U.S. Securities and Exchange Commission

Washington, DC 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED

~~December~~ March 31, ~~2009~~2010

Commission File Number: 1-34131

Sinoenergy Corporation

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

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

1603-1604, Tower B Fortune Centre Ao City

Beiyuan Road, Chaoyang District,

Beijing, People’s Republic of China 100107

(Address of principal executive offices)

Issuer’s telephone number, including area code: 86-10-84928149

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

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

As of ~~February~~ 13May 12, 2010, the Registrant had 15,922,391 shares of common stock, par value $0.001 per share, issued and outstanding.

Transitional Small Business Disclosure Format: Yes o No x

SINOENERGY CORPORATION AND SUBSIDIARIES

	Page
Part I. Financial Information
Item 1. Consolidated Financial Statements		1
Consolidated Balance Sheets as of December 31, 2009 (Unaudited) and September 30, 2009		1
Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and September 30, 2009		1
Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended December 31, 2009 and 2008 (Unaudited)		2
Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2010 and 2009 (Unaudited)		2
Consolidated Statement of Stockholders’ Equity for the Three Months Ended December 31, 2009 (Unaudited)		3
Consolidated Statements of Operations and Comprehensive Income for the Six Months Ended March 31, 2010 and 2009 (Unaudited)		3
Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2009 and 2008 (Unaudited)		4
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2010 and 2009 (Unaudited)		4
Notes to Consolidated Financial Statements for the Three Months Ended December 31, 2009 and 2008 (Unaudited)		4
Notes to Consolidated Financial Statements for the Three and Six Months Ended March 31, 2010 and 2009 (Unaudited)		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2526
Item 4. Controls and Procedures		3536
Part II. Other Information		3638
Item 6. Exhibits		37
Item 1. Legal Matters		38
Signatures		38
Item 5. Other Information		39
Item 6. Exhibits		39
Signatures		40

Sinoenergy Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands of United States dollars)

	December 31, 2009		September 30, 2009
	March 31, 2010		September 30, 2009
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	1634,~~936~~500	$	18,237
Restricted cash		~~1,504~~285		1,413
Accounts receivable, net		2826,~~283~~886		29,756
Inventories		46,~~797~~070		4,619
Other receivable, net		1419,~~360~~586		17,644
Due from related party		44-		426
Deposits and prepayments		7,~~593~~706		8,629
Deferred expenses		2914		63
TOTAL CURRENT ASSETS		7395,~~546~~047		80,787
Long-term investments		46,~~839~~483		4,905
Property, plant and equipment, net		58,~~054~~548		54,870
Intangible assets		~~100~~82		116
Land use rights		30,~~249~~573		30,370
Other long term assets		1317,~~784~~142		7,672
Goodwill		1,906		1,906
Deferred tax asset		2426		20
TOTAL NON-CURRENT ASSETS		~~108~~114,~~956~~760		99,859
TOTAL ASSETS	$	~~182~~209,~~502~~807	$	180,646
CURRENT LIABILITIES
Short-term bank loan	$	47,~~480~~200	$	44,223
Notes payable		~~4,760~~308		4,583
Accounts payable		56,~~501~~910		5,193
Advances from customers		~~814~~1,187		2,100
Additional interest payable under convertible note indenture		~~280~~-		280
Income taxes payable		~~713~~440		475
Construction payables		~~901~~1,905		2,982
Other payables		~~587~~20,784		2,801
Due to related party		20,~~208~~213		-
Accrued expenses		~~430~~441		538
Deferred income		2615		38
Derivative liability		32,~~591~~428		-
Current portion of long-term notes payable		1011,~~934~~812		26,667
TOTAL CURRENT LIABILITIES		96113,~~225~~643		89,880
Long-term bank loan		2638,~~361~~088		26,358
Deferred tax liabilities		1,095		1,095
TOTAL LIABILITIES		~~123~~152,~~681~~826		117,333
Commitments
SHAREHOLDERS’ EQUITY
Common stock- par value $0.001 per share; Authorized - 50,000,000 shares; Issued and outstanding- 15,922,391 shares at December 31, 2009 and September 30, 2009		16		16
Common stock- par value $0.001 per share; Authorized - 50,000,000 shares; Issued and outstanding- 15,922,391 shares at March 31, 2010 and September 30, 2009		16		16
Additional paid-in capital		27,~~207~~224		34,543
Retained earnings		87,~~594~~011		6,850
Accumulated other comprehensive income		4,~~777~~937		4,772
Total Parent shareholders’ equity		40,594		46,181
Total parent shareholders’ equity		39,188		46,181
Non-controlling interest		1817,~~227~~793		17,132
TOTAL SHAREHOLDERS’ EQUITY		5856,~~821~~981		63,313
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	~~182~~209,~~502~~807	$	180,646

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

-1-

Sinoenergy Corporation and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Unaudited)

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

	Three Months Ended December 31,
	Three Months Ended March 31,
	2009			2008
	2010			2009
NET SALES	$	129,~~528~~007		$	156,~~928~~971
COST OF SALES		(107,~~682~~539	)		(115,~~126~~495	)
GROSS PROFIT		1,~~846~~468			41,~~802~~476
OPERATING EXPENSES
Selling expenses		~~332~~492			~~514~~74
General and administrative expenses		2,~~465~~009			13,~~357~~382
TOTAL OPERATING EXPENSES		2,~~797~~501			13,~~871~~456
INCOME (LOSS) FROM OPERATIONS		(951	)		2,931
LOSS FROM OPERATIONS		(1,033	)		(1,980	)
OTHER INCOME (EXPENSES)
Rental income, net of land use right amortization of $61		-			1,329
Change in fair value of derivative liability		1,163			-
Change in fair value of derivative liability		(886	)		-
Loss from unconsolidated entity		(20	)		(17	)
Loss from unconsolidated entity		(68	)		(16	)
Interest expense		(1,660	)		(1,109	)
Interest income		26			10
Additional interest payable under convertible note indenture		-			(140	)
Interest expense		(2,076	)		(1,218	)
Other income, net		1			28
Other income, net		55			185
OTHER INCOME (EXPENSES), NET		(516	)		(1,238	)
OTHER INCOME (EXPENSES), NET		(2,949	)		290
LOSS BEFORE INCOME TAXES AND NONCONTROLLING INTEREST		(1,549	)		(3,218	)
INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTEREST		(3,900	)		3,221
Income taxes (expense)		(75	)		(46	)
Income taxes (expense)		(346	)		(568	)
CONSOLIDATED NET LOSS		(1,624	)		(3,264	)
CONSOLIDATED NET INCOME (LOSS)		(4,246	)		2,653
Noncontrolling interest		39			429
Noncontrolling interest		(435	)		(955	)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS		(1,585	)		(2,835	)
NET INCOME(LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		(4,681	)		1,698
Other comprehensive income:
Foreign currency translation adjustments		5160			~~(161~~624	)
CONSOLIDATED COMPREHENSIVE INCOME (LOSS)	$	(4,676	)	$	1,537
CONSOLIDATED COMPREHENSIVE LOSS	$	(1,425	)	$	(2,211	)
Net (Loss) Income Per Common Share
Net Loss Per Common Share
Basic	$	(0.2910	)	$	(0.1118	)
Diluted	$	(0.2910	)	$	(0.1118	)
Weighted Average Common Shares Outstanding
Basic		15,922			15,942
Diluted		15,922			1615,~~060~~942

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

-2-

Sinoenergy Corporation and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Unaudited)

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

	Six Months Ended March 31,
	2010			2009
NET SALES	$	21,535		$	22,899
COST OF SALES		(18,221	)		(16,621	)
GROSS PROFIT		3,314			6,278

OPERATING EXPENSES
Selling expenses		824			588
General and administrative expenses		4,474			4,739

TOTAL OPERATING EXPENSES		5,298			5,327

INCOME (LOSS) FROM OPERATIONS		(1,984	)		951

OTHER INCOME (EXPENSES)
Rental income, net of land use right amortization		-			1,329
Change in fair value of derivative liability		277			-
Loss from unconsolidated entity		(88	)		(33	)
Interest expense		(3,710	)		(2,317	)
Additional interest payable under convertible note indenture		-			(140	)
Other income, net		56			213

OTHER INCOME (EXPENSES), NET		(3,465	)		(948	)

INCOME (LOSS) BEFORE INCOME TAXES AND NONCONTROLLING INTEREST		(5,449	)		3
Income taxes (expense)		(421	)		(614	)
CONSOLIDATED NET LOSS		(5,870	)		(611	)
Noncontrolling interest		(396	)		(526	)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS		(6,266	)		(1,137	)
Other comprehensive income:
Foreign currency translation adjustments		165			463
CONSOLIDATED COMPREHENSIVE LOSS	$	(6,101	)	$	(674	)
Net Loss Per Common Share
Basic	$	(0.39	)	$	(0.07	)
Diluted	$	(0.39	)	$	(0.07	)
Weighted Average Common Shares Outstanding
Basic		15,922			15,942
Diluted		15,922			15,942

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

-3-

Sinoenergy Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(In thousands of United States dollars)

	Three Months Ended December 31,
	Six Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES:	~~2009~~2010			~~2008~~2009
Consolidated net income (loss)	$	(4,246	)	$	2,653
Consolidated net loss	$	(6,266	)	$	(1,137	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation		6480			83157
Change in fair value of derivative liability		~~886~~(277	)		-
Amortization of note discount		~~833~~842			~~214~~686
Deferred portion of interest expense		~~483~~966			~~963~~722
Depreciation		83			93
Additional interest payable		(280	)		-
Amortization of intangible assets		128			104
Noncontrolling interest		661			844
Recovery of doubtful accounts		(771	)		(10	)
Depreciation		689			380
Amortization of intangible assets		128			227
Recovery of doubtful accounts		(231	)		13
Changes in operating assets and liabilities:
Accounts and notes receivable		12,~~271~~868			(57,~~291~~520	)
Other receivables, deposits and prepayments		~~6,369~~(311	)		~~306~~4,685
Inventories		(~~178~~1,451	)		3,~~245~~212
Deferred tax asset		(46	)		(23	)
Accounts payable		~~485~~1,717			(~~363~~94	)
Accrued expenses		(~~108~~97	)		(~~1,178~~125	)
Advances from customers		(~~1,286~~913	)		(~~314~~430	)
Other payables		~~(4,295~~466	)		(~~642~~3,237	)
Deferred income		(1223	)		(1628	)
Income taxes payable		~~238~~(35	)		~~483~~182
Net cash(used) provided by operating activities		(60	)		328
Net cash used by operating activities		(1,473	)		(1,466	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(34,~~267~~367	)		(48,~~862~~078	)
Prepayment related to the other long-term assets		(6,112)			-
Prepayment related to other long-term assets		(9,470	)		(429	)
Purchase of land use right		-			(120	)
Transfer of land use rights		16,440			-
Investment in unconsolidated entities		-			(1,444	)
Purchase of land use right		-			(1,583	)
Changes in restricted cash		(91	)		(355
Investment in unconsolidated entities		(1,578	)		(1,308	)
Net cash used in investing activities		(9,470	)		(6,781	)
Changes in restricted cash		1,128			(325	)
Net cash provided by (used in) investing activities		2,153			(12,523	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan		331,~~251~~525			19,~~396~~995
Loan from related parties		20,~~208~~213			-
Payments of senior notes		(15,319	)		-
Payment of bank loan		(20,526	)
Net cash provided by financing activities		8,140			1,396
Payments of senior notes		(15,530	)		-
Effect on cash of changes in exchange rate		89			235
Net cash provided by financing activities		15,682			9,995
Net decrease in cash		(1,301	)		(4,822	)
Effect on cash of changes in exchange rate		(99	)		7
Net increase (decrease) in cash		16,263			(3,987	)
Cash at beginning of period		18,237			8,871
Cash at end of period	$	1634,~~936~~500		$	4,~~049~~884
Supplemental disclosure of cash flow information:
Interest paid	$	~~3,612~~832		$	~~1,382~~532
Income taxes paid	$	~~109~~346		$	80338

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

3-4-

Sinoenergy Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~December~~ March 31, ~~2009~~2010

1. The Company

(a) Organization

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

On June 2, 2006, the Company acquired Sinoenergy Holding Limited (“Sinoenergy Holding”), a British Virgin Islands corporation. Sinoenergy Holding was the sole stockholder of Qingdao Sinogas General Machinery Limited Corporation (“Sinogas”), a wholly foreign-owned enterprise (“WFOE”) registered under laws of the People’s Republic of China (the “PRC”). Sinoenergy Holding had no business other than its ownership of Sinogas. As a result of this transaction, Sinoenergy Holding and its subsidiary, Sinogas, became subsidiaries of the Company and the business of Sinogas became the business of the Company.

(b) Subsidiaries of the Company

Set forth below is a list of the Sinoenergy’s wholly-owned and majority-owned subsidiaries at December 31, 2009, all of whose financial statements are consolidated with Sinoenergy. References to the Company include the Company and its consolidated subsidiaries unless the context indicates otherwise. The percentage ownership reflects the percentage ownership by Sinoenergy.

Company	Ownership %	Business activities
Sinoenergy Holding Limited	100%	Holding company

Qingdao Sinogas General Machinery Limited Corporation (“Sinogas”)	75.05%	Production of compressed natural gas (CNG) facilities, technical consulting in CNG filling station construction, manufacturing of CNG vehicle conversion kit

Qingdao Sinogas Yuhan Chemical Equipment Company Limited (“Yuhan”)	81%*	Manufacturing of customized pressure containers

Wuhan Sinoenergy Gas Company Limited (“Wuhan Sinoenergy”)	90%	Construction and operating of CNG stations and the manufacturing and sales of automobile conversion kits

Pingdingshan Sinoenergy Gas Company Limited (“Pingdingshan Sinoenergy”)	90%	Construction and operating of CNG stations and the manufacturing and sales of automobile conversion kits

Jiaxing Lixun Automotive Electronic Company Limited (“ Jiaxing Lixun”)	81%*	Design and manufacturing of electric control devices for alternative fuel

Hubei Gather Energy Company Limited (“Hubei Gather”)	80%	Construction and operating of natural gas processing plants

Xuancheng Sinoenergy Vehicle Gas Company Limited (“Xuancheng Sinoenegy”)	100%	Construction and operating of CNG stations and the manufacturing and sales of automobile conversion kits

Qingdao Jingrun General Machinery Company Limited (“Jingrun”)	100%	Design and manufacturing of petroleum refinery equipment and petroleum machinery

Qingdao Sinoenergy General Machinery Company Limited (“Qingdao Sinoenergy”)	75.05%	Manufacturing and installation of general machinery equipment

Nanjing Sinoenergy Gas Company Limited(“Nanjing Sinoenergy”)	90%	Construction and operating of CNG stations and the manufacturing and sales of automobile conversion kits

Qingdao Sinoenergy General Gas Company Limited(“Sinoenergy Gas”)	90%**	Construction and operating of CNG and LNG stations and the manufacturing and sales of automobile conversion kits

* ~~This subsidiary~~These issubsidiaries are owned 75% by Sinogas and 25% by Sinoenergy.

** This subsidiary is owned 40% by Sinogas and 60% by Sinoenergy.

-5-

2. Summary of Significant Accounting Policies

Management’s Responsibility

4Management acknowledges its responsibility for the preparation of the accompanying interim consolidated financial statements, which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of results for the interim period presented. These consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company’s Form 10-K annual report for the fiscal year ended September 30, 2009. These financial statements have been prepared assuming that the Company will continue as a going concern. Results for the six months ended March 31, 2010 are not necessarily indicative of results to be expected for the year.

Management acknowledges its responsibility for the preparation of the accompanying interim consolidated financial statements, which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of results for the interim period presented. These consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company’s Form 10-K annual report for the fiscal year ended September 30, 2009. These financial statements have been prepared assuming that the Company will continue as a going concern. Results for the first quarter of 2010 are not necessarily indicative of results to be expected for the year.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

Principles of Consolidation

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

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, the Company makes estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and sales and expenses during the reported periods. Significant estimates include depreciation and the allowance for doubtful accounts and other receivables, asset impairment, valuation of warrants and options, inventory valuation, and the determination of revenue and costs. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Goodwill

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of ~~December~~ March 31, ~~2009~~2010 and September 30, 2009, the Company did not have any cash equivalents. The Company maintains its cash in bank deposit accounts that, at times, may be very significant. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on its cash balances.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is maintained for customers (other than related parties) based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. When circumstances related to customers change, estimates of the recoverability of receivables are further adjusted.

Inventories

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

Long-Term Investments

Investments in entities in which the Company owns more than 20% but less than 50% of the equity and does not have the ability to control, but has the ability to exert significant influence, are accounted for using the equity method, which includes recognition of a percentage share of income or loss, dividends, and any changes in the investment percentage in an investee by an investor.

-6-

Property, Plant and Equipment

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

The estimated useful lives are as follows:

Buildings and facilities	15-20 years
Machinery and equipment	5-20 years
Motor vehicles	10-20 years
Office equipment and others	5 to 10 years

Intangible Assets

Intangible assets, including patents and technical know-how, are stated at cost less accumulated amortization and impairment losses. Amortization is calculated on the straight-line method over the estimated useful lives of the assets of 10 years.

Land Use Rights

Land use rights are stated at cost less accumulated amortization and impairment losses. Amortization is calculated on the straight-line method over the contractual ~~useful~~ ~~lives~~terms of 50 years.

There is no private ownership of land in the PRC. All land is owned by the government and the government grants what is known as a land use right, which is a transferable right to use the land.

Impairment of Assets

Impairment of assets is monitored on a periodic basis, and is assessed based on the undiscounted cash flows expected to be generated by the underlying assets. In the event that the carrying amount of assets exceeds the undiscounted future cash flows (~~fair value)~~, then the carrying amount of such assets is adjusted ~~to their~~by ~~fair~~the ~~value~~difference in these amounts.

