge and security agreement with DB Trustees (Hong Kong) Limited, as collateral agent, pursuant to which the Company granted to DB Trustees (Hong Kong) Limited a security interest in the account where the proceeds from the Company’s sale of the Senior Notes were deposited. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Date             |    | Repayment Percentage |    |
|------------------|--------------|---------------------------|--------------|
| July 30, 2011    |         |                      | 8.3333       | % |
| January 30, 2012 |         |                      | 8.3333       | % |
| July 30, 2012    |         |                      | 16.6667      | % |
| January 30, 2013 |         |                      | 16.6667      | % |
| July 30, 2013    |         |                      | 25.0000      | % |
| January 30, 2014 |         |                      | 25.0000      | % |

| Notes payable        |   | $      | 40,000,000 |   |
|----------------------|--------|--------|------------|--------|
| Less discount        |   |   | (9,384,331 | )      |
|                 |   |   | 30,615,669 |   |
| Less current portion |   |   | (2,551,306 | )      |
|                 |   | $      | 28,064,363 |   |

----

| Year                |   | Principal |       |
|---------------------|--------|-----------|------------|
| 2011                |   |      | 41,600,000 |   |
| 2012                |   |      | 40,800,000 |   |
| 2013 and thereafter |   |      | 40,000,000 |   |

----

|                                                                                                                                                                                    |   | December 31,2010 |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|------------|
| A loan from Pudong Development Bank Xi’an Branch, due various dates from 2012 to 2014. With interest at 5.76% for the first year and subject to adjustment after the second year. |   | $                | 18,204,000 |   |

|             |   | RepaymentPercentage |   |   | RepaymentAmount |   |
|------------------|--------|---------------------|--------|--------|-----------------|--------|
| March 5, 2012    |   |                | 25     | %      |            | $      | 4,551,000 |   |
| March 5, 2013    |   |                | 25     | %      |            |   | 4,551,000 |   |
| March 5, 2014    |   |                | 25     | %      |            |   | 4,551,000 |   |
| December 5, 2014 |   |                | 25     | %      |            |   | 4,551,000 |   |
|             |   |                |   |   |            | $      | 18,204,000 |   |

|                      |   | WarrantsOutstanding |      |   | WarrantsExercisable |   |     | WeightedAverageExercise Price |   |   | AggregateIntrinsicValue |   |
|--------------------------------|--------|---------------------|-----------|--------|---------------------|--------|----------|------------------------------------|--------|--------|-------------------------|--------|
| Outstanding, December 31, 2007 |   |                | 544,242   |   |                |   | 544,242  |                               |   | $      | 13.10                   |   |   | $ | 376,977 |   |
| Granted                        |   |                | 1,450,000 |   |                |   |     |                               |   |   | 14.74                   |   |   |   | - |   |
| Forfeited                      |   |                | -         |   |                |   |     |                               |   |   | -                       |   |   |   | - |   |
| Exercised                      |   |                | -         |   |                |   |     |                               |   |   | -                       |   |   |   | - |   |
| Outstanding, December 31, 2008 |   |                | 1,994,242 |   |                |   | 544,242  |                               |   | $      | 14.28                   |   |   | $ | - |   |
| Granted                        |   |                | -         |   |                |   |     |                               |   |   | -                       |   |   |   | - |   |
| Forfeited                      |   |                | (160,588  | )      |                |   | (160,588 | )                                  |   |   | 7.20                    |   |   |   | - |   |
| Exercised                      |   |                | -         |   |                |   |     |                               |   |   | -                       |   |   |   | - |   |
| Outstanding, December 31, 2009 |   |                | 1,833,654 |   |                |   | 383,654  |                               |   | $      | 8.93                    |   |   | $ | 4,008,434 |   |
| Granted                        |   |                | -         |   |                |   |     |                               |   |   | -                       |   |   |   | - |   |
| Forfeited                      |   |                | -         |   |                |   |     |                               |   |   | -                       |   |   |   | - |   |
| Exercised                      |   |                | -         |   |                |   |     |                               |   |   | -                       |   |   |   | - |   |
| Outstanding, December 31, 2010 |   |                | 1,833,654 |   |                |   | 383,654  |                               |   |   | 8.93                    |   |   |   | - |   |