Capitalization of Interest

The Company capitalizes interest incurred in connection with the construction of assets, principally its CNG stations, during the construction period. Capitalized interest is recorded as an increase to construction in progress and, upon completion of the construction, tothe capitalized interest is included in property and equipment. The Company capitalized $3159,~~783~~930 and $~~102~~139,~~373~~617 of interest during the three months ended ~~December~~March 31, 2010 and 2009, respectively, and ~~2008~~$91,713 and $241,990 of interest during the six months ended March 31, 2010 and 2009, respectively.

Revenue Recognition

The Company recognizes revenue when the significant risks and rewards of ownership have been transferred to the customer, including factors such as when persuasive evidence that an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. The Company recognizes product sales generally at the time the product is shipped. CNG station construction and building technical consulting service revenue related is recognized on the percentage of completion basis. The percentage of completion method recognizes income as work on a contract (or group of closely related contracts) progresses. The recognition of revenues and profit is generally related to costs incurred in providing the services required under the contract. Revenue is presented net of any sales tax and value added tax.

Warranty Reserves

Warranty reserves represent the Company’s obligation to repair or replace defective products under certain conditions. The estimate of the warranty reserves is based on historical experience and industry practice. Based on experience and industry practice, the Company has established a warranty reserve rate of 0.2% of gross sales for customized pressure containers and CNG station facilities and construction segments. The Company periodically reviews this rate and revises it as necessary.

The following tables show a reconciliation of the changes in the Company’s product warranty liability (dollars in thousands).

	Three months ended December 31,
	Six months ended March 31,
	2009		2008
	2010		2009
Product warranty liability, beginning of period	$	227	$	167
Reductions for payments made (in cash or kind) during period		-		-
Changes in liability for warranties issued during the period		39		33
Changes in liability for warranties issued during the period		28		26
Foreign exchange (loss)		-		(1	)
Foreign exchange gain/loss		-		(30	)
Product warranties, end of period	$	266	$	199
Product warranties, end of period	$	255	$	163

-7-

Income Taxes

The Company accounts for income taxes using an asset and liability approach whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company recognizes a tax benefit associated with an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that it judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.

Foreign Currency Translations

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

Fair Value of Financial Instruments

US GAAP requires certain disclosures about the fair value of financial instruments. The Company defines fair value, using the required three-level valuation hierarchy for disclosures of fair value measurement the enhanced disclosures requirements for fair value measures. Current assets and current liabilities qualified as financial instruments and management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their current interest rate is equivalent to interest rates currently available. The three levels are defined as follow:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company's assumptions.

US GAAP requires the use of observable market data if such data is available without undue cost and effort.

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of ~~December~~March 31, ~~2009~~2010 (unaudited):

Level 1

Level 2

Level 3

Total

Fair value of embedded derivatives

32,~~590~~427,~~783~~774

Derivative financial instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, the Company uses both the Black-Scholes-Merton and Binomial option pricing models to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

~~Change in accounting principle~~-8-

~~On October~~DERIVATIVE 1, 2009, the Company adopted a new accounting principle effective for the 2010 fiscal year. The new principle results from a new interpretation of an existing pronouncement that redefined when an embedded conversion feature is indexed to an entity’s own stock. The Company’s convertible debt initially had a conversion feature that requires a reset to the conversion price based on certain events and the conversion feature is denominated in US currency rather than the functional currency of the Company (RMB). At December 31, 2009, the provisions which provided for a reset of the conversion price based on certain events had been terminated. The newly adopted accounting principles define both those factors as reasons the conversion feature is no longer indexed to the company stock. The effect of the change is to cause the conversion feature to change its classification from equity based to a derivative liability. The cumulative change to this new accounting has been reflected on October 1 as an adjustment to additional paid in capital and retained earnings.LIABILITY

8On October 1, 2009, the Company adopted a new accounting principle effective for the 2010 fiscal year. The new principle results from a new pronouncement that redefined when an embedded conversion feature is indexed to an entity’s own stock. The Company’s convertible debt has a conversion feature that requires a reset to the conversion price based on certain events and the conversion feature is denominated in US currency rather than the functional currency of the Company (RMB). The newly adopted accounting principle defines both those factors as reasons the Conversion feature is no longer indexed to the company stock. The effect of the change is to cause the conversion feature to change its classification from equity based to a derivative liability. Accounting Principles require that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using both the probability model using Black-Scholes-Merton valuation techniques with the following assumptions:

	December 31, 2009				September 30, 2009						Date of issuance September 30, 2007
	March 31, 2010			September 30, 2009				Date of issuance September 30, 2007
Conversion feature:
Risk-free interest rate		1.48	%		1.38	~~1.38~~%	%		4.23%	%		~~4.23%~~	%
Expected volatility		~~109~~89.5114	%		109.51	~~109.51~~%	%		79.64	%		~~79.64~~	%
Expected life (in years)	02.255 years		﹡	3.0 years				5.0 years		~~5.0 years~~
Expected dividend yield		0			0	0			0			0
Fair Value:
Conversion feature	$	32,~~590~~427,~~783~~774		$	$2,705,232	~~2,705,232~~		$	11,946,000		$	~~11,946,000~~

~~﹡At~~The ~~December~~risk-free ~~31, 2009,~~interest rate was based on rates established by the Federal Reserve. The Company volatility was based on it stock’s volatility since going public. The expected life of the ~~convertible~~conversion ~~debt~~feature of the notes was ~~less~~based ~~than~~on ~~three months~~the term of the notes. The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future.

The ~~risk-free~~ ~~interest~~accounting ~~rate~~principle was ~~based~~implemented onin ~~rates established by~~ the ~~United~~first ~~States Federal~~quarter ~~Reserve~~of ~~Bank. The~~2010 ~~volatility~~and ~~was~~is ~~based~~reported onas ~~the~~a ~~volatility~~cumulative ~~of the~~change ~~Company’s~~in ~~common~~accounting ~~stock since its common stock became publicly traded~~principles. The ~~expected~~cumulative ~~life~~effect ofon the ~~conversion~~accounting ~~feature~~for of the ~~notes~~conversion ~~was based~~feature ~~on the term~~ of the notes, ~~including~~at anOctober ~~agreement~~1, to2009 ~~repay~~is ~~the~~as notes following the occurrence of the merger between the Company and Skywide (See Note 17). The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future.follows:

The accounting principle was implemented in the first quarter of 2010 and is reported as a cumulative change in accounting principle. The cumulative effect on the accounting for the conversion feature of the notes at October 1, 2009 is as follows (dollars in thousands):

Derivative Instrument:		Additional Paid-in Capital				Retained Earnings				Derivative Liability
Conversion feature		$	-7,400,000			$	6,425,000			$	2,705,232

Derivative Instrument:		Additional Paid-in Capital				Retained Earnings				Derivative Liability
Conversion feature		$	(7,400)			$	6,425			$	2,705

The derivative liability amounts reflect the fair value of each derivative instrument as of the October 1, 2009 date of implementation.

~~The~~On ~~total cumulative~~March ~~effect~~31, ~~of $975~~2010,~~000~~ in the ~~statement~~Company ofmeasured ~~shareholders’ equity reflects~~ the fair value of the ~~derivative~~conversion ~~liability~~feature and recorded a gain of $21,~~705~~163,~~000~~008 ~~less~~as the ~~net~~change ~~effect~~in fair value of the ~~associated~~liabilities ~~discount~~in ofthe accompanying condensed consolidated financial statements for the ~~convertible~~three ~~note~~months ended March 31, 2010. For the six months ended March 31, 2010, the derivative liability change resulted in a gain on the ~~amount~~change in derivative liability of $1 277,~~730,000~~458.

On December 31, 2009, the Company measured the fair value of the conversion feature and recorded $885,550 as a change in fair value of the liabilities in the accompanying condensed consolidated financial statements for the three months ended December 31, 2009.

Noncontrolling Interest

Noncontrolling interest refers to the portion of a consolidated subsidiary which is not wholly-owned by the Company. The Company records the noncontrolling interest portion of any related profits and losses in consolidation. Other comprehensive income related to the noncontrolling interest for the three months ended ~~December~~March 31, ~~2009~~2010 was $0. Noncontrolling interest represented $1817,~~227~~793,000 of the total shareholders’ equity at ~~December~~March 31, ~~2009~~2010.

-9-

Stock-Based Compensation

The Company grants stock options to employees and stock options and warrants to non-employees in non-capital raising transactions for services and for financing costs. All grants are recorded at fair value at the grant date. The Company utilizes the Black-Scholes option pricing model to determine fair value. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive benefit, which is generally the vesting period. In some cases, our principal stockholder, which is owned by our chief executive officer and our chairman, both of whom are directors, provided or agreed to provide stock to executive officers in connection with their employment. These shares are treated as if the shares were contributed to and issued by the Company.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable. While there are risks associated with any concentration of customers, management believes that the active system in place to monitor the creditworthiness of customers will minimize such risks.

The Company performs ongoing credit evaluations of its debtors, but does not require collateral, in accordance with industry practice in China.

The Company maintains its cash accounts with major banks in China. The Chinese banks do not provide deposit insurance.

Earnings per Share

Basic EPS is measured as net income or loss divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

The calculation of diluted weighted average common shares outstanding is based on the average of the closing price of the Company’s common stock during the reporting periods, and is applied to options and warrants using the treasury stock method to determine if they are dilutive. The common stock issuable upon conversion of convertible notes payable is included on an “if converted” basis when the preferred stock and convertible notes are dilutive.

Comprehensive Income or Loss

Comprehensive income or loss includes all changes in equity except those resulting from investments by owners and distributions to owners, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities.

The Company’s only component of other comprehensive income is foreign currency translation gain of $5160,000 and $~~161~~624,000 for the three months ended ~~December~~March 31, 2010 and 2009, respectively, and ~~2008~~$165,000 and $463,000 for the six months ended March 31, 2010 and 2009, respectively. Cumulative other comprehensive income ~~or loss~~ is recorded as a separate component of shareholders’ equity.

New Accounting Pronouncements

Effective July 1, 2009, the FASB ASC became the single official source of authoritative, nongovernmental U.S. GAAP. The historical U.S. GAAP hierarchy was eliminated and the ASC became the only level of authoritative U.S. GAAP, other than guidance issued by the SEC. The Company’s accounting policies were not affected by the conversion to ASC. However, references to specific accounting standards in the notes to our consolidated financial statements have been changed to refer to the appropriate section of the ASC.

In April 2008, the FASB issued a pronouncement on what now is codified as FASB ASC Topic 350, Intangibles — Goodwill and Other. This pronouncement amends the factors to be considered in determining the useful life of intangible assets accounted for pursuant to previous topic guidance. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. The adoption of this standard on October 1, 2009 did not have a material effect on the Company’s consolidated financial statements.

In June 2008, the FASB amended FASB Topic ASC 815, Sub-Topic 40, “Contracts in Entity’s Own Equity” to clarify how to determine whether certain instruments or features were indexed to an entity's own stock under ASC Topic 815. The amendment applies to any freestanding financial instrument (or embedded feature) that has all of the characteristics of a derivative, for purposes of determining whether that instrument (or embedded feature) qualifies for the scope exception. It is also applicable to any freestanding financial instrument (e.g., gross physically settled warrants) that is potentially settled in an entity's own stock, regardless of whether it has all of the characteristics of a derivative, for purposes of determining whether to apply ASC 815. The Company was required to adopt this pronouncement on October 1, 2009. The Company’s financial statements for the three months ended December 31, 2009 and afterwards reflect the effect of this pronouncement.

-10-

In April 2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic 805, Business Combinations. This pronouncement provides new guidance that changes the accounting treatment of contingent assets and liabilities in business combinations under previous topic guidance. This pronouncement will be effective for the Company for any business combinations that occur on or after October 1, 2009.

In April 2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic 825, Financial Instruments. This pronouncement amends previous topic guidance to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements. The pronouncement was effective for interim reporting periods ending after June 15, 2009 and its adoption did not have any significant effect on the consolidated financial statements.

In December 2007, the FASB issued pronouncements which are now codified as ASC 805 “Business Combinations” and 810 “Consolidation” (“ASC 810”), which require that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled and presented in the consolidated financial statements. ASC 805 and ASC 810 also require that once a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. ASC 805 and ASC 810 amend ASC 260 to provide that the calculation of earnings per share amounts in the consolidated financial statements will continue to be based on the amounts attributable to the parent. ASC 805 and ASC 810 are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and require retrospective adoption of the presentation and disclosure requirements for existing minority interests. All other requirements are applied prospectively. The Company adopted ASC 805 and ASC 810 on January 1, 2009.

In May 2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic 855, Subsequent Events. This pronouncement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. FASB ASC Topic 855 provides guidance on the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The pronouncement was effective for the Company during the annual period ended September 30, 2009. The Company has evaluated subsequent events for the period from December 31, 2009, the date of these financial statements, through February 10, 2010, which represents the date these financial statements are available for filing with the SEC.

In June 2009, the FASB issued ASC Topic 810-10, "Amendments to FASB Interpretation No. 46(R)" (“ASC 810-10”). ASC 810-10 is intended to (1) address the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” as a result of the elimination of the qualifying special-purpose entity concept in ASC 860-20, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provided timely and useful information about an enterprise's involvement in a variable interest entity. This statement will be effective for the Company on October 1, 2010. The Company does not expect the adoption of ASC 810-10 to have a material impact on its results of operations, financial condition or cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), and the United States Securities and Exchange Commission did not or are not believed to have a material impact on the Company's present or future consolidated financial statements.

3. Restricted Cash

The balances of restricted cash as at ~~December~~March 31, ~~2009~~2010 and September 30, 2009 represent deposits on a bill of exchange issued by the Company for the purchase of materials.

4. Accounts and notes receivable

Accounts receivable are as follows (dollars in thousands):

	December 31, 2009			September 30, 2009
	March 31, 2010			September 30, 2009
Accounts receivable	$	2927,~~244~~711		$	30,903
Notes receivable-bank acceptance		~~251~~378			74
Less: allowance for doubtful receivables		(1,~~212~~223	)		(1,221)	)
Total	$	2826,~~283~~866		$	29,756

5. Other receivable

Other receivable are as follows (dollars in thousands):

	December 31, 2009			September 30, 2009
	March 31, 2010			September 30, 2009
Rental receivable	$	2,636		$	2,636
Due from third parties		810,~~331~~400			9,734
Others current accounts		48,~~291~~176			7,133
Less: allowance for doubtful receivables		(~~898~~1,626	)		(1,859)
Total	$	1419,~~360~~586		$	17,644

-11-

6. Deposits and prepayments

Deposits and prepayments are as follows (dollars in thousands):

	December 31, 2009		September 30, 2009
	March 31, 2010		September 30, 2009
Related to construction	$	~~1,960~~955	$	1,681
Raw materials		23,~~698~~142		3,000
Related to equipment		~~390~~2,927		1,303
Natural gas		~~1,319~~531		2,303
Others		~~1,226~~151		342
Total	$	7,~~593~~706	$	8,629

7. Inventories

Inventories are as follows (dollars in thousands):

	December 31, 2009		September 30, 2009
	March 31, 2010		September 30, 2009
Raw materials	$	12,~~978~~390	$	2,153
Work in progress		~~946~~1,200		288
Finished goods		12,~~830~~430		2,159
Low value consumables		4350		19
Total	$	46,~~797~~070	$	4,619

8. Long-term investments

Sinogas General Luxi Natural Gas Equipment Co., Ltd.

On October 31, 2008, in order to provide for a supply of raw materials, Sinogas signed a joint venture agreement with LuXi Chemical Group, a Chinese chemical company, to set up a company located in Liaocheng City, Shandong province, with proposed annual production capacity of 4,000 steel bottles used in CNG trailer manufacturing. The total registered capital is RMB 50 million (equivalent to $7.32 million based on the exchange rate on ~~December~~March 31, ~~2009~~2010) of which Sinogas has a 40% interest and the Company has a 30% interest. This joint venture company commenced operation in July 2009. At December 31, 2009, Sinogas had contributed $2.93 million, in full satisfaction of its obligations to this enterprise. For the ~~three~~six months ended ~~December~~March 31, 2010, the joint venture incurred loss at $~~126~~163,~~464~~146, of which $5065,~~586~~258 is allocated to the Company.

-12-

9. Property, Plant and Equipment

Property, plant and equipment consist of the following (dollars in thousands):

	March 31, 2010			September 30, 2009

Buildings and facility	$	14,994		$	15,637
Machinery equipment		17,064			15,616
Motor vehicles		1,788			2,241
Office equipment and other		974			596
Total		34,820			34,090

Accumulated depreciation		(2,958	)		(2,308)
					31,782

Construction in process		26,686			23,088

Net book value	$	58,548		$	54,870

	December 31, 2009			September 30, 2009
Buildings and facility	$	16,975		$	15,637
Machinery equipment		15,348			15,616
Motor vehicles		2,751			2,241
Office equipment and other		328			596
Total		35,442			34,090
Accumulated depreciation		(2,391	)		(2,308)
		33,051			31,782
Construction in process		25,003			23,088
Net book value	$	58,054		$	54,870

10. Land use rights

	December 31, 2009			September 30, 2009
	March 31, 2010			September 30, 2009
Land use rights		31,~~486~~789			31,495
Accumulated amortization		(1,~~237~~216	)		(1,125)
Net book value	$	30,~~249~~574		$	30,370

The land use rights include six parcels of land purchased by the Company, which are held by Sinogas, Jingrun, Xuancheng, Qingdao Sinoenergy, Jiaxing Lixun, and Hubei Gather. The land use rights are being amortized over the following periods, during which they are transferable and renewable, subject to government approval.

Owner	~~Cost~~	Cost		~~Expiration~~	Expiration
Sinogas	$	~~20,741~~$	20,749	~~May 2057~~	May 2057
Jingrun		~~4,124~~	4,095	~~December 2056~~	December 2056
Xuancheng Sinoenergy		~~1,015~~	1,015	~~June 2058~~	June 2058
Qingdao Sinoenergy		~~3,385~~	3,338	~~June 2058~~	June 2058
Jiaxing Lixun		~~368~~	368	~~June 2058~~	June 2058
Hubei Gather		~~535~~	525	~~June 2059~~	June 2059
Total	$	~~31,486~~$	30,090
Wuhan Sinoenergy		~~1,318~~	1,699	*	*

﹡Wuhan Sinoenergy has two agreements to purchase land use rights in Wuhan City from different non-affiliated parties. One agreement provides for a purchase price of approximately $1.58 million, of which approximately $1.32 million has been paid, and the title transfer is in the process. The second provides for a purchase price of approximately $1.32 million, of which approximately $732,000 has been paid. The acquisition of the land use rights requires government approval. The amount paid under the purchase agreements is reflected on the balance sheet under “land use rights.”

The land use right owned by Sinogas represents two parcels of land located in the central portion of Qingdao City, on which Sinogas and Yuhan’s offices and manufacturing facilities are located. The land use right was purchased by the Company from Beijing Sanhuan, a former shareholder of Sinogas, for a price of RMB160 million, equivalent to US$23.47 million based on the current exchange rate. The land is being amortized from May 2007 over a 50-year term.

On December 15, 2007, the Company purchased all of the equity of Jingrun, whose sole asset is the land use right and construction in progress, for approximately RMB60 million ($8.8 million based on the ~~September~~March 3031, ~~2009~~2010 exchange rate). The cost of the land use right paid by the Company was approximately $4.1 million based on the ~~September~~March 3031, ~~2009~~2010 exchange rate.

13The land use right owned by Xuancheng was purchased by the Company from Shanghai CNPC Enterprises Group for $874,000 based on the March 31, 2010 exchange rate.

~~The~~On January 4, 2008, the Company purchased all of the equity of Qingdao Shan Yang Tai Chemistry Resources Development Co., Ltd. (“QDSY”), whose sole asset is the land use right ~~owned~~and byconstruction ~~Xuancheng~~in ~~was~~progress, for ~~purchased~~approximately byRMB43 million. The cost of the ~~Company~~land ~~from~~use ~~Shanghai~~right ~~CNPC Enterprises~~paid ~~Group~~by ~~for~~the Company was approximately $~~874,000~~1.9 million based on the ~~September~~March 3031, ~~2009~~2010 exchange rate.

On ~~January~~ 4February 9, ~~2008~~2010, ~~the~~Sinogas ~~Company~~signed ~~purchased~~a ~~all~~supplemental ofagreement, ~~the~~modifying ~~equity~~an ofagreement ~~Qingdao~~dated ~~Shan~~July ~~Yang Tai~~29, ~~Chemistry~~2009 ~~Resources~~with Qingdao ~~Development~~City ~~Co.,~~Land ~~Ltd.~~Reserve ~~(“QDSY”),~~Center ~~whose~~for ~~sole~~the ~~asset~~transfer isof the certain land use ~~right~~rights ~~and~~in ~~construction~~Qingdao inCity ~~progress,~~ to the Land Reserve Center for a purchase price of RMB 112,222,883, which has a value of approximately ~~RMB43~~ $16.4 million, using a current conversion rate. These ~~The~~land ~~cost~~rights ofrelated to the ~~land~~real ~~use~~estate ~~right~~where Sinogas’ former manufacturing facilities were located. The purchase price has been paid by the ~~Company~~Land ~~was~~Reserve ~~approximately $1~~Center.9 The ~~million~~Company ~~based~~has the obligation to remove the buildings and other constructions on the ~~September~~land 30and pay the applicable tax and record the transfer documents. Upon completion of these steps, ~~2009~~the ~~exchange~~land ~~rate~~use rights will be transferred to the Land Reserve Center.

The money received by the Company is treated as a deposit and is reflected as a current liability on the balance sheet at March 31, 2010. The transfer of of the land use rights will be recognized as a sale, and the money received as sales proceeds upon completion of the transfer of the land use rights.

-13-

In June 2008, Jiaxing Lixun acquired a land use right for $368,000, which was used for construction of a new plant.

In June 2009, Hubei Gather acquired a land use right for $535,000. The land is being used to construct a mother CNG station in Wuhan which will be used to store CNG and provide CNG to the Company’s stations.

The Company made additional payments of approximately $2.9 million with respect to land use rights owned by the Company.

11. Goodwill

Goodwill is as follows (dollars in thousands):

Transactions	~~December~~March 31, ~~2009~~2010		September 30, 2009
Purchase of an additional 80% equity interest in Yuhan	$	995	$	995
Purchase of 90% equity in Jiaxing Lixun		619		619
Purchase of a 70% equity in Xuancheng Sinoenergy		258		258
Purchase of Jingrun		34		34
Total	$	1,906	$	1,906

The Company monitors the impairment of goodwill at least annually. As of ~~December~~ March 31, ~~2009~~2010, there were no indications that the carrying amount of the goodwill was impaired.

12. Other long-term assets

Other long-term assets are as follows (dollars in thousands):

	December 31, 2009		September 30, 2009
	March 31, 2010		September 30, 2009
Prepaid CNG land rental	$	34,~~046~~484	$	2,937
Plant construction in progress		911,~~027~~331		3,096
CNG station equipment on order from overseas		-		342
Others		1,~~711~~327		1,297
Total	$	1317,~~784~~142	$	7,672

13. Short Term Bank Loan

The following table summarizes the contractual short-term borrowings between the banks and the Company as of ~~December~~March 31, ~~2009~~2010 (dollars in thousands):

Bank Name	Purpose	Borrowing Date	Borrowing Term	Annual Interest Rate			Amount
Bank of Communication	Working Capital	April 27, 2009	Eight months		5.31	%	$	4,980
China Construction Bank	Working Capital	March 16, 2010	One year		5.5755	%	$	4,981
China Construction Bank	Working Capital	~~March~~April 1820, 2009	One year		5.31	%		21,~~967~~974
China Construction Bank	Working Capital	April 20, 2009	One year		5.5775	%		7,323
Industrial Bank Co., Ltd.	Working Capital	May 25, 2009	One year		5.81	%		381
China Citic Bank	Working Capital	February 6, 2009	One year		5.841	%		73
Industrial Bank Co., Ltd.	Working Capital	June 2, 2009	One year		5.81	%		645
China Citic Bank	Working Capital	January 4, 2009	One year		5.841	%		220
Bank of Communication	Working Capital	July 3, 2009	One year		5.576	%		147
Industrial Bank Co., Ltd.	Working Capital	May 25, 2009	One year		5.841	%		381
China Merchants Bank	Working Capital	February 1, 2010	One year		5.841	%		2,930
Industrial Bank Co., Ltd.	Working Capital	June 2, 2009	One year		5.841	%		644
China Merchants Bank	Working Capital	March 5, 2010	One year		5.5755	%		439
Bank of Communication	Working Capital	July 3, 2009	One year		5.5755	%		146
China Merchants Bank	Working Capital	January 19, 2009	One year		5.5755	%		1,464
China Merchants Bank	Working Capital	March 5, 2009	One year		5.5755	%		439
China Merchants Bank	Working Capital	May 8, 2009	One year		5.5755	%		1,025
Hankou Bank	Working Capital	July 21, 2009	One year		5.841	%		2,930
CITIC Bank	Working Capital	August 26, 2009	One year		6.372	%		2,637
Bank of Communication	Working Capital	October 9, 2009	One year		5.841	%		2,372
Industrial Bank Co., Ltd.	Working Capital	March 12, 2010	One year		5.31	%		5,860
Bank of Communication	Working Capital	October 9, 2009	One year		5.841	%		2,373
Bank of Communication	Working Capital	October 26, 2009	Half year		5.346	%		293
Bank of Communication	Working Capital	October 29, 2009	Half year		5.346	%		586
Total							$	47,~~480~~200

-14-

The following table summarizes the contractual short-term borrowings between various banks and the Company as of September 30, 2009 (dollars in thousands):

Bank Name	Purpose	Borrowing Date	Borrowing Term	Annual Interest Rate			Amount
Bank of Communication	Working Capital	April 27, 2009	Eight months		5.31	%	$	4,979
China Construction Bank	Working Capital	March 18, 2009	One year		5.31	%		21,965
China Construction Bank	Working Capital	April 20, 2009	One year		5.5775	%		7,322
China Citic Bank	Working Capital	February 6, 2009	One year		5.841	%		73
China Citic Bank	Working Capital	January 4, 2009	One year		5.841	%		220
Industrial Bank Co., Ltd.	Working Capital	May 25, 2009	One year		5.841	%		381
Industrial Bank Co., Ltd.	Working Capital	June 2, 2009	One year		5.841	%		644
Bank of Communication	Working Capital	July 3, 2009	One year		5.5755	%		146
China Merchants Bank	Working Capital	January 19, 2009	One year		5.5755	%		1,464
China Merchants Bank	Working Capital	March 5, 2009	One year		5.5755	%		439
China Merchants Bank	Working Capital	May 8, 2009	One year		5.5755	%		1,025
Hankou Bank	Working Capital	July 21, 2009	One year		5.841	%		2,929
CITIC Bank	Working Capital	August 26, 2009	One year		6.372	%		2,636
Total							$	44,223

14. Notes payable

The balances of notes payable as at ~~December~~March 31, ~~2009~~2010 and September 30, 2009 represent the obligations in the form of promissory notes with maturity dates of less than 12 months for the purchase of raw materials.

15. Advances from Customers

Advances from customers at ~~December~~March 31, ~~2009~~2010 and September 30, 2009 consist of advances received for routine sales orders according to the Company’s sales policy.

16. Income Taxes Payable

Pursuant to the PRC income tax laws, the Company’s PRC subsidiaries are generally subject to enterprise income tax at a statutory rate of 25%. The Company pays its enterprise tax based on its taxable income determined in accordance with the tax laws of the PRC. Enterprise tax for the three months ended December 31, 2009 and 2008 were 25%.

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

Under the current tax laws of the PRC, Wuhan Sinoenergy will be entitled to a two-year 100% tax exemption followed by three years of a 50% tax exemption once it become profitable. Wuhan Sinoenergy did not achieve profitability for the year ended September 30, 2009.

No provision for other overseas tax is made as Sinoenergy Holding Limited, which is an investment holding company, and has no taxable income in the British Virgin Islands or the United States.

17. Long term notes payable

15On September 28, 2007, the Company issued 12% guaranteed senior notes due 2012 in the principal amount of $16,000,000 and 3.0% guaranteed senior convertible notes due 2012 in the principal amount of $14,000,000. At December 31, 2009, the 12% guaranteed senior notes had been paid in full. The convertible notes were initially convertible into common stock at an initial conversion price of $6.34 per share. The conversion price had been reduced to $4.20 as described below at March 31, 2009.

On September 28, 2007, the Company issued 12% guaranteed senior notes due 2012 in the principal amount of $16,000,000 and 3.0% guaranteed senior convertible notes due 2012 in the principal amount of $14,000,000. At December 31, 2009, the 12% guaranteed senior notes had been paid in full. The convertible notes were initially convertible into common stock at an initial conversion price of $6.34 per share. The conversion price has been reduced to $4.20 as described below at December 31, 2009.

In connection with the issuance of the notes, the Company’s chief executive officer and its chairman, both of whom are directors, executed non-competition agreements with the Company, and the Company paid the investors an arrangement fee of $160,000, which was deducted from the proceeds of the notes.

The convertible notes were issued pursuant to an indenture between the Company and DB Trustees (Hong Kong) Limited, as trustee. The convertible notes are due in September 2012 and bear interest at the stated interest rate of 3% per annum. Although the stated interest rate is 3% per annum, if the convertible notes are not redeemed, converted or purchased and cancelled by the maturity date, the Company is required to redeem the convertible notes at the amount which results in a yield to maturity of 13.8% per annum, less interest previously paid, plus any interest accrued on overdue principal (and, to the extent lawful, on overdue interest) and premium, if any, at a rate which is 3% per annum in excess of the rate of interest then in effect. As a result, the Company is accruing interest at the rate of 13.8% per annum. Since the Company is only required to pay interest currently at the rate of 3%, the remaining 10.8% interest rate is accrued and treated as deferred interest payable. If the convertible notes are converted, the deferred interest payable will be credited to additional paid in capital. Because of the agreement relating to payment of the convertible notes described below, the principal amount of the notes and the deferred interest are classified as current liabilities at ~~December~~March 31, ~~2009~~2010.

-15-

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

	•	The failure of the Company’s common stock to be listed on The NASDAQ Stock Market.

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

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

	•	At the rate of 3.0% per annum if the Company has not obtained a listing of its common stock on the NASDAQ Global Market or the NASDAQ Capital Market by September 19, 2008 and maintained such listing continuously thereafter as long as the Notes are outstanding. At ~~December~~March 31, ~~2009~~2010, the Company had met this listing requirement.
	•	At the rate of 1.0% for each 90-day period in which the Company has failed to comply with the registration obligations under the registration rights agreement. As of September 30, 2009, the Company had accrued additional interest totaling $560,000 pursuant to this provision, of which $280,000 has been paid. The noteholders have waived the right to require the additional interest from March 31, 2009 through September 30, 2009 and afterwards.

At ~~December~~ March 31, ~~2009~~2010, the holders of the convertible notes have the right to convert their notes into common stock at a conversion price of $4.20 per share, reflecting a reduction in the conversion price to $5.125 per share pursuant to a supplemental indenture dated as of June 23, 2008 and a further adjustment to $4.20 per share as of March 28, 2009 based on the market price of the Company’s common stock. As ~~December~~March 31, ~~2009~~2010, the conversion price was subject to adjustment in the event of a stock distribution or dividend, a reverse split or combination of shares and the distribution of shares, warrants, assets or indebtedness to our stockholders. Other adjustment provisions had been terminated as of ~~December~~March 31, ~~2009~~2010.

The indenture relating to the convertible notes including the following:

• If the Company sells assets and does not reinvest the proceeds in its business within 180 days (270 days in the case of a sale of real property), to the extent that such proceeds not so reinvested exceed $5,000,000, the Company is required to offer the holders of the notes the right to have the Company use such excess proceed to purchase their notes at the principal amount plus accrued interest.. • If there is a change of control, the Company is required to offer to repurchase the notes at 103% of the principal of the note, plus accrued interest. A change of control will occur if Bo Huang or Tianzhou Deng own less than 25% of the voting power of the Company’s voting stock or, with certain exceptions, a merger or consolidation or sale of substantially all of the Company’s and its subsidiaries’ assets. • The Company is restricted from incurring additional debt unless, after giving effect to the borrowing, (i) the fixed charge coverage ratio would be greater than 2.0 to 1.0 through December 31, 2009 and 3.0 to 1.0 if the debt is incurred thereafter, and (ii) the leverage ratio would not exceed 6.0 to 1.0 through December 31, 2009 and 4.5 to 1.0 if the debt is incurred thereafter, provided, that Sinogas may continue to maintain debt under credit facilities of not more than $10,000,000, and may incur purchase money indebtedness. The fixed charge coverage ratio is the ratio of the Company’s earnings before interest, taxes, depreciation and amortization, which is generally known as EBITDA, to consolidated interest expense, as defined. Leverage ratio means the ratio of outstanding debt to EBITDA, with the interest component being the consolidated interest expense, as defined. • The Company is subject to restriction in paying dividends, purchasing its own securities or those of its subsidiaries, prepaying subordinated debt, and making any investment other than any investments in itself and its subsidiaries engaged in the Company’s business and certain other permitted investments. • The Company is subject to restrictions on incurring liens. • The Company cannot enter into, or permit its subsidiaries to enter into, transactions with affiliates unless it is in writing, in the Company’s best interest and not less favorable to the Company than it could obtain from a non-affiliate in an arms’ length transaction, with any transaction involving more than $1,000,000 requiring audit committee approval and any transaction involving more than $5,000,000 requiring a written opinion from an independent financial advisor.

-16-

• The Company is subject to restriction in paying dividends, purchasing its own securities or those of its subsidiaries, prepaying subordinated debt, and making any investment other than any investments in itself and its subsidiaries engaged in the Company’s business and certain other permitted investments. • The Company is subject to restrictions on incurring liens. • The Company cannot enter into, or permit its subsidiaries to enter into, transactions with affiliates unless it is in writing, in the Company’s best interest and not less favorable to the Company than it could obtain from a non-affiliate in an arms’ length transaction, with any transaction involving more than $1,000,000 requiring audit committee approval and any transaction involving more than $5,000,000 requiring a written opinion from an independent financial advisor. • The Company shall maintain, as of the last day of each fiscal quarter, (i) a fixed charge coverage ratio of at least 2.00 to 1.00 through December 31, 2009 and 3.0 to 1.0 thereafter, (ii) a leverage ratio of not more than 6.0 to 1.00 through December 31, 2009 and 4.5 to 1.0 thereafter, and (iii) a consolidated subsidiary debt to consolidated net tangible asset ratio of not more than 0.35. The noteholders agreed that they would not take any action to declare an event of default as long as the Company is in compliance with the modified covenants. • The Company shall make all payments of principal, interest and premium, if any, without withholding or deduction for taxes, and must offer to repurchase the notes if they are adversely affected by changes in tax laws that affect the payments to the holders.

•	The Company shall maintain, as of the last day of each fiscal quarter, (i) a fixed charge coverage ratio of at least 2.00 to 1.00 through December 31, 2009 and 3.0 to 1.0 thereafter, (ii) a leverage ratio of not more than 6.0 to 1.00 through December 31, 2009 and 4.5 to 1.0 thereafter, and (iii) a consolidated subsidiary debt to consolidated net tangible asset ratio of not more than 0.35. The noteholders agreed that they would not take any action to declare an event of default as long as the Company is in compliance with the modified covenants.

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

At ~~December~~ March 31, ~~2009~~2010, the Company was not in compliance with the ~~required~~ financial covenants in the indentures relating to our 3.0% senior convertible notes due 2012 in the principal amount of $14 million. In October and December 2009, ~~the~~we ~~noteholders~~entered ~~have~~into ~~waived~~two ~~the~~agreements ~~requirement~~that onmodified the ~~financial~~ ~~ratio~~terms atof ~~September~~the 30notes, ~~2009~~the ~~through~~cumulative ~~March~~effect ~~31, 2010~~of which is as follows.