----

| Warrants Outstanding |   |
|---------------------------|--------|
| Exercise Price       |   | Number |   |   | Average Remaining Contractual Life |   |
| $                         | 7.37   |   |   | 1,450,000 |   |   |   | 4.08 |   |
|                      | 14.86  |   |   | 383,654 |   |   |   | 1.59 |   |
| $                         | 8.93   |   |   | 1,833,654 |   |   |   | 3.56 |   |

| Exercise Price |   | Number |   |    | Average Remaining Contractual Life |   |
|---------------------|--------|--------|--------|---------|---------------------------------------------------|--------|
| $                   | 14.86  |   |   | 383,654 |                                              |   |   | 1.59 |   |

| a) | Secondary Public Offering |
|----|---------------------------|

|   | i. | making up cumulative prior years’ losses, if any; |
|--------|----|---------------------------------------------------------|

|   | ii. | allocations to the “statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital; and |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | iii. | allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting. |
|--------|------|-----------------------------------------------------------------------------------------------------------|

----

----

|                      |   |   OptionsOutstanding |     |   | WarrantsExercisable |   |   | WeightedAverageExercisePrice |   |   | AggregateIntrinsicValue |   |
|--------------------------------|--------|---------------------------|----------|--------|---------------------|--------|--------|------------------------------|--------|--------|-------------------------|--------|
| Outstanding, December 31, 2007 |   |                      | -        |   |                |   | -      |                         |   | $      | -                       |   |   | $ | - |   |
| Granted                        |   |                      | -        |   |                |   |   |                         |   |   | -                       |   |   |   | - |   |
| Forfeited                      |   |                      | -        |   |                |   |   |                         |   |   | -                       |   |   |   | - |   |
| Exercised                      |   |                      | -        |   |                |   |   |                         |   |   | -                       |   |   |   | - |   |
| Outstanding, December 31, 2008 |   |                      | -        |   |                |   | -      |                         |   | $      | -                       |   |   | $ | - |   |
| Granted                        |   |                      | 318,850  |   |                |   |   |                         |   |   | 4.90                    |   |   |   | - |   |
| Forfeited                      |   |                      | (75,000  | )      |                |   |   |                         |   |   | 4.90                    |   |   |   | - |   |
| Exercised                      |   |                      | -        |   |                |   |   |                         |   |   | -                       |   |   |   | - |   |
| Outstanding, December 31, 2009 |   |                      | 243,850  |   |                |   | -      |                         |   | $      | 4.90                    |   |   | $ | - |   |
| Granted                        |   |                      | 380,850  |   |                |   |   |                         |   |   | -                       |   |   |   | - |   |
| Forfeited                      |   |                      | (127,400 | )      |                |   |   |                         |   |   | -                       |   |   |   | - |   |
| Exercised                      |   |                      | (138,000 | )      |                |   |   |                         |   |   | -                       |   |   |   | - |   |
| Outstanding, December 31, 2010 |   |                      | 359,300  |   |                |   | 2,750  |                         |   | $      | 4.90                    |   |   | $ | 219,173 |   |

| Outstanding Options |   |   | Exercisable Options |   |
|--------------------------|--------|--------|--------------------------|--------|
| Exercise Price      |   |   | Number                   |   |   | Average Remaining Contractual Life |   |   | Exercise Price |   |   | Number |   |   | AverageRemainingContractual Life |   |
| $                        | 4.90   |   |                     |   | 359,300 |   |   |   | 4.25years |   |   | $ | 4.90 |   |   |   | 2,750 |   |   |   | 4.25 years |   |