·	The noteholders waived compliance with the covenants at September 30, 2009 and through March 31, 2010.

·	The Company repaid our 12% senior notes in the principal amount of $16 million prior to December 31, 2009.

The Company agreed to pay the convertible notes in the principal amount of $14 million in two installments, with an initial payment of $5 million being due ten days after the merger with Skywide becomes effective and the balance 30 days thereafter. Since the note holders would not be converting the notes, we would pay interest to provide the note holders with a yield to maturity of 13.8%, net of payments previously made.

·	The noteholders reduced our remaining obligation for liquidated damages for failure to register the shares of common stock issuable upon conversion of the convertible notes to $280,000, which is payable by December 31, 2009. The payment was made on January 7, 2010.

·	The provision that would have resulted in a further decrease in the conversion price of the convertible notes if we did not meet certain levels of net income was eliminated.

·	The provisions of the indenture relating to the reduction in the conversion price of the convertible notes if we issue stock at a price, or issue convertible securities with a conversion or exercise price, that is less than the conversion price (presently $4.20 per share) were eliminated.

As a result of these agreements, the $14 million convertible notes are classified as current liabilities at March 31, 2010 and September 30, 2009.

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

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

Subject to certain conditions, and in connection with the proposed merger agreement between the Company and Skywide Capital Management Limited (“Skywide”), which is described in Note 19, the holders of the convertible notes have waived default resulting from the failure of the Company’s common stock to be listed on the NASDAQ Stock Market.

At the time of the September 2007 financing, the Company also entered into an investor rights agreement, as clarified, pursuant to which, as long as an investor holds at least $2,000,000 principal amount of notes or at least 3% of the issued and outstanding stock:

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

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

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

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

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

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

The investor rights agreement, as clarified, also provides that (i) the Company will not sell shares of its common stock or grant options or warrants or issue convertible securities with an exercise or conversion price that is less than $0.80 per share, (ii) the minimum conversion price for the convertible debenture would be $0.80 per share, (iii) the holders of the convertible notes may call an event of default if the Company breaches its covenant not to issue shares at a price which is less than $0.40 per share. If the Company increases its authorized common stock, the conversion price would decrease to an amount not less than $0.05 per share. The Company and the investors agreed to use their commercially reasonable efforts to modify the indenture for the convertible notes to reflect these provisions of the investor rights agreement.

-17-

As a result of the reduction in the conversion price from $6.34 to $5.125, the Company recorded an additional beneficial conversion feature of $3,360,905 as a discount to the notes and additional paid in capital, which is being amortized as interest expense over the remaining term of the notes commencing April 1, 2008. As a result of the further reduction in the conversion price from $5.125 to $4.20, the Company recorded an additional beneficial conversion feature of $3,862,439 as a discount to the notes and additional paid in capital, which is being amortized as interest expense over the remaining term of the notes commencing January 1, 2009. Upon prepayment of the convertible notes, the unamortized portion of the beneficial conversion feature will be recognized.

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

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

The Company is required to prepare and file a registration statement covering the sales of all of the shares of common stock issuable upon conversion of the convertible notes, subject to any limitation required by Rule 415 of the SEC pursuant to the Securities Act of 1933 and to have the registration statement declared effective by March 28, 2008. In the event that the registration statement has not been declared effective by the SEC on or before March 28, 2008 or if effectiveness of the Registration Statement is suspended at any time other than pursuant to a suspension notice, for each 90-day period during which the registration default remains uncured, the Company is required to pay additional interest at the rate of one percent 1% of the convertible notes, as described above. As of September 30, 2009, the common stock issuable upon conversion of the notes had not been registered under the Securities Act of 1933, as amended. ~~The~~As a result of an agreement with the noteholders, ~~have~~as ~~waived~~described below, the ~~right~~Company tomade ~~require~~a $280,000 payment in respect of this additional interest in January 2010, and the Company has no further obligation with respect to additional interest resulting from ~~March~~the ~~31,~~failure ~~2009~~to ~~through~~register ~~September~~the ~~30,~~underlying ~~2009~~shares.

On October 5, 2009 and December 17, 2009, the Company entered into agreements with the holders of its $16,000,000, 12% senior notes and its $14,000,000, 3% convertible notes. Pursuant to these agreements:

·▪ The noteholders agreed to waive default of the provisions that require the Company’s common stock to be publicly traded, that require the Company to repurchase the notes upon a change of control, and that require the Company’s common stock to be traded on the NASDAQ Capital Market or the NASDAQ Global Market.

·▪ The noteholders waived covenant compliance requirements at September 30, 2009 and through March 31, 2010.

·▪ The Company agreed to repay the 12% senior notes in the principal amount of $16 million~~. Initially the payments were due by November 30~~, ~~2009.~~At ~~The Company paid approximately $14 million by November 30, 2009. As a result of the~~ December ~~agreement, the Company must pay the remaining balance of approximately $2 million by December~~ 31, 2009., ~~The balance due on~~ these notes ~~was~~had been paid onin ~~December 23, 2009~~full.

·▪ The Company agreed to pay the convertible notes in the principal amount of $14 million in two installments, with an initial payment of $5 million being due ten days after the merger with Skywide becomes effective and the balance 30 days thereafter. The conversion feature of the notes will be eliminated. The Company will be required to pay interest to provide the note holders with a yield to maturity of 13.8% per annum.

18▪ The noteholders reduced the remaining obligation for liquidated damages for failure to register the shares of common stock issuable upon conversion of the convertible notes to $280,000, which is to be paid by December 31, 2009. This payment was made on January 7, 2010 with the consent of the noteholders.

·▪ The ~~noteholders~~provision ~~reduced~~requiring ~~the~~an ~~remaining~~adjustment ~~obligation for liquidated damages for failure~~ to ~~register~~ the ~~shares of common stock issuable upon~~ conversion price of the ~~convertible~~ notes tobased ~~$280,000, which is to be paid by December 31, 2009. This payment was made~~ on ~~January~~stated 7,annual ~~2010~~earnings ~~with~~of the ~~consent~~Company ofwas ~~the noteholders~~eliminated.

·▪ The ~~provision~~provisions ~~requiring~~of anthe ~~adjustment~~indenture relating to the reduction in the conversion price of the convertible notes ~~based~~if onthe ~~stated~~Company ~~annual~~issues ~~earnings~~stock ofat a price, or issue convertible securities with a conversion or exercise price that is less than the ~~Company~~conversion ~~was~~price (presently $4.20 per share) were eliminated.

· The provisions of the indenture relating to the reduction in the conversion price of the convertible notes if the Company issues stock at a price, or issue convertible securities with a conversion or exercise price that is less than the conversion price (presently $4.20 per share) were eliminated.-18-

A reconciliation of the original principal amount of the 3% senior convertible notes to the amounts shown on the balance sheet at ~~December~~March 31, ~~2009~~2010 and September 30, 2009:

Original amount	$	14,000
Beneficial conversion feature		(177	)
Balance, September 30, 2007	$	13,823
Amortization of beneficial conversion feature		35
Interest paid		(211	)
Interest accrued for guaranteed 13.8% return		1,934
Discount resulting from reset adjustment effective March 28, 2008		(3,361	)
Amortization of discount resulting from reset		373
Balance, September 30, 2008	$	12,593
Interest accrued for guaranteed 13.8% return		1,932
Amortization of beneficial conversion feature		35
Amortization of discount resulting from reset		1,519
Discount resulting from reset adjustment effective March 28, 2009		(3,862	)
Interest paid		(1,804	)
Balance, September 30, 2009	$	10,413
Interest accrued for guaranteed 13.8% return		483
Amortization of beneficial conversion feature		9
Adjustment-interest paid		1,376
Cumulative change in accounting for conversion feature		(1,730	)
Amortization of original discount		597
Interest paid		(214	)
Balance, December 31, 2009	$	10,934
Interest accrued for guaranteed 13.8% return		483
Amortization of beneficial conversion feature		9
Amortization of original discount		597
Interest paid		(211	)
Balance, March 31, 2010	$	11,812

18. Long-term bank loan

The following table summarizes the contractual long-term borrowings between various banks and the Company as of ~~December~~March 31, ~~2009~~2010 (dollars in thousands):

Bank Name

Purpose

Borrowing Date

Borrowing Term

Annual Interest Rate

Amount

Bank of Communication

Construction Capital

June 27, 2008

Three years

8.316

4,~~394~~395

China Construction Bank

Construction Capital

August 28, 2009

Five years

5.76

21,~~967~~974

Total

26,361

Rural Commercial Bank

Construction Capital

January 20, 2010

Three years

6.00

2,637

Rural Commercial Bank

Construction Capital

March 11, 2010

Three years

6.00

9,082

Total

38,088

The following table summarizes the contractual long-term borrowings between various banks and the Company as of September 30, 2009 (dollars in thousands):

Bank Name

Purpose

Borrowing Date

Borrowing Term

Annual Interest Rate

Amount

Bank of Communication

Construction Capital

June 27, 2008

Three years

8.316

4,393

China Construction Bank

Construction Capital

August 28, 2009

Five years

5.76

21,965

Total

26,358

19. Merger Agreement with Skywide

On October 12, 2009, the Company entered into an agreement and plan of merger with Skywide, a corporation which is wholly owned by the Company’s chairman and chief executive officer, both of whom are also directors. This agreement was amended and restated on March 29, 2010. Pursuant to the agreement, as amended and restated, the Company will be merged ~~into~~with a wholly-owned subsidiary of Skywide, with Skywide ~~being~~becoming the ~~surviving entity~~Company’s sole shareholder, and each ~~shares~~share of common stock of the Company (other than shares owned by the Company, Skywide, or the two shareholders of Skywide), will be converted into the right to receive, upon presentation of the certificates for their common stock, the sum of $1.90. The merger is subject to shareholder approval.

20. Related Party Relationships and Transactions

The related parties with which the Company had transactions in the three months ended December 31, 2009 and 2008, are as follows:

Name of related party		Relationship
Anhui Gather		Joint venture entity with China New Energy in which the Company has a 20% interest
China New Energy		80% shareholder of Anhui Gather and 20% shareolder of Hubei Gather
Beijing Shanglira Capital Co, Ltd.		Controlled by Mr Tianzhou Deng and Mr Bo Huang
Skywide		Owned by Mr Tianzhou Deng and Mr Bo Huang

~~Significant transactions between the Company and its related parties during the three months ended December 31, 2009 and 2008 are as follows:~~-19-

(1) Related party receivables (dollars in thousands)

Name of the Company	~~December~~March 31, ~~2009~~2010	September 30, 2009
China New Energy	-None	$382 (current accounts)
Anhui Gather	~~$44 (current accounts)~~-None	$44 (current accounts)

(2) Related party payables (dollars in thousands)

Name of the Company	~~December~~March 31, ~~2009~~2010	September 30, 2009
Beijing Shanglira Capital Co, Ltd.	-$17,~~208~~213 (current accounts)	-None
Skywide	-$3,000 (current accounts)	-None

In October 2009, Beijing Shanglira Capital Co., Ltd. advanced the Company $17,~~208~~213,000, and in December 2009, Skywide advanced the Company $3 million. The loans are unsecured and are payable on demand. The proceeds of the loans were used primarily to reimburse usthe Company for paying the Abax/CCIF senior debt during the quarter ended December 31, 2009.

(3) Related party transactions:

On November 27, 2009, the Company signed agreement with China New Energy pursuant to which the Company will transfer a 30% interest in Hubei Gather to China New Energy for $1.5 million.

On November 23, 2009, the Company signed an agreement with China New Energy pursuant to which China New Energy will transfer a 30% interest Anhui Gather to the Company for $1.5 million. In March 2010, the Company paid the contribution to Anhui Gather for the 30% interest.

Upon completion of these two equity transfers, the Company and China New Energy will each own 50% of both Hubei Gather and Anhui Gather. The effect of these agreements is that the Company will have exchanged a 30% interest in Hubei Gather for a 30% interest in Anhui Gather.

21. Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company in deciding how to allocate resources and in assessing performance.

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

20The segment information set forth below has been derived from our unaudited financial statements for the three and six months ended March 31, 2010 and 2009.

The segment information set forth below has been derived from our unaudited financial statements for the three months ended December 31, 2009 and 2008.

Three Months Ended March 31, 2010 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	350		$	2,613		$	4,099		$	1,945		$	9,007
Cost of sales		302			2,000			3,840			1,397			7,539
Gross profit		48			613			259			548			1,468
Gross margin		14	%		23	%		6	%		28	%		16	%
Operating expenses:
Selling expenses		22			30			210			230			492
General and administrative expenses		666			665			313			365			2,009
Total operating expense		688			695			523			595			2,501
Loss from operations	$	(640	)	$	(82	)	$	(264	)	$	(47	)	$	(1,033	)

Total assets	$	67,078		$	62,632		$	66,308		$	13,789		$	209,807

Three Months Ended December 31, 2009 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	3,153		$	2,068		$	4,749		$	2,558		$	12,528
Cost of sales		2,916			1,460			4,350			1,956			10,682
Gross profit		237			608			399			602			1,846
Gross margin		8	%		29	%		8	%		24	%		15	%
Operating expenses:
Selling expenses		31			43			105			153			332
General and administrative expenses		482			1,136			606			241			2,465
Total operating expense		513			1,179			711			394			2,797
Income (loss) from operations	$	(274	)	$	(571	)	$	（312	）	$	208		$	（951	）
Total assets	$	62,783		$	54,794		$	51,660		$	13,265		$	182,502

-20-

Three Months Ended December 31, 2008 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Three Months Ended March 31, 2009 (dollars in thousands)	Customized pressure containers				CNG station facilities and construction				CNG station Operation				Vehicle conversion kits			Total
Net sales	$	~~3,136~~685		$	~~5,779~~$	1,671	$	~~4,751~~	$	$4,032	~~2,262~~		$	~~15,928~~583		$	6,971
Cost of sales		~~2,221~~552			~~3,506~~	960		~~3,783~~		3,640	~~1,616~~			~~11,126~~343			5,495
Gross profit		~~915~~133			~~2,273~~	711		~~968~~		392	~~646~~			~~4,802~~240			1,476
Gross margin		2919	%		39	%43	%	20	%	10	29%	%		3041	%		21	%
Operating expenses:
Selling expenses		5840			22	10		~~308~~		(52	~~126~~)			~~514~~76			74
General and administrative expenses		~~278~~310			~~457~~	2,421		~~394~~		447	~~228~~			~~1,357~~204			3,382
Total operating expense		~~336~~350			~~479~~	2,431		~~702~~		395	~~354~~			~~1,871~~280			3,456
Income from operations	$	579		$	1,794		$	266		$	292		$	2,931
Loss from operations	$	(217	)		$	(1,720	)		$	(3	)		$	(40	)	$	(1,980	)
Total assets	$	3531,~~982~~480		$	~~58,565~~$	65,032	$	~~33,701~~	$	$36,610	~~7,613~~		$	~~135~~7,~~861~~869		$	140,991

Six Months Ended March 31, 2010 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	3,503		$	4,681		$	8,848		$	4,503		$	21,535
Cost of sales		3,218			3,460			8,190			3,353			18,221
Gross profit		285			1,221			658			1,150			3,314
Gross margin		8	%		26	%		7	%		26	%		15	%
Operating expenses:
Selling expenses		53			73			315			383			824
General and administrative expenses		1,148			1,801			919			606			4,474
Total operating expense		1,201			1,874			1,234			989			5,298
Income (loss) from operations	$	(916	)	$	(653	)	$	(576	)	$	161		$	(1,984	)

Six Months Ended March 31, 2009 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	3,821		$	7,450		$	8,783		$	2,845		$	22,899
Cost of sales		2,773			4,466			7,423			1,959			16,621
Gross profit		1,048			2,984			1,360			886			6,278
Gross margin		27	%		40	%		15	%		31	%		27	%
Operating expenses:
Selling expenses		98			32			256			202			588
General and administrative expenses		588			2,878			841			432			4,739
Total operating expense		686			2,910			1,097			634			5,327
Income from operations	$	362		$	74		$	263		$	252		$	951

22. Capital Stock

As of ~~December~~ March 31, ~~2009~~2010, the Company had the following shares of common stock reserved for issuance:

	•	555,359 shares issuable upon exercise of warrants;

	•	3,333,334 shares issuable upon conversion of 3% senior convertible notes;

	•	1,000,000 shares issuable upon exercise of stock options or other equity-based incentives pursuant to the Company’s 2006 long-term incentive plan, of which options to purchase 790,000 shares were outstanding.

	Number of shares issuable on exercise of warrants
	$1.70 Warrants		$2.40 Warrants		$4.20 Warrants		$8.00 Warrants		Total
Balance at September 30, 2009		85,715		369,644		75,000		25,000		555,359
Issued during the period		-		-		-		-		-
Exercised during the period		-		-		-		-		-
Balance at December 31, 2009		85,715		369,644		75,000		25,000		555,359

-21-

As at December 31, 2009, the weighted average exercise price for all warrants is $2.79. None of the outstanding warrants is subject to reset provisions other than as a result of a stock distribution, split or dividend, a reverse split or combination of shares or other recapitalization, and, in the case of the warrants to purchase 455,360 shares of common stock issued in the June 2006 private placement, sales of common stock at prices below the exercise price.

	Number of shares issuable on exercise of warrants
	$1.70 Warrants		$2.40 Warrants		$4.20 Warrants		$8.00 Warrants		Total

Balance at September 30, 2009		85,715		369,644		75,000		25,000		555,359
Issued during the period		-		-		-		-		-
Exercised during the period		-		-		-		-		-
Balance at March 31, 2010		85,715		369,644		75,000		25,000		555,359

21As at March 31, 2010, the weighted average exercise price for all warrants is $2.79. None of the outstanding warrants is subject to reset provisions other than as a result of a stock distribution, split or dividend, a reverse split or combination of shares or other recapitalization, and, in the case of the warrants to purchase 455,360 shares of common stock issued in the June 2006 private placement, sales of common stock at prices below the exercise price.

Stock options

Pursuant to the 2006 long-term incentive plan, each newly-elected independent director receives, at the time of his or her election, a five-year option to purchase 15,000 shares of common stock at the fair market value on the date of his or her election. The plan provides for the annual grant to each independent director of an option to purchase 2,500 shares of common stock on the first trading day in April of each calendar year, at market price, ~~subject to stockholder approval of the plan,~~ commencing in 2007. Pursuant to the automatic grant provisions of the plan, in June 2006, the Company issued to its independent directors, options to purchase an aggregate of 60,000 shares of common stock at $1.30 per share, being the fair market value on the date of grant.

Pursuant to the 2006 long-term incentive plan, each independent director is to be granted an option to purchase 2,500 shares of common stock on the first trading day in April of each calendar year at market price. On April 1, 2007, the four independent directors were granted stock options to purchase a total of 10,000 shares of common stock at an exercise price of $4.06 per share, being the fair market value on the date of grant. On April 1, 2008, the four independent directors were granted stock options to purchase a total of 10,000 shares of common stock at an exercise price of $5.80 per share, being the fair market value on the date of grant. On April 1, 2009, the four independent directors were granted stock options to purchase a total of 20,000 shares of common stock at an exercise price of $1.32 per share, being the fair market value on the date of grant. All of the options granted to the independent directors become exercisable cumulatively as to 50% of the shares subject thereto six months from the date of grant and as to the remaining 50%, eighteen months from the date of grant, and expire on the earlier of (i) five years from the date of grant, or (ii) seven months from the date such independent director ceases to be a director if such independent director ceases to be a director other than as a result of his death or disability.

On April 9, 2007, pursuant to 2006 long-term incentive plan, the stock option committee of the board of directors granted five year options to its senior managers and key management to acquire 590,000 shares of common stock at $4.00 per share, being the fair market value on the date of grant. These options are fully vested.

On January 9, 2008, pursuant to 2006 long-term incentive plan, the stock option committee of the board of directors granted five year options to its senior managers and key management to acquire 60,000 shares of common stock at $8.20 per share, being the fair market value on the date of grant. These options vest as to 50% of the underlying shares of common stock on January 9, 2009 and as to the remaining 50% on January 9, 2010.

On March 10, 2008, pursuant to 2006 long-term incentive plan, the stock option committee of the board of directors granted five year options to its senior managers and key management to acquire 40,000 shares of common stock at $6.20 per share, being the fair market value on the date of grant. The options vest as to 42% of the underlying shares of common stock on December 31, 2008, 50% on December 31, 2009 and as to the remaining 8% on March 9, 2010.

On June 1, 2008, pursuant to 2006 long-term incentive plan, the stock option committee of the board of directors granted five year options to the former chief financial officer to acquire 75,000 shares of common stock at $5.72 per share, being the fair market value on the date of grant. On October 18, 2008, the chief financial officer resigned from the Company and the options were forfeited.

	Shares subject to options		Weighted Average exercise price scope		Remaining Contractual life(years)
Options outstanding at September 30, 2009		790,000	$	1.32-8.20		4.17
Options granted during the period		-		-		-
Options outstanding at December 31, 2009		790,000		1.32-8.20		3.92
Options outstanding at March 31, 2010		790,000		1.32-8.20		3.67
Options exercisable at December 31, 2009		711,800	$	3.55		4.01
Options exercisable at March 31, 2010		711,800	$	3.55		3.76

-22-

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

Stock Options Granted On
Grant Date	April 1, 2009			June 1, 2008			March 10, 2008			January 9, 2008			April 9, 2007			April 1, 2007			June 2, 2006

Expected volatility		46.1	%		46.1	%		68.32	%		80.06	%		26.39	%		35.16	%		50	%
Risk-free rate		2.93	%		2.93	%		4.64	%		4.64	%		4.64	%		4.64	%		4.64	%
Expected term (years)		5			3			5			5			5			5			3
Dividend yield		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Fair value per share	$	0.58		$	1.94		$	3.56		$	5.16		$	1.24		$	1.2		$	0.5

The share-based compensation expense during the three and six months ended ~~December~~March 31, ~~2009 and~~2010 ~~2008~~ was $6416,000 and $8380,000 respectively, which was charged to operations as general and administrative expense.

23. Basic and Diluted Earnings Per Share

Basic earnings per share is based upon the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is based on the assumption that all dilutive convertible shares, stock options and warrants were converted or exercised. The number of shares included in determining diluted earnings per share is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), with the funds obtained thereby being used to purchase common stock at the average market price during the period.

The details for the fully diluted outstanding shares for the ~~three~~six months ended ~~December~~ March 31, ~~2009~~2010 and ~~2008~~2009 are as follows:

	Three months ended December 31, 2009	Three months ended December 31, 2008
	Six months ended March 31, 2010	Six months ended March 31, 2009
Weighted average common stock outstanding during period	15,922,391	15,~~922~~942,~~391~~336
Common stock issuable pursuant to warrants	Anti-dilutive	~~85,820~~-
Common stock issuable upon conversion of 3% convertible notes	Anti-dilutive	-
Common stock issuable upon exercise of options outstanding during the period	Anti-dilutive	~~32,093~~-
Total diluted outstanding shares	15,922,391	1615,~~040~~942,~~304~~336

Because the Company sustained a loss for the ~~three~~six months ended ~~December~~March 31, ~~2009~~2010, the shares issuable upon exercise of options and warrants and upon conversion of convertible notes would be anti-dilutive.

24. Commitments and Contingencies

Litigation

The Company is a defendant in a purported class action commenced on October 16, 2009 in the Supreme Court of the State of New York, Nassau County, by alleged class representative plaintiffs Stephen Trecaso and Linda Watts against the Company and its directors which alleges a claim for breach of fiduciary duty, and which makes a demand for injunctive relief or alternatively, damages arising out of the merger agreement. The complaint generally alleges that the ~~company~~ Company and the board of directors engaged in a defective sales process which will permit Skywide to buy the Company for an unfair price. The Company ~~believes~~filed ~~that~~motions to dismiss this action ison ~~without~~the ~~merit,~~grounds that itthere ~~has~~is ~~valid~~no ~~defenses to~~jurisdiction ~~the~~over ~~action, and it will vigorously defend~~ the ~~action. As of February 1, 2010, none of the~~ Company’s ~~directors~~or ~~has~~Mr. ~~been~~Robert ~~served~~Adler ~~with process~~ in ~~this~~New ~~action,~~York ~~except~~and ~~Robert~~that IMr. Adler~~. The~~ ~~Company~~was ~~and~~not Mrproperly served. These ~~Adler have made~~ motions tohave ~~dismiss~~been ~~this~~adjourned ~~lawsuit~~pending ~~on various grounds which include~~ the ~~court’s~~ ~~lack~~settlement ~~of jurisdiction over the Company and the plaintiffs’ failure to join necessary parties as defendants~~hearing.

The Company is a defendant in ~~four~~three other class actions that have been filed against the Company, its directors and Skywide in the Eighth Judicial District Court of the State of Nevada in and for Clark County which allege a claim for breach of fiduciary duty and which also make a demand for injunctive relief for a meaningful auction with third parties or alternatively, damages arising out of the merger agreement. The alleged class representative plaintiffs in each of those ~~four~~three actions and the respective dates of commencement of those actions are (i) ~~Johan L. Stoltz, October 26, 2009, (ii)~~ Robert E. Guzman, October 27, 2009, (~~iii~~ii) Carol Karch, October 27, 2009 and (iviii) Robert Grabowski, November 2, 2009. As of ~~February~~the 1,date ~~2010~~of this report, only the Company and directors Robert I. Adler and Greg Marcinkowski have been served in ~~the~~these ~~four~~three actions. The complaints generally allege that the Company and the board of directors engaged in a defective sales process which will permit Skywide to buy the Company for an unfair price and permitted Skywide disclosure of material inside information. The Company ~~has~~and Mr. Marcinkowski removed each of ~~those~~these ~~four~~ actions to the United States District Court for the District of Nevada~~. Plaintiffs~~, inwhere ~~those~~they ~~actions~~are presently pending. Plaintiffs have filed motions seeking to remand the actions back to the Nevada State Courts~~. The~~; ~~time within which the company and Messrs. Adler and Marcinkowski must appear~~however, ~~answer~~these ~~or otherwise~~motions ~~move~~have ~~with respect to the complaints in those actions has~~ been ~~extended to~~adjourned ~~February~~pending ~~16, 2010. The Company believes that these actions are without merit, that it has valid defenses to~~ the ~~actions~~settlement ~~and it will vigorously defend these actions~~hearing..

-23-

On March 5, 2010, counsel for all of the plaintiffs and all of the defendants in the three actions entered into a memorandum of understanding proposing settlement of the four actions, which was formalized into a stipulation of settlement. Before the Company can proceed with the shareholders’ meeting and call for a vote on the proposal to approve the merger, the terms of the settlement, and the amount of attorneys’ fees and disbursements to be awarded to and apportioned among counsel for the plaintiffs in the four actions must be approved by the federal court in the Nevada Actions.

The terms of the proposed settlement, as set forth in the memorandum of understanding, provide that:

·	the provisions of the original merger agreement, which accorded to Skywide a right to match or top an offer deemed by our board to be a “Superior Proposal,” would be eliminated;

·	any termination fee payable to Skywide would be limited to Skywide’s actual expenses, and would be subject to a cap of 3% of the total value of the merger transaction, which is $552,861;

·	an updated fairness opinion would be – and has been – obtained and a discussion contained in the preliminary proxy statement of the fairness opinion that we originally filed would be revised so as to reflect the substance of the updated fairness opinion;

counsel for the plaintiffs in the four actions could conduct, and they have already conducted, certain pre-trial confirmatory discovery consisting of a review of an agreed upon list of documents, the deposition of the chairman of the special committee of the board of directors and one of the members of the Brean Murray team who conducted the analysis upon which Brean Murray has based its fairness opinion and updated opinion;

counsel for the plaintiffs in the four actions would be, and they were, given two opportunities to review and provide comments regarding the disclosures that we make in this proxy statement, and we would consider such comments in good faith in making a determination whether and to what extent to incorporate such comments into the final version of the proxy statement;

·	counsel for the plaintiffs in the four actions would apply for an award of counsel fees (including costs and expenses), based upon the benefits that the settlement will provide to Sinoenergy’s shareholders, in an amount not to exceed, in the aggregate, $470,000;

the Company and its directors as well as Skywide vigorously deny any wrongdoing or liability with respect to all claims asserted in the four actions, including that they have committed any violations of law, that they have acted improperly in any way, that they have any liability or owe any damages of any kind to the class of plaintiffs and that the class of plaintiffs would release them from any and all claims, whether known or unknown, that they know or suspect exist at the time of the release; and

·	for dismissal with prejudice of the four actions.

On March 17, 2010, following a fairness hearing, the court approved the settlement, plaintiff’s motion for attorney’s fees and dismissed the Nevada actions. Pursuant to the stipulation of settlement, the plaintiff in the New York action agreed to the dismissal of that action as well.

Contractual Obligations

The Company has the following material contractual obligations and capital expenditure commitments:

~~Sinoenergy Holding~~Lixun ~~and~~has ~~Sinogas~~agreed ~~signed~~to ancontribute ~~agreement~~$58,574 to ~~set~~Yichang upLiyuan ~~Qingdao~~Power ~~Sinoenergy~~Technology ~~Gas~~Company ~~in which~~for ~~Sinoenergy~~a ~~Holding would own 60% and Sinogas would own~~ 40%~~. As a~~ ~~result,~~equity ~~Qingdao Sinoenergy Gas will be 90% owned by the Company~~interest. ~~Sinoenergy~~ ~~Holding’s commitment is $2,636,000, and Sinogas’ commitment is $1,757,000.~~ As of ~~December~~March 31, ~~2009~~2010, ~~Sinogas~~Lixun ~~had~~contributed ~~made~~$29,290 ~~its full contribution~~ and the Company’s commitment for future funding was $229,~~636,000~~290.

~~Lixun~~Wuhan ~~has agreed~~Sinoenergy toand ~~contribute~~Pingdingshan ~~$58~~Sinoenergy,~~574~~ tosubsidiaries ~~Yichang~~of ~~Liyuan~~the ~~Power~~Company, ~~Technology~~have ~~Company~~leased 13 parcels of land in Wuhan City and Pingdingshan City for ~~a 40%~~their ~~equity~~CNG ~~interest~~stations under operating lease agreements. AsThe lease terms are from 7 year to 30 years with annual rental fees of ~~December~~approximately 31$846,000. Based ~~2009,~~on ~~Lixun~~land ~~contributed~~rental ~~$29~~agreements in effect at March 31,~~290~~ ~~and~~2010, the Company’s ~~commitment~~will ~~for~~pay ~~future~~a ~~funding~~total ~~was~~of $~~29,290~~5.73 million during through 2039.

Wuhan ~~Sinoenergy~~ ~~and Pingdingshan~~ Sinoenergy, ~~subsidiaries~~has oftwo ~~the~~agreements ~~Company,~~to ~~have~~purchase ~~leased 13~~land ~~parcels~~use ofrights ~~land~~ in Wuhan City ~~and~~from ~~Pingdingshan~~different ~~City~~non-affiliated parties. One agreement provides for ~~their~~a ~~CNG~~purchase ~~stations under~~price ~~operating~~of ~~lease~~approximately ~~agreements~~$1.58 ~~The~~million, ~~lease~~of ~~terms~~which ~~are~~approximately ~~from~~$1.32 7million ~~year~~has tobeen 30paid, ~~years with~~and ~~annual~~the ~~rental~~title ~~fees~~transfer ofis ~~approximately~~in ~~$846,000~~the process. ~~Based~~ onThe ~~land rental~~second ~~agreements~~provides infor ~~effect~~a atpurchase ~~December~~price 31of approximately $1.32 million, ~~2009~~of which approximately $732,000 ~~the~~has ~~Company~~been ~~will~~paid. ~~pay~~The aacquisition ~~total~~ of ~~$5.73~~the ~~million~~land ~~during~~requires ~~through~~government ~~2039~~approval. See Note 10.

~~Wuhan Sinoenergy~~The ~~has~~Company’s ~~two~~commitment ~~agreements to purchase land use rights in Wuhan City from different non-affiliated parties. One agreement provides~~ for athe ~~purchase~~construction ~~price~~ of ~~approximately~~ ~~$1.58~~CNG ~~million~~stations, ofincluding ~~which~~stations ~~approximately~~being ~~$1.32~~constructed ~~million~~by ~~has~~Wuhan ~~been~~Sinoenergy ~~paid,~~ and ~~the~~Hubei ~~title transfer is in the process. The second provides for a purchase price of approximately $1.32 million~~Gather, ofwas ~~which approximately~~ $~~732~~405,000 ~~has~~as ~~been paid. The acquisition~~ of ~~the~~March ~~land~~31, ~~requires government approval~~2010.

The Company’s commitment for the construction of ~~CNG~~a ~~stations,~~new ~~including~~plant ~~stations being~~for ~~constructed~~Jiaxing byLixun ~~Wuhan Sinoenergy and Hubei Gather,~~ was $~~797~~321,000 as of ~~December~~ March 31, ~~2009~~2010.

~~The Company’s commitment for the construction of a new plant for Jiaxing Lixun was $624,000 as of December 31, 2009.~~-24-

The Company’s commitment for the purchase of property, plant and equipment, including property for Wuhan Sinoenergy and Hubei Gather, was $5,~~794~~796,000 as of ~~December~~ March 31, ~~2009~~2010.

25. Retirement Benefits

The full-time contracted employees of the Company are entitled to welfare benefits, including medical care, labor injury insurance, housing benefits, education benefits, unemployment insurance and pension benefits through a Chinese government-mandated multi-employer defined contribution plan. The ~~Company~~ istotal ~~required~~provision tofor ~~accrue~~such ~~the~~employee ~~employer-portion~~benefits ~~for~~was ~~these~~$127,841 ~~benefits~~and ~~based~~$102,639 ~~on certain~~for ~~percentages~~the ofthree ~~the~~months ~~employees’~~ended ~~salaries. The~~March ~~total~~31, ~~provision for~~2010 ~~such~~and ~~employee~~2009, ~~benefits~~respectively, ~~was~~and $76204,~~179~~020 and $~~101~~203,~~094~~733 for the ~~three~~six months ended ~~December~~ March 31, ~~2009~~2010 and ~~2008~~2009, respectively, and was recorded as other payables. The PRC government is responsible for the staff welfare benefits including medical care, casualty, housing benefits, unemployment insurance and pension benefits to be paid to these employees. The Company is responsible for the education benefits to be paid.

From time to time, the Company may hire some part time workers or short term workers to satisfy the peak season labor requirement. Those workers have the right to terminate their work to the Company at any time. For those part time non-contracted workers, it is difficult for the Company to accurately record the working time, total wages and then accrue welfare benefits. Based on the common practice in the PRC, the Company treats those workers as probationary employees, and does not accrue welfare benefits for them. Although the Company believes that it is treating these employees in accordance with applicable law, it is possible that the government may require the Company to accrue the welfare benefit and may assess a penalty for the underaccrual.

26. Significant Concentrations

In the CNG station facilities and construction segment, the Company manufactures,, sells and installs CNG vehicle and gas station equipment. The Company provides products for third party companies that operate fixed and/or mobile CNG filling stations and it designs the CNG station construction plans, constructs CNG stations, and installs CNG station equipment and related systems.

These products and services are designed to meet the customer specifications. Sales in this segment are dependent upon the Company developing a continuing stream of business so that weit ~~will~~does not incur a significant lag between the time wethe ~~complete~~Company completes one contract and ~~start~~ starts another. Although wethe doCompany does not have a long history of operations in this business, wethe ~~anticipate~~Company anticipates that ~~our~~its major customers will vary from period to period.