|                                    |   | For the years ended December 31, |       |
|-----------------------------------------|--------|-----------------------------------------------------------|------------|
|                                    |   | 2010                                                      |       |   | 2009 |   |   | 2008 |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |
| Basic earnings per share |   |                                                      |       |   |   |   |   |   |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |
| Net income                              |   | $                                                         | 17,220,372 |   |   | $ | 18,830,787 |   |   | $ | 15,190,368 |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |   |   |   |
| Weighted shares outstanding-Basic       |   |                                                      | 21,268,972 |   |   |   | 16,624,294 |   |   |   | 14,600,154 |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |   |   |   |
| Earnings per share-Basic                |   | $                                                         | 0.81       |   |   | $ | 1.13 |   |   | $ | 1.04 |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share              |   |                                                      |       |   |   |   |   |   |   |   |   |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |   |   |   |
| Net income                              |   | $                                                         | 17,220,372 |   |   | $ | 18,830,787 |   |   | $ | 15,190,368 |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |   |   |   |
| Weighted shares outstanding -Basic      |   |                                                      | 21,268,972 |   |   |   | 16,624,294 |   |   |   | 14,600,154 |   |
| Effect of diluted securities-Warrants   |   |                                                      | 46,644     |   |   |   | 206,613 |   |   |   | 44,916 |   |
| Effect of diluted securities-Options    |   |                                                      | 115,251    |   |   |   | - |   |   |   | - |   |
| Weighted shares outstanding-Diluted     |   |                                                      | 21,430,867 |   |   |   | 16,830,907 |   |   |   | 14,645,070 |   |
|                                    |   |                                                      |       |   |   |   |   |   |   |   |   |   |
| Earnings per share-Diluted              |   | $                                                         | 0.80       |   |   | $ | 1.12 |   |   | $ | 1.04 |   |

----

|                                 |   | For the years ended December 31, |   |
|-------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                 |   | 2010                                                      |   |   | 2009 |   |   | 2008 |   |
|                                      |   |                                                      |   |   |   |   |   |   |   |
| Numbers of natural gas vendors            |   |                                                      | 4      |   |   |   | 4 |   |   |   | 4 |   |
|                                      |   |                                                      |   |   |   |   |   |   |   |   |   |   |
| Percentage of total natural gas purchases |   |                                                      | 86     | % |   |   | 98 | % |   |   | 98 | % |

----

| Year ending December 31, 2011 |   | $      | 2,012,740  |   |
|-------------------------------|--------|--------|------------|--------|
| Year ending December 31, 2012 |   |   | 2,035,048  |   |
| Year ending December 31, 2013 |   |   | 1,874,914  |   |
| Year ending December 31, 2014 |   |   | 2,237,697  |   |
| Year ending December 31, 2015 |   |   | 1,961,313  |   |
| Thereafter                    |   |   | 32,688,037 |   |
| Total                         |   | $      | 42,809,749 |   |

| Year ending December 31, 2011 |   |   | 11,178,038 |   |
|-------------------------------|--------|--------|------------|--------|
| Thereafter                    |   |   | -          |   |
| Total                         |   | $      | 11,178,038 |   |

| a) | The Company and certain of its officers and directors have been named as defendants in a putative class action lawsuit alleging violations of the federal securities laws. That action, captioned Vandevelde v. China Natural Gas, Inc., et al., C.A. No. 10-728, was filed on August 26, 2010 in the United States District Court for the District of Delaware. The plaintiff in Vandevelde asserts that the Company, Qinan Ji, Zhiqiang Wang, Donald Yang, David She, Carl Yeung and Lawrence Leighton violated Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, when it failed to disclose and properly account for the Loan in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. The complaint alleges that the Pledge to secure the Loan violated the Indenture for the Senior Notes and the warrant agreement relating to the warrants issued to Abax, giving the holder of those notes and warrants the right to declare a default under the Indenture. The complaint further alleges that, on August 20, 2010, the Company amended its Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 to disclose the Loan and restate its financial statements in light of the note and warrant holder’s right to declare a default under the Indenture, and that the announcement of this news caused the price of our stock to drop by twenty percent. The plaintiff seeks damages in an unspecified amount to recover the losses purportedly suffered by the putative class as a result of that decline. The complaint also asserts claims against the individual defendants as controlling persons of the Company for violations of Section 20(a) of the Securities Exchange Act of 1934. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| b) | A former member of the board of directors filed a lawsuit on June 16, 2008 against the Company in New York State Supreme Court, Nassau County, in which he has sought, among other things, to recover a portion of his monthly compensation plus 20,000 options that he alleges are due to him pursuant to a written agreement. After the plaintiff rejected an offer by the Company that included the options that plaintiff alleged were due to him, the Company moved to dismiss the complaint. The judge ordered the Company to issue the 20,000 options to the plaintiff subject to any restrictions required by applicable securities laws, which was essentially what the Company had previously offered, and dismissed all of the plaintiff's remaining claims against the Company. The current board of directors has complied with the court's decision by tendering an option agreement to the plaintiff consistent with the court's decision, but the plaintiff has refused to execute the agreement, and instead has filed an appeal. Regardless of the outcome of the appeal, the Company believes that any liability it might incur will not have a material adverse effect on its financial condition or our results of operations. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Year Ended December 31, 2010 |   | FirstQuarter |       |   | SecondQuarter |   |       | ThirdQuarter |   |   | FourthQuarter |   |   | Full Year |       |
|--------------------------------------------------|--------|--------------|------------|--------|---------------|--------|------------|--------------|--------|--------|---------------|--------|--------|----------------|------------|
| Revenues                                         |   | $            | 19,366,823 |   |          | $      | 21,135,599 |         |   | $      | 22,326,474    |   |   | $              | 27,124,727 |   |   | $ | 89,953,623 |   |
| Gross profit                                     |   |         | 9,094,968  |   |          |   | 9,615,532  |         |   |   | 9,389,195     |   |   |           | 11,313,769 |   |   |   | 39,413,464 |   |
| Net income                                       |   |         | 3,995,270  |   |          |   | 4,560,503  |         |   |   | 3,584,842     |   |   |           | 5,079,757  |   |   |   | 17,220,372 |   |
| Basic EPS                                        |   |         | 0.19       |   |          |   | 0.21       |         |   |   | 0.17          |   |   |           | 0.24       |   |   |   | 0.81 |   |
| Diluted EPS                                      |   |         | 0.19       |   |          |   | 0.21       |         |   |   | 0.17          |   |   |           | 0.23       |   |   |   | 0.80 |   |