In the three months ended ~~December~~March 31, ~~2009~~2010, ~~two~~one ~~customers~~customer of the station facilities and construction segment ~~each~~ accounted for ~~more than 10% of the total sales~~28. ~~These customers, who purchased CNG truck trailers, accounted for approximately 25.8~~7% of total sales. Atand ~~December~~at March 31, ~~2009~~2010, approximately 52 53.09% of ~~our~~ accounts receivable were from ~~these~~this ~~customers~~customer.

24In the three months ended March 31, 2009, one customer of the station facilities and construction segment accounted for 23.6% of our total sales and at March 31, 2009, approximately 53.4% of accounts receivable was from this customer. The following table sets forth information as to the sales generated from these customers for the three months ended March 31, 2010 and 2009 (dollars in thousands):

And in the three months ended December 31, 2008, one customer of the station facilities and construction segment accounted for 27.8% of the total sales and at December 31, 2008, approximately 19.5% of the accounts receivable was from this customer.

Name	Three Months Ended March 31, 2010					Thee Months Ended March 31, 2009
	Dollars		Percent			Dollars		Percent
Wuhan Lvneng Gas Transportation Co.,	$	2,585		53.9	%	$	14,601		53.4	%

~~The following table sets forth information as to the sales generated from each of these customers for the three months ended December 31, 2009 (dollars in thousands):~~-25-

Name	Three Months Ended December 31, 2009					Three Months Ended December 31, 2008
	Dollars		Percent			Dollars		Percent
Wuhan Lvneng Gas Transportation Co.,	$	1,415		10.3	%		4,425		27.8	%
Zhengzhou Kewei Co.,		2,141		15.5	%	$	*		*	%

* Less than 10%

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this prospectus, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended September 30, 2009 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q as well as any other filings we make with the SEC. In addition, such statements could be affected by risks and uncertainties related to the ability to conduct business in the PRC, product demand, including our ability to continue to be in compliance with the financial covenants under the indentures relating to our senior debt, our working capital deficiency, our ability to collect outstanding accounts receivable, the demand for CNG and our conversion kits, the prices at which we purchase and sell CNG at our stations, our ability to develop, construct and operate a CNG station business, our ability to raise any financing which we may require for our operations, competition, government regulations and requirements, pricing and development difficulties, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions as well as economic conditions that affect the natural gas industry. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our expectations are as of the date this annual report is filed, and we do not intend to update any of the forward-looking statements after the date this quarterly report is filed to conform these statements to actual results, unless required by law.

OVERVIEW

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

We continue to manufacture a wide variety of pressure containers for use in different industries, including the design and manufacture of various types of pressure containers in the petroleum and chemical industries, the metallurgy and electricity generation industries and the food and brewery industries and have the capacity to design and manufacture various types of customized equipment.

All of our products and services are manufactured or performed pursuant to agreements with our customers, which provide the specifications for the products and services. As a result, our revenue is dependent upon the flow of contracts. In any fiscal period, a small number of customers may represent a disproportionately large percentage of our business in one period and a significantly lower percentage, if any, in a subsequent period.

Commencing in 2006, we began to construct CNG stations and, commencing in 2008 we began to operate CNG stations. This aspect of our business is different from our other business. The business of operating CNG stations requires a substantial capital investment. For this purpose, we raised approximately $30 million from the sale of our convertible and fixed rate notes in September 2007. The indentures relating to these notes have restrictions on our incurring additional debt. The nature of the operation of the business and the risks associated with that business are significantly different from the manufacturing of equipment or the construction of CNG stations for third parties. One aspect of the operation of CNG stations is the price controls, whereby both the price at which we purchase CNG and the price at which we sell CNG are subject to price controls by central government and municipal government. As a result of these price controls, our gross margin is effectively dependent upon the government’s pricing policies. For the six months ended March 31, 2010, our gross margin from this segment was 7%, as compared with 15% in the comparable quarter of the prior year. The operation of CNG stations is reported as a separate segment.

-26-

In early 2007, we established a division to sell and manufacture CNG vehicle conversion kits to OEM and sale in the aftermarket. These kits are designed to enable a gasoline powered vehicle to operate on CNG. We began to generate revenue from this business segment in the second quarter of calendar 2007. In March 2007, we purchased a 60% interest in Lixun from its stockholders for $390,000. In July 2007, we paid an additional $400,000 to increase our equity ownership in Lixun to 70%, and in April 2008 we acquired the remaining 30% for $1,145,000. Lixun designs and manufactures electric control devices for alternative fuel, such as compressed natural gas and liquefied petroleum gas vehicles, as well as a full range of electric devices, such as computer controllers, conversion switches, spark advancers, tolerance sensors and emulators for use in multi-powered vehicles. The business of manufacturing electronic parts for vehicle conversion kits as well as producing conversion kits is reported as a separate segment.

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

•· the manufacture of equipment for CNG vehicles and gas stations, and

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

Our original business was the manufacture and sale of nonstandard equipment and pressure containers operated by our subsidiary, Qingdao Sinogas Yuhan Chemical Equipment Co., Ltd. (“Yuhan”), which is owned 75% by Sinogas and a 25% ownership by us through Sinoenergy Holdings.

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

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

The growth of the Chinese economy has been uneven across geographic regions and economic sectors. Following a period of general economic growth, China, like the rest of the world, has recently been subject to an economic downturn. ~~There~~Although ~~can be no assurance that~~ the ~~downturn~~Chinese ~~will~~economy ~~not continue~~is toshowing ~~have~~signs ~~a negative effect on our business especially if it results in either a decreased use~~ of ~~products~~growth, ~~such~~we ascannot ~~ours~~assure oryou inthat ~~pressure~~any oneconomic usgrowth towill ~~lower~~ benefit our ~~prices~~businesses. Our customized pressure container business and our CNG station facilities and construction business are dependent upon our customers making significant capital purchases, either for pressure containers or for new CNG stations. The availability of financing to our customers as well as the capital requirements of our customers could significantly reduce the need for these products and services. Since our CNG station business is dependent upon the development of a market for cars and trucks that run on CNG rather than gasoline, any economic trends which have the effect of dampening the market for CNG vehicles could affect our ability both to sell our CNG products and to sell CNG at our proposed CNG stations. The recent sharp decline in oil and gasoline prices may affect the need for both CNG stations and conversion kits that enable gasoline-powered vehicles to operate on CNG. Although the government of China has encouraged the use of CNG as part of its effort to reduce pollution in China, the factors described above may affect the development of the CNG industry in China. We cannot predict whether or how these factors will affect the market for CNG in the areas in which we are constructing our CNG filling stations or the market for our conversion kits. However, these factors were a significant reason for our reduced gross margin and our net loss for the three and six months ended ~~December~~March 31, ~~2009~~ 2010.

We purchase CNG from government controlled entities. During 2007, we entered into two joint ventures for the operation of natural gas process plants. We have an 80% interest in one of these ventures and a 20% interest in the other. These two facilities are in the early construction stage, and neither of these ventures has commenced operations. We also have contracted for the purchase of natural gas which is to be delivered through a pipeline. The pipeline was completed in December 2009, and is undergoing completion testing prior to being placed in commercial operation. These contracts do not have specific delivery quantities or prices, all of which are to be determined later.

In September 2007, we issued our 12% senior notes due 2012 in the principal amount of $16,000,000, which were paid in December 2009, and 3.0% senior convertible notes due 2012 in the principal amount of $14,000,000. The indentures relating to these notes included financial covenants, which were amended on May 19, 2009. We were not in compliance with these covenants at September 30, 2009 or December 30, 2009, and the note holders waived compliance with the covenants at both of these dates. In October and December 2009, we entered into agreements with the holders of the 12% senior notes and the 3% convertible notes. Pursuant to these agreements, we paid the 12% senior notes in full in December 2009. Pursuant to the December 17, 2009 agreement, (i) we agreed to pay the $14,000,000 convertible notes, including interest to provide the holders with a 13.8% yield to maturity, after giving effect to current interest payments made at the annual rate of 3.0% per annum, would be paid in two installments following completion of the merger with Skywide, with the first payment of $5,000,000 being due ten days after the effectiveness of the merger and the balance 30 days thereafter, (ii) the requirement that we meet certain net income levels for 2008 and 2009 were eliminated, (iii) the provisions that would have resulted in a reduction in the conversion price of the convertible notes if we sold common stock or securities convertible into common stock were eliminated and (v) the liquidated damages due for failing to register the shares of common stock issuable upon conversion of the notes was reduced to $280,000, which was due by December 31, 2009, and was paid on January 7, 2010, with the consent of the noteholders. As a result of our agreement to pay the convertible notes upon completion of the merger with Skywide, we have classified the principal and the deferred interest as current at September 30, 2009 and ~~December~~March 31, ~~2009~~ 2010.

Our accounts receivable decreased from $29.8 million at September 30, 2009 to $28.3 million at December 31, 2009. At September 30, 2009, our accounts receivable were outstanding for an average of 225 days, as compared with 124 days at September 30, 2008. At December 31, 2009, our accounts receivable were outstanding for an average of 211 days. A significant amount of receivables that were outstanding at September 30, 2008 remained outstanding on December 31, 2009. In addition, at December 31, 2009, we had a note receivable of $2.0 million resulting from the termination of a sublease for which no payments had been made by the tenant. Our failure to collect our receivables in the normal course of business could impair our ability to continue in business.-27-

Our accounts receivable decreased from $29.8 million at September 30, 2009 to $26.5 million at March 31, 2010. At September 30, 2009, our accounts receivable were outstanding for an average of 225 days. At December 31, 2009, our accounts receivable were outstanding for an average of 240 days. At March 31, 2010, we had a note receivable of $2.0 million resulting from the termination of a sublease for which no payments had been made by the tenant. Our failure to collect our receivables in the normal course of business could impair our ability to continue in business.

RESULTS OF OPERATIONS

We are engaged in four business segments:

(i) Customized pressure container business

Our customized equipment and pressure container business is a traditional chemical equipment manufacturing business with low profit margin. It includes design and manufacturing of various types of pressure containers for industries such as the petroleum and chemical, metallurgy, electricity generation and food and beverage industries.

(ii) CNG Station Facilities and Construction

Our CNG station construction business represents:

▪	The manufacture and installation of CNG vehicle and gas station equipment that is used in the transportation and storage of CNG and the operation of a CNG station. We provide these services for other companies that operate CNG stations.

▪

CNG station construction service, which includes the design of CNG station construction plans, construction of CNG stations, and installation of CNG station equipment and related systems. Because of our emergence into the CNG filling station business in 2006, we did not receive any CNG station construction service orders from the beginning of 2007. Our operating results in this segment reflects contracts which we entered into during or prior to the beginning of 2007. We anticipate that, at least in the near term, we will devote most, if not all, of our CNG construction business to the construction of our own CNG filling stations.

(iii) CNG station operations

27In 2006, we entered the CNG station business, which involves the design, construction and equipping of CNG stations and the operation of those stations. As of May 10, 2010, we were operating twenty-one CNG stations, of which sixteen are located in Wuhan, two in Pingdingshan and three in Xuancheng. An additional four stations in Wuhan are in the final stages of construction, and four stations in Wuhan were in the preliminary planning stage.

In 2006, we entered the CNG station business, which involves the design, construction and equipping of CNG stations and the operation of those stations. As of February 10, 2010, we were operating twenty-one CNG stations, of which sixteen are located in Wuhan, two in Pingdingshan and three in Xuancheng. An additional four stations in Wuhan are in the final stages of construction, and four stations in Wuhan were in the preliminary planning stage.

(iv) Vehicle fuel conversion equipment

We manufacture conversion kits and electrical control devices that enable vehicles that are designed to operate on gasoline to operate on CNG.

~~The information~~Three ~~set~~Months ~~forth~~Ended ~~below~~March ~~represents segment information for the three months ended December~~ 31, ~~2009~~2010 and ~~2008.~~2009

Three Months Ended December 31, 2009 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	3,153		$	2,068		$	4,749		$	2,558		$	12,528
Cost of sales		2,916			1,460			4,350			1,956			10,682
Gross profit		237			608			399			602			1,846
Gross margin		8	%		29	%		8	%		24	%		15	%
Operating expenses:
Selling expenses		31			43			105			153			332
General and administrative expenses		482			1,136			606			241			2,465
Total operating expense		513			1,179			711			394			2,797
Income (loss) from operations	$	(274	)	$	(571	)	$	（312	)	$	208		$	（951	)
Total assets	$	62,783		$	54,794		$	51,660		$	13,265		$	182,502

The information set forth below represents segment information for the three months ended March 31, 2010 and 2009.

Three Months Ended December 31, 2008 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	3,136		$	5,779		$	4,751		$	2,262		$	15,928
Cost of sales		2,221			3,506			3,783			1,616			11,126
Gross profit		915			2,273			968			646			4,802
Gross margin		29	%		39	%		20	%		29	%		30	%
Operating expenses:
Selling expenses		58			22			308			126			514
General and administrative expenses		278			457			394			228			1,357
Total operating expense		336			479			702			354			1,871
Income from operations	$	579		$	1,794		$	266		$	292		$	2,931
Total assets	$	35,982		$	58,565		$	33,701		$	7,613		$	135,861

-28-

Net Sales. Net sales for the three months ended December 31, 2009 (“December 2009 quarter”) were approximately $12.5 million, a decrease of approximately $3.4 million, or 21%, from sales of approximately $8.8 million for the three months ended December 31, 2008 (“December 2008 quarter”). This decrease resulted from the segment of CNG stations facilities and construction, namely, a decrease of approximately $3.7 million, or 64%, in sales from the CNG stations facilities and construction, resulting from the decrease in demand for the construction and equipping of CNG stations and our change in emphasis as we devoted significant efforts to the construction of our own stations.

Three Months Ended March 31, 2010 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	350		$	2,613		$	4,099		$	1,945		$	9,007
Cost of sales		302			2,000			3,840			1,397			7,539
Gross profit		48			613			259			548			1,468
Gross margin		14	%		23	%		6	%		28	%		16	%
Operating expenses:
Selling expenses		22			30			210			230			492
General and administrative expenses		666			665			313			365			2,009
Total operating expense		688			695			523			595			2,501
Loss from operations	$	(640	)	$	(82	)	$	(264	)	$	(47	)	$	(1,033	)

Total assets	$	67,078		$	62,632		$	66,308		$	13,789		$	209,807

Cost of Sales; Gross Margin. The cost of sales for the December 2009 quarter was approximately $10.7 million, a decrease of approximately 4% from approximately $11.1 million for the December 2008 quarter. Our overall gross margin decreased from 30% to 15% from the December 2008 quarter to the December 2009 quarter for the following reasons:

Three Months Ended March 31, 2009 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	685		$	1,671		$	4,032		$	583		$	6,971
Cost of sales		552			960			3,640			343			5,495
Gross profit		133			711			392			240			1,476
Gross margin		19	%		43	%		10	%		41	%		21	%
Operating expenses:
Selling expenses		40			10			(52	)		76			74
General and administrative expenses		310			2,421			447			204			3,382
Total operating expense		350			2,431			395			280			3,456
Loss from operations	$	(217	)	$	(1,720	)	$	(3	)	$	(40	)	$	(1,980	)

Total assets	$	31,480		$	65,032		$	36,610		$	7,869		$	140,991

28Net Sales. Net sales for the three months ended March 31, 2010 (“March 2010 quarter”) were approximately $9.0 million, an increase of approximately $2.0 million, or 22%, from sales of approximately $7.0 million for the three months ended March 31, 2009 (“March 2009 quarter”). This increase resulted from the segment of vehicle conversion kits, namely, an increase of approximately $1.4 million, or 64%, in sales from the vehicle conversion kits, and an increase of approximately $0.9 million for CNG station facilities and construction, which was offset by an approximately $0.3 million decline in customized pressure containers. Revenue from CNG station operations remained relatively constant.

•Cost ~~Our~~of ~~gross~~Sales; ~~margin~~Gross ~~for the customized pressure containers decreased from 29% to 8%~~Margin. ~~Since~~The ~~these~~cost ~~products are customized, with wide range~~ of ~~gross~~sales ~~margin~~for ~~because~~the ofMarch ~~the~~2010 ~~variety~~quarter ofwas ~~the~~approximately ~~products~~$7.5 ~~In the December 2009 quarter~~million, wean ~~had~~increase ~~to reduce our prices to meet competition during a period~~ of ~~general~~approximately ~~economic~~27% ~~downturn~~from ~~without~~approximately ~~a reduction in our cost~~$5.5 Asmillion ~~a result we sustained a significantly lower gross margin in this segment.. • Our gross margin~~ for the ~~CNG~~March ~~station~~2009 ~~facilities and construction decreased from 39% to 29% because we had to reduce our prices to meet competition~~quarter. • Our overall gross margin ~~for the operation of our CNG stations~~ decreased from 2021% to 816%. ~~The~~from ~~cost of natural gas increased approximately 10% and~~ the ~~freight~~March ~~costs~~2009 ~~(the~~quarter ~~transmission of the CNG~~ to ~~our stations), which are included in cost of sales, increased approximately 10%, which significantly affected~~ the ~~gross~~March ~~margin~~2010 inquarter ~~this segment. The gross margin~~ for ~~this segment reflects~~ the ~~effects~~following of price controls, which cover both the price at which we buy and the price at which we sell CNG. • As the market for vehicle conversion kits matured and the demand for these kits decreased as a result of the economic downturn, our gross margin in this segment decreased from 29% to 24%.reasons:

~~Selling Expenses. Selling~~• ~~expenses~~Our gross margin for the customized pressure containers decreased ~~approximately~~from ~~$182,000, or~~19% ~~approximately~~to 3514%. Since these products are customized, ~~from~~with wide range of gross margin because of the ~~December~~variety ~~2008~~of ~~quarter~~the products. We had to ~~the~~reduce ~~December~~our ~~2009 quarter~~prices to meet competition during a period of general economic downturn without a reduction in our cost. As a result we sustained a significantly lower gross margin in this segment. • Our ~~selling~~gross ~~expenses~~margin ~~include~~for ~~land~~the ~~rental~~CNG station facilities and construction decreased from 43% to 23% because we had to reduce our prices to meet competition. Also, we began to design and sell other kinds of CNG station facilities with different gross margin with traditional CNG station facilites. • Our gross margin for the operation of our CNG stations, decreased from 10% to 6%. The cost of natural gas increased approximately 10% and ~~reflects~~the ~~land~~freight ~~rented~~costs (the transmission of the CNG to our stations), which are included in cost of sales, increased approximately 10%, which significantly affected the gross margin in this segment. The gross margin for this segment reflects the effects of price controls, which ~~was~~cover ~~incurred~~both ~~for~~the ~~land not~~price ~~used~~at inwhich we buy and the ~~December~~price ~~2009~~at ~~quarter~~which we sell CNG.

~~General~~Selling ~~and Administrative~~ Expenses. ~~General~~Selling ~~and administrative~~ expenses increased approximately $1418,~~108,~~000, orfrom ~~82%. This increase includes $600,000 for~~ the ~~restructuring~~ ~~fee~~March ~~paid to Abax and CCIF in the December~~ 2009 quarter. ~~This payment was part of our payment of approximately $16 million paid~~ to the ~~noteholders~~ inMarch ~~the~~2010 ~~December 2009~~ quarter. Our ~~general~~selling ~~and administrative~~ expenses include, inland ~~addition~~rental tofor the ~~management~~CNG ~~expenses~~stations, and ~~depreciation related~~reflects toland ~~the~~rented ~~division,~~for anthis ~~allocation~~segment ofwhich ~~corporate~~was ~~expenses,~~increased ~~including expenses relating to our status as~~ a ~~public~~lot ~~company,~~compared ~~such~~with asthat ~~legal~~in ~~and~~March ~~audit costs. Management~~2009 ~~overhead was allocated among the segments based on the relative time devoted by management to the business of the segments~~quarter.

Interest Expense. Interest expense for the December 2009 quarter was approximately $2.1 million, as compared with $1.2 million for the December 2008 quarter. In the December 2009 quarter, we increased our bank borrowings to expand our CNG station operation and manufacturing plant, which also increased interest expense. In addition, amortization of original issuance discount from issuance of the convertible notes was $597,000 in the December 2009 quarter.-29-

~~Other~~General ~~Income~~ and ~~Other~~ Administrative Expenses. General ~~During~~and ~~the~~administrative ~~December~~expenses ~~2008 quarter, we~~deccreased ~~generated rental income of~~ approximately $1.34 million, ~~for the~~or ~~rental of the land use rights for Sinogas’ former manufacturing facility~~41%. InThis ~~March~~decrease ~~2008, Sinogas~~resulted ~~signed~~from a ~~lease~~$1.8 ~~agreement~~million ~~with~~bad ~~Qingdao~~debt ~~Mingcheng~~charge ~~Real~~in ~~Estate~~the ~~Co.,~~March ~~Ltd (Qingdao~~2009 ~~Mingcheng),~~quarter as a ~~non-related~~result ~~party,~~of ~~with~~ a ~~three-year~~writeoff ~~term~~of ~~from January 2008 to December 2010, at~~ a ~~quarterly~~ rental ~~of RMB10 million (equivalent to $1~~receivable.46 Our ~~million~~general ~~based~~and onadministrative ~~the~~expenses ~~exchange rate at December 31~~include, ~~2008). This lease was terminated~~ in ~~March~~addition ~~31,~~to ~~2009. As~~the amanagement ~~result~~expenses ofand ~~the~~depreciation ~~failure~~related ~~of the tenant~~ to ~~pay~~ the ~~rental due~~division, ~~during~~an ~~the~~allocation ~~year~~of ~~ended~~corporate ~~September 30~~expenses, ~~2009,~~including ~~in connection~~expenses relating ~~with~~to ~~the~~our ~~termination~~status ofas ~~the~~a ~~lease~~public company, wesuch ~~reduced~~as ~~the~~legal ~~rental~~and ~~receivable by~~audit ~~approximately $1~~costs.8 Management ~~million,~~overhead ~~which~~ was ~~40%~~allocated ofamong the ~~outstanding~~segments ~~balance,~~based ~~and~~on ~~we reserved~~the anrelative ~~additional~~time ~~$1.0~~devoted ~~million~~by ~~with~~management ~~respect~~ to the ~~receivable. We~~ ~~did~~business ~~not~~of ~~generate any rental receivable in~~ the ~~December 2009 quarter~~segments.

~~At September~~Interest ~~30,~~Expense. Interest ~~2009,~~expense ~~our~~for ~~3% convertible notes included a provision pursuant to which~~ the March ~~conversion~~2010 ~~price~~quarter ofwas ~~the~~approximately ~~notes~~$1.7 ~~can~~million, ~~be reduced~~ as acompared ~~result~~with of$1.1 ~~our~~million ~~sales of~~for ~~stock at a price below~~ the ~~conversion~~March ~~price~~2009 ~~or by our failure to meet certain net income levels~~quarter. In ~~addition,~~ the ~~conversion~~March ~~price~~2010 isquarter, ~~reflected~~we ~~in terms~~increased ofour ~~U.S.~~bank ~~dollars,~~borrowings ~~which~~to isexpand our ~~reporting~~CNG ~~currency,~~station operation and ~~not~~manufacturing ~~RMB~~plant, which ~~is our~~also ~~operating~~increased ~~currency~~interest expense. ~~Effective~~ ~~October~~In 1addition, ~~2009,~~amortization weof ~~are~~original ~~required~~issuance ~~to change~~discount ~~the conversion feature classification~~ from ~~equity~~issuance ~~based~~of ~~to a derivative liability. The cumulative change to this new accounting has been reflected on October 1 as an adjustment to additional paid in capital and retained earnings. For~~ the ~~December~~convertible ~~2009~~notes ~~quarter,~~was ~~we incurred a charge of~~ $~~886~~597,000, ~~reflecting the change~~ in the ~~value~~March of2010 ~~the derivative liability from September 30, 2009 to December 31, 2009~~quarter. ~~This charge is a non-cash charge that did not affect our operations.~~

Income Taxes. Our income taxes ~~decreased~~increased from $~~568~~46,000 of ~~December~~March ~~2008~~2009 quarter to $~~346~~75,000 of ~~December~~ ~~2009~~March 2010 quarter. Sinogas and Yuhan were granted 50% enterprise income tax exemption for 2008 through 2010. Lixun was granted a 100% tax exemption from August 2007 through December 2008 and a 50% enterprise income tax exemption for 2009 through 2011. In January 2009, the Chinese tax authorities issued a ruling that a joint venture enterprise incorporated after March 16, 2007 cannot enjoy the tax preferences. Since Lixun is a joint venture incorporated in July 2007, it cannot enjoy the tax preferences. Lixun was recognized as a high-tech enterprise, and its tax rate is 15% from January 2008.

Non-controlling Interest. The minority interest, of ~~negative~~ $~~435~~39,000 in ~~December~~ ~~2009~~March 2010 quarter and a ~~negative~~ $~~955~~429,000 in ~~December~~March ~~2008~~2009 quarter, represents the share of the income of our majority-owned subsidiaries that is allocated to the subsidiaries’ minority equity owners.

Net Income (loss). As a result of the foregoing, we had a net loss of approximately $41.6 million,~~681,000,~~ or $0.2910 per share (basic and diluted), for ~~December 2009~~March 2010 quarter, as compared with net ~~income~~loss of approximately $12.8 million,~~698,000,~~ or $0.11 18 per share (basic and diluted) for the ~~December~~March ~~2008~~2009 quarter.

29Comprehensive Income (Loss). Our comprehensive loss for the March 2010 quarter was $1.4 million, as compared with comprehensive loss of $2.2 million for the March 2009 quarter. Other comprehensive income items include foreign currency translation adjustments resulting from changes in the currency rates between the RMB and the United States dollar, or approximately $160,000 in March 2010 quarter and $624,000 in March 2009 quarter.

~~Comprehensive~~Six ~~Income (Loss). Our~~Months ~~comprehensive~~Ended ~~loss~~March ~~for the December 2009 quarter was $4~~31,~~676,000~~ as2010 compared with comprehensive income of $1,537,000 for the December 2008 quarter. Other comprehensive income (loss) items include foreign currency translation adjustments resulting from changes in the currency rates between the RMB and ~~the United States dollar, or approximately $5,000 in December~~ 2009 ~~quarter and ($161,000) in December 2008 quarter.~~

The information set forth below represents segment information for the six months ended March 31, 2010 and 2009.

Six Months Ended March 31, 2010 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	3,503		$	4,681		$	8,848		$	4,503		$	21,535
Cost of sales		3,218			3,460			8,190			3,353			18,221
Gross profit		285			1,221			658			1,150			3,314
Gross margin		8	%		26	%		7	%		26	%		15	%
Operating expenses:
Selling expenses		53			73			315			383			824
General and administrative expenses		1,148			1,801			919			606			4,474
Total operating expense		1,201			1,874			1,234			989			5,298
Income from operations	$	(916	)	$	(653	)	$	(576	)	$	161		$	(1,984	)

-30-

Six Months Ended March 31, 2009 (dollars in thousands)	Customized pressure containers			CNG station facilities and construction			CNG station Operation			Vehicle conversion kits			Total
Net sales	$	3,821		$	7,450		$	8,783		$	2,845		$	22,899
Cost of sales		2,773			4,466			7,423			1,959			16,621
Gross profit		1,048			2,984			1,360			886			6,278
Gross margin		27	%		40	%		15	%		31	%		27	%
Operating expenses:
Selling expenses		98			32			256			202			588
General and administrative expenses		588			2,878			841			432			4,739
Total operating expense		686			2,910			1,097			634			5,327
Income from operations	$	362		$	74		$	263		$	252		$	951

Net Sales. Net sales for the six months ended March 31, 2010 (“the first half year of 2010”) were approximately $21.5 million, a decrease of approximately $1.4 million, or 6%, from sales of approximately $22.9 million for the six months ended March 31, 2009 (“the first half year of 2009”). This decrease resulted principally from a decrease of approximately $2.8 million in sales from the CNG station facilities and construction which was partially offset by an increase of approximately $1.4 million in sales from the vehicle conversion kits..

Cost of Sales; Gross Margin. The cost of sales for the first half year of 2010 was approximately $18.2 million, an increase of approximately 9% from approximately $16.2 million for the first half year of 2009. Our overall gross margin decreased from 27% to 15% from the first half year of 2009 to the first half year of 2010 for the following reasons:

	•	Our gross margin for the customized pressure containers decreased from 27% to 8%. Since these products are customized, with wide range of gross margin because of the variety of the products. We had to reduce our prices to meet competition during a period of general economic downturn without a reduction in our cost. As a result we sustained a significantly lower gross margin in this segment.

	•	Our gross margin for the CNG station facilities and construction decreased from 40% to 26% because we had to reduce our prices to meet competition. Also, the Company began to design and sell other kinds of CNG station facilities with different gross margin with traditional CNG station facilities.

	•	Our gross margin for the operation of our CNG stations decreased from 15% to 7%. The cost of natural gas increased approximately 10% and the freight costs (the transmission of the CNG to our stations), which are included in cost of sales, increased approximately 10%, which significantly affected the gross margin in this segment. The gross margin for this segment reflects the effects of price controls, which cover both the price at which we buy and the price at which we sell CNG.

Selling Expenses. Selling expenses increased approximately $236,000, from the first half year of 2009 to the first half year of 2010. Our selling expenses include land rental for the CNG stations, and reflects land rented for this segment which was increased significantly for more leases. In addition, selling expenses for the vehicle conversion kits segment increased along with sales in this segment.

General and Administrative Expenses. General and administrative expenses increased slightly. Our general and administrative expenses include, in addition to the management expenses and depreciation related to the division, an allocation of corporate expenses, including expenses relating to our status as a public company, such as legal and audit costs. Management overhead was allocated among the segments based on the relative time devoted by management to the business of the segments.

Interest Expense. Interest expense for the first half year of 2010 was approximately $3.7 million, as compared with $2.7 million for the first half year of 2009. In the first half year of 2010, we increased our bank borrowings to expand our CNG station operation and manufacturing plant, which also increased interest expense. In addition, amortization of original issuance discount from issuance of the convertible notes was $1.2 million in the first half year of 2010.

Change in Fair Value of Derivative Liability. At September 30, 2009, our 3% convertible notes included a provision pursuant to which the conversion price of the notes can be reduced as a result of our sales of stock at a price below the conversion price or by our failure to meet certain net income levels. In addition, the conversion price is reflected in terms of U.S. dollars, which is our reporting currency, and not RMB, which is our operating currency. Effective October 1, 2009, we are required to change the conversion feature classification from equity based to a derivative liability. The cumulative change to this new accounting has been reflected on October 1 as an adjustment to additional paid in capital and retained earnings. For the first half year of 2010 we incurred a gain of $277,458, reflecting the change in the value of the derivative liability from September 30, 2009 to March 31, 2010. This gain is a non-cash gain that did not affect our operations, and there was no comparable charge for the March 2010 quarter or the first half year of 2009..

-31-

Income Taxes. Our income taxes decreased from $526,000 of the first half year of 2009 to $421,000 of the first half year of 2010. Sinogas and Yuhan were granted 50% enterprise income tax exemption for 2008 through 2010. Lixun was granted a 100% tax exemption from August 2007 through December 2008 and a 50% enterprise income tax exemption for 2009 through 2011. In January 2009, the Chinese tax authorities issued a ruling that a joint venture enterprise incorporated after March 16, 2007 cannot enjoy the tax preferences. Since Lixun is a joint venture incorporated in July 2007, it cannot enjoy the tax preferences. Lixun was recognized as a high-tech enterprise, and its tax rate is 15% from January 2008.

Non-controlling Interest. The minority interest, of $396,000 in the first half year of 2010 and $526,000 in the first half year of 2009, represents the share of the income of our majority-owned subsidiaries that is allocated to the subsidiaries’ minority equity owners.

Net Income (loss). As a result of the foregoing, we had a net loss of approximately $7,429,000, or $0.47 per share (basic and diluted), for the first half year of 2010, as compared with net loss of approximately $1,137,000, or $0.07 per share (basic and diluted) for the March 2009 quarter.

Comprehensive Income (Loss). Our comprehensive loss for the first half year of 2010 was $7,264,000 as compared with comprehensive loss of $674,000 for the first half year of 2009. Other comprehensive income items include foreign currency translation adjustments resulting from changes in the currency rates between the RMB and the United States dollar, or approximately $165,000 in the first half year of 2010 and $463,000 in the first half year of 2009.

Liquidity and Capital Resources

At ~~December~~ March 31, ~~2009~~2010, we had cash of approximately $1834.48 million, aan ~~decrease~~increase of approximately $116.23 million (~~including~~excluding restricted cash of $285,000 at March 31, 2010 and $1.54 million at September 30, 2009), from September 30, 2009. At ~~December~~March 31, ~~2009~~2010, we had a working capital deficiency of approximately $2218.76 million and shareholders’ equity of approximately $4039.6 2 million, compared with working capital deficiency of approximately $9.1 million and shareholders’ equity of approximately $46.2 million at September 30, 2009. The following table sets forth information as to the principal changes in the components of our working capital (dollars in thousands):

	31-Dec-09			30-Sep-09			Change
Category	31-Mar-10			30-Sep-09			Change				Percent Change
Category										Percent Change
ASSETS
ASSETS
CURRENT ASSETS
CURRENT ASSETS
Cash		$	34,500		$	18,237			16,263		89.2%
Cash		$	16,936		$	18,237			(1,301)	(7.1%)
Restricted cash			285			1,413			(1,128)		-79.8%
Restricted cash			1,504			1,413			91	6.4%
Accounts and notes receivable, net			26,886			29,756			(2,870)		-9.6%
Accounts and notes receivable, net			28,283			29,756			(1,473)	(5.0%)
Inventories			6,070			4,619			1,451		31.4%
Inventories			4,797			4,619			178	3.9%
Other receivables, net			19,586			17,644			1,942		11.0%
Other receivables, net			14,360			17,644			(3,284)	(18.6%)
Deposits and prepayments			7,706			8,629			(923)		-10.7%
Deposits and prepayments			7,593			8,629			(1,036)	(12.0%)
Due from related party			0			426			(426)		-100.0%
Due from related party			44			426			(382)	(89.7%)
Deferred expenses			14			63			(49)		-77.8%
Deferred expenses			29			63			(34)	(54.0%)
CURRENT LIABILITIES
CURRENT LIABILITIES
Short-term loans		$	47,200		$	44,223		$	2,977		6.7%
Short-term loans		$	47,480		$	44,223		$	3,257	7.4%
Notes payable			308			4,583			(4,275)		-93.3%
Notes payable			4,760			4,583			177	3.9%
Accounts payable			6,910			5,193			1,717		33.1%
Accounts payable			5,501			5,193			308	5.9%
Advances from customers			1,187			2,100			(913)		-43.5%
Advances from customers			814			2,100			(1,286)	(61.2%)
Additional interest on notes			0			280			(280)		-100.0%
Additional interest on notes			280			280			0	0.0%
Income taxes payable			440			475			(35)		-7.4%
Income taxes payable			713			475			238	50.1%
Other payables			22,689			5,783			16,906		292.3%
Other payables			1,488			5,783			(4,295)	(74.3%)
Due to related party			20,213			0			20,213		0.0%
Due to related party			20,208			0			20,208	﹡
Accrued expenses			441			538			(97)		-18.0%
Accrued expenses			430			538			(108)	(20.1%)
Deferred income			15			38			(23)		-60.5%
Deferred income			26			38			(12)	(31.6%)
Derivative Liability			2,428			0			2,428		0.0%
Derivative Liability			3,591			0			3,591	﹡
Long-term Notes payable (current portion)			11,812			26,667			(14,855)		-55.7%
Long-term Notes payable (current portion)			10,934			26,667			(15,733)	(59.0%)
Total current assets		$	95,047		$	80,787		$	14,260		17.7%
Total current assets		$	73,546		$	80,787		$	(7,241)	(9.0%)
Less: total current liabilities			113,643			89,880			23,763		26.4%
Less: total current liabilities			96,225			89,880			6,345	7.1%
Working capital deficiency			(18,596)			(9,093)			(9,503)		104.5%
Net working capital			(22,679)			(9,093)			(13,586)	149.4%

~~﹡ The percentage was not included since it is not meaningful.~~-32-

At ~~December~~ March 31, ~~2009~~2010, we required substantial capital to meet the required payments toward the $14 million convertible senior notes and to maintain the level of cash flows needed for continuing operations. We can give no assurance that we will be able to raise such capital. We have limited financial resources until such time that we are able to generate additional financing or cash flow from operations. Our ability to establish profitability and positive cash flow is dependent upon our ability both to raise funds to finance our immediate cash requirements and to market our products in anticipation of a recovery in China of those industries we serve, including the CNG market. If we are unable to raise adequate capital to meet the payment required to pay the remaining principal and interest on the notes and cash flows needed for operations, it is likely we would have to substantially curtail, if not terminate, our business activity.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As reflected in our consolidated financial statements we incurred substantial losses during the six months ended March 31, 2010 and following our previously reported significant losses for the year ended September 30, 2009, and we are continuing to incur losses. We are also liable for substantial repayment of bank notes and convertible senior notes and well as advance of $20.2 million from related parties. These factors, among others, may indicate that we will be unable to continue as a going concern for reasonable period of time.

to finance our immediate cash requirements and to market our products in anticipation of a recovery in China of those industries we serve, including the CNG market. If we are unable to raise adequate capital to meet the payment required to pay the remaining principal and interest on the notes and cash flows needed for operations, it is likely we would have to substantially curtail, if not terminate, our business activity.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As reflected in our consolidated financial statements we incurred substantial losses during the three months ended December 31, 2009 and following our previously reported significant losses for the year ended September 30, 2009, and we are continuing to incur losses. We are also liable for substantial repayment of bank notes and convertible senior notes and well as advance of $20.2 million from related parties. These factors, among others, may indicate that we will be unable to continue as a going concern for reasonable period of time.

The financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to obtain additional operating capital, and ultimately, to attain profitability. There is no assurance that we will be successful in raising additional funds or that, if we do raise additional funds, that we will be able to attain profitability or even continue in business.

For the ~~three~~ six months ended ~~December~~March 31, ~~2009~~2010, we used net cash of $~~720,000~~1.5 million in operating activities. Working capital decreased by approximately $1310.67 million from September 30, 2009 to ~~December~~March 31, ~~2009~~2010 primarily as a result of funding net losses and the $3.6 million derivative liability which did not exist at September 30, 2009 as well as the advance from related parties and the purchase of property, plant and equipment. The $3.6 million derivative liability is a non-cash item resulting from the reclassification of our convertible notes to reflect a derivative liability.

At ~~December~~ March 31, ~~2009~~2010, we were not in compliance with the financial covenants in the indentures relating to our 3.0% senior convertible notes due 2012 in the principal amount of $14 million. In October and December 2009, we entered into two agreements that modified the terms of the notes, the cumulative effect of which is as follows.

·▪ The noteholders waived compliance with the covenants at September 30, 2009 and through March 31, 2010.

·▪ We repaid our 12% senior notes in the principal amount of $16 million prior to December 31, 2009.

·▪ We agreed to pay the convertible notes in the principal amount of $14 million in two installments, with an initial payment of $5 million being due ten days after the merger with Skywide becomes effective and the balance 30 days thereafter. Since the note holders would not be converting the notes, we would pay interest to provide the note holders with a yield to maturity of 13.8%, net of payments previously made.

·▪ The noteholders reduced our remaining obligation for liquidated damages for failure to register the shares of common stock issuable upon conversion of the convertible notes to $280,000, which is payable by December 31, 2009. The payment was made on January 7, 2010.

·▪ The provision that would have resulted in a further decrease in the conversion price of the convertible notes if we did not meet certain levels of net income was eliminated.

·▪ The provisions of the indenture relating to the reduction in the conversion price of the convertible notes if we issue stock at a price, or issue convertible securities with a conversion or exercise price, that is less than the conversion price (presently $4.20 per share) were eliminated.

As a result of these agreements, the $14 million convertible notes are classified as current liabilities at ~~December~~March 31, 2010 and September 30, 2009.

For the three months ended December 31, 2009, net cash used in operating activities was $720,000, primarily related to a $1.3 million increase in accounts receivable, a $5.7 million increase of other receivables, partially offset by a $1.3 million decrease in advance from customers and $4.3 million decrease in other payables.-33-

WeFor ~~used approximately $9.5 million in investing activities for~~ the ~~three~~six months ended ~~December~~ March 31, ~~2009.~~2010, ~~This~~net ~~was due primarily to the~~cash ~~expansion~~used ofby ~~our~~operating ~~CNG station~~activities ~~operation~~was ~~segment~~$1.5 million, ~~principally~~primarily ~~for~~related ~~purchase~~to ofthe ~~property~~consolidated , ~~plant~~partially ~~and equipment~~offset atby a $92.49 million decrease in accounts receivable.

Net cash of $2.2 million provided by ~~financing~~investing activities ~~was $8.1 million~~ for the ~~three~~six months ended ~~December~~ March 31, ~~2009,~~2010. ~~primarily~~This ~~related~~was due primarily to $316.24 million inrelatively ~~new~~related ~~loans~~to ~~from~~the ~~domestic banks~~transfer inof ~~China,~~land ~~$20.2~~use ~~million~~rights inand offset by the expansion ~~loan~~of ~~from~~our ~~related~~CNG ~~party,~~station ~~which~~operation ~~were~~segment, ~~offset by~~principally ~~the~~for ~~repayment~~purchase of ~~$15.3~~property, ~~million~~plant inand ~~the~~equipment ~~12%~~at ~~senior~~$13.8 ~~notes~~million.

31On February 9, 2010, Sinogas signed a supplemental agreement, modifying an agreement dated July 29, 2009 with Qingdao City Land Reserve Center for the transfer of the certain land use rights in Qingdao City to the Land Reserve Center for a purchase price of RMB 112,222,883, which has a value of approximately $16.4 million, using a current conversion rate. These land rights related to the real estate where Sinogas’ former manufacturing facilities were located. The purchase price has been paid by the Land Reserve Center. We have the obligation to remove the buildings and other constructions on the land and pay the applicable tax and record the transfer documents. Upon completion of these steps, the land use rights will be transferred to the Land Reserve Center.

The money received by us is treated as a deposit and is reflected as a current liability on the balance sheet at March 31, 2010. The transfer of of the land use rights will be recognized as a sale, and the money received as sales proceeds upon completion of the transfer of the land use rights.

Net cash provided by financing activities was $15.7 million for the six months ended March 31, 2010, primarily related to $31.5 million in new loans from domestic banks in China, $20.2 million in loans from related parties, which were offset by the repayment of $15.5 million in the 12% senior notes and the repayment of $20.5 million in the bank loans.

We will continue to incur capital expenditures for the CNG station segment in the future. It is necessary for us to plan, construct and equip each CNG station before we can generate any revenue.

Our agreement relating to the $14 million principal amount of convertible notes have covenants which could impair our ability to raise additional funds while the notes are outstanding. These covenants include the following:

• We cannot incur any debt unless, after giving effect to the borrowing, (i) the fixed charge coverage ratio would be greater than 3.5 to 1.0, and (ii) the leverage ratio would not exceed 3.75 to 1.00, provided, that Sinogas continue to maintain debt under credit facilities of not more than $10,000,000, and may incur purchase money indebtedness. The fixed charge coverage ratio is the ratio of our earnings before interest, taxes, depreciation and amortization, which is generally known as EBITDA, to consolidated interest expense, as defined. Leverage ratio means the ratio of outstanding debt to EBITDA, with the interest component being the consolidated interest expense, as defined. At ~~December~~March 31, ~~2009~~2010, our fixed charge coverage ratio was negative 0.7779 to 1.00, and our leverage ratio was negative 1314.3215 to 1.00. • We must maintain, as of the last day of each fiscal quarter, (i) a fixed charge coverage ratio of at least 2.00 to 1.00 through December 31, 2009 and 3.0 to 1.00 thereafter, (ii) a leverage ratio of not more than 6.0 to 1.00 through December 31, 2009 and 4.5 to 1.00 thereafter, and (iii) a consolidated subsidiary debt to consolidated net tangible asset ratio of not more than 0.35 thereafter. The noteholders agreed that they would not take any action to declare an event of default as long as the Company is in compliance with the modified covenants. At ~~December~~March 31, ~~2009~~2010, our fixed charge coverage ratio was negative 0.7779 to 1.00, and our leverage ratio was negative 1314.3215 to 1.00, and our consolidated subsidiary debt to consolidated net tangible asset ratio was 0.3365 to 1.00. • Sinogas cannot incur debt under its credit facilities except to the extent that such debt does not exceed $10.0 million. • We are subject to restriction in paying dividends, purchasing ~~its~~our own securities or those of our subsidiaries, prepaying subordinated debt, and making any investment other any investments in itself and its subsidiaries engaged in our business and certain other permitted investments. • We are subject to restrictions on incurring liens.

As of ~~December~~ March 31, ~~2009~~2010, we were not in compliance with the financial covenants; however, the note holders agreed to waive the covenants at September 30, 2009 and through March 31, 2010 as long as we comply with the covenants in the December 17, 2009 agreement. However, we cannot assure you that the noteholders will continue to waive compliance with these covenants in future quarter,

On October 12, 2009, we entered into an agreement and plan of merger with Skywide, which is owned by Mr. Deng, chairman and a director, and Mr. Huang, chief executive officer and a director,. This ~~pursuant~~agreement towas ~~which~~amended and restated on March 29, ~~subject~~2010. Pursuant to ~~shareholder approval~~the agreement as amended and restated, wethe ~~would~~Company will be merged ~~into~~with a wholly-owned subsidiary of Skywide, with Skywide becoming the Company’s sole shareholder, and each share ~~our~~of common stock, of the Company (other than shares ~~held~~owned by usthe Company, Skywide, ~~Mr.~~or ~~Deng~~the ortwo ~~Mr.~~shareholders ~~Huang~~of Skywide), ~~would~~will be converted into the right to receive, upon presentation of the certificates for their common stock, the sum of $1.90. The ~~per~~merger ~~share~~is subject to shareholder approval.

For the ~~three~~ ~~months~~first ~~ended~~half ~~December~~year ~~31,~~of ~~2008~~2009, net cash ~~provided~~used byin operating activities was $02.31 million. The changes in working capital for the ~~three~~first ~~months~~half ~~ended December~~year ~~31,~~of ~~2008~~2009, were primarily related to a $58.32 million increase in accounts receivable which resulted from the increase in our business and longer period during which our accounts receivables (principally those generated by Sinogas) are outstanding, a $~~363,000~~5.1 ~~decrease~~million ~~of accounts payable, a $314,000~~ decrease ~~of advance from customers and $642,000 decrease~~ in other payables, ~~partially~~and offset by a $3.23 ~~million~~ decrease of ~~inventories~~deposit ~~because~~and ~~of the lower inventory as of the calendar year end~~prepayment, and a $~~306,000 decrease in other receivables and prepayments, and $1~~3.25 million ~~decrease~~increase of ~~interest paid on our long-term notes~~inventories.

We used approximately $614.80 million in investing activities for the ~~three~~first ~~months~~half ~~ended December~~year 31of 2009, ~~2008.~~primarily ~~This was~~ due ~~primarily~~ to the expansion of our CNG station ~~operation segment~~operations, principally for purchase of property, plant and equipment of $410.92 million, purchase of land use right of $2.1 million, and $1.4 million to invest in the unconsolidated entities.

~~Net cash provided by financing activities was $1.4 million for the three months ended December 31, 2008, related to $1.4 million loans from domestic banks in China.~~-34-

Net cash provided by financing activities was $10.9 million for the first half year of 2009, solely related loans from domestic banks in China.

Commitments

The Company has the following material contractual obligations and capital expenditure commitments:

~~Sinoenergy Holding~~Lixun ~~and~~has ~~Sinogas~~agreed ~~signed~~to ancontribute ~~agreement~~$58,574 to ~~set~~Yichang upLiyuan ~~Qingdao~~Power ~~Sinoenergy~~Technology ~~Gas~~Company ~~in which~~for ~~Sinoenergy~~a ~~Holding would own 60% and Sinogas would own~~ 40%~~. As a~~ ~~result,~~equity ~~Qingdao Sinoenergy Gas will be 90% owned by us~~interest. ~~Sinoenergy Holding’s~~ ~~commitment is $2,636,000, and Sinogas’ commitment is $1,757,000.~~ As of ~~December~~ March 31, ~~2009~~2010, ~~Sinogas~~Lixun ~~had~~contributed ~~made~~$29,290 ~~its full contribution~~ and the Company’s commitment for future funding was $229,~~636,000~~290.

32Wuhan Sinoenergy and Pingdingshan Sinoenergy, subsidiaries of the Company, have leased 13 parcels of land in Wuhan City and Pingdingshan City for their CNG stations under operating lease agreements. The lease terms are from 7 year to 30 years with annual rental fees of approximately $846,000. Based on land rental agreements in effect at March 31, 2010, the Company will pay a total of $5.73 million during through 2039.

Jixing Lixun will contribute $58,574 to Yichang Liyuan Power Technology Company to own 40% equity. As of December 31, 2009, Jiaxing Lixun contributed $29,290, and the Company’s commitment for future funding was $29,290.

Wuhan Sinoenergy and Pingdingshan Sinoenergy, subsidiaries of the Company, have leased 13 parcels of land in Wuhan City and Pingdingshan City for their CNG stations under operating lease agreements. The lease terms are from 7 year to 30 years with annual rental fees of approximately $846,000. Based on land rental agreements in effect at December 31, 2009, the Company will pay a total of $5.73 million during through 2039.

Wuhan Sinoenergy has two agreements to purchase land use rights in Wuhan City from different non-affiliated parties. One agreement provides for a purchase price of approximately $1.58 million, of which approximately $1.32 million has been paid, and the title transfer is in the process. The second provides for a purchase price of approximately $1.32 million, of which approximately $732,000 has been paid. The acquisition of the land requires government approval.

~~Our~~ The Company’s commitment for the construction of CNG stations, including stations being constructed by Wuhan Sinoenergy and Hubei Gather, was $~~797~~405,000 as of ~~December~~ March 31, ~~2009~~2010.

~~Our~~ The Company’s commitment for the construction of a new plant for Jiaxing Lixun was $~~624~~321,000 as of ~~December~~March 31, ~~2009~~2010.

~~Our~~ The Company’s commitment for the purchase of property, plant and equipment, including property for Wuhan Sinoenergy and Hubei Gather, was $5,~~794~~796,000 as of ~~December~~March 31, ~~2009~~ 2010.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

Use of Estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported periods. Significant estimates include depreciation and the allowance for doubtful accounts and other receivables, asset impairment, valuation of warrants and options and inventory valuation, and the determination of revenue and costs for under the percentage of completion method of revenue recognition. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Revenue Recognition. We recognize revenue when the significant risks and rewards of ownership have been transferred to the customer, including factors such as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. We recognize product sales upon delivery. CNG station construction and revenue related to building technical consulting service is recognized on the percentage of completion basis. The percentage of completion method recognizes income as work on a contract (or group of closely related contracts) progresses. The recognition of revenues and profit is generally related to costs incurred in providing the services required under the contract. Revenue is presented net of any sales tax and VAT.

Stock-Based Compensation. We grant stock options and stock grants to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. Share-based payment is recognized at fair value measured at the grant date. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period we expect to receive benefit, which is generally the vesting period. In some cases, Skywide, our principal stockholder, which is owned by our chief executive officer and our chairman, both of whom are directors, provided or agreed to provide stock to executive officers in connection with their employment. These shares are treated as if the shares were contributed to us by Skywide and issued by us.

Foreign Currency Translation. Our functional currency is RMB, and our reporting currency is United States dollars. Our balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and operating accounts are translated using the average exchange rate prevailing during the year. Equity accounts are translated using the historical rate as incurred. Translation gains and losses are deferred and accumulated as a component of accumulated other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statements of operations as incurred.

33-35-

Capitalization of Interest. We capitalize interest incurred in connection with the construction of assets, principally our CNG stations, during the construction period. Capitalized interest is recorded as an increase to construction in progress and, upon completion of the construction, to property.

NEW ACCOUNTING PRONOUNCEMENTS

In April 2008, the FASB issued a pronouncement on what now is codified as FASB ASC Topic 350, Intangibles — Goodwill and Other. This pronouncement amends the factors to be considered in determining the useful life of intangible assets accounted for pursuant to previous topic guidance. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. This adoption of this pronouncement on October 1, 2009 did not have a material effect on the Company’s consolidated financial statements.

In June 2008, the FASB amended FASB Topic ASC 815, Sub-Topic 40, "Contracts in Entity’s Own Equity” to clarify how to determine whether certain instruments or features were indexed to an entity's own stock under ASC Topic 815. The amendment applies to any freestanding financial instrument (or embedded feature) that has all of the characteristics of a derivative, for purposes of determining whether that instrument (or embedded feature) qualifies for the scope exception. It is also applicable to any freestanding financial instrument (e.g., gross physically settled warrants) that is potentially settled in an entity's own stock, regardless of whether it has all of the characteristics of a derivative, for purposes of determining whether to apply ASC 815. The Company ~~adoptrd~~adopted this pronouncement on October 1, 2009. The Company’s financial statements for the three and six months ended ~~December~~March 31, ~~2009~~2010 ~~and afterwards