| Year Ended December 31, 2009 |   | FirstQuarter |            |   | SecondQuarter |   |       | ThirdQuarter |   |   | FourthQuarter |   |   | Full Year |       |
|--------------------------------------------------|--------|--------------|-----------------|--------|---------------|--------|------------|--------------|--------|--------|---------------|--------|--------|----------------|------------|
| Revenues                                         |   | $            | 18,527,666      |   |          | $      | 20,742,520 |         |   | $      | 20,125,184    |   |   | $              | 21,670,748 |   |   | $ | 81,066,118 |   |
| Gross profit                                     |   |         | 9,633,652  |   |          |   | 10,278,190 |         |   |   | 9,717,692     |   |   |           | 10,531,545 |   |   |   | 40,161,079 |   |
| Net income                                       |   |         | 4,201,623       |   |          |   | 3,862,756  |         |   |   | 4,647,519     |   |   |           | 6,118,889  |   |   |   | 18,830,787 |   |
| Basic EPS                                        |   |         | 0.29            |   |          |   | 0.26       |         |   |   | 0.29          |   |   |           | 0.29       |   |   |   | 1.13 |   |
| Diluted EPS                                      |   |         | 0.29            |   |          |   | 0.26       |         |   |   | 0.29          |   |   |           | 0.28       |   |   |   | 1.12 |   |

| Year Ended December 31, 2008 |   | FirstQuarter |       |   | SecondQuarter |   |       | ThirdQuarter |   |   | FourthQuarter |   |   | Full Year |       |
|--------------------------------------------------|--------|--------------|------------|--------|---------------|--------|------------|--------------|--------|--------|---------------|--------|--------|----------------|------------|
| Revenues                                         |   | $            | 14,025,674 |   |          | $      | 16,890,486 |         |   | $      | 18,401,200    |   |   | $              | 18,403,299 |   |   | $ | 67,720,659 |   |
| Gross profit                                     |   |         | 6,088,476  |   |          |   | 7,665,763  |         |   |   | 9,492,367     |   |   |           | 9,492,416  |   |   |   | 32,739,022 |   |
| Net income                                       |   |         | 2,808,571  |   |          |   | 3,512,892  |         |   |   | 5,136,590     |   |   |           | 3,732,315  |   |   |   | 15,190,368 |   |
| Basic EPS                                        |   |         | 0.20       |   |          |   | 0.24       |         |   |   | 0.35          |   |   |           | 0.25       |   |   |   | 1.04 |   |
| Diluted EPS                                      |   |         | 0.20       |   |          |   | 0.24       |         |   |   | 0.35          |   |   |           | 0.25       |   |   |   | 1.04 |   |

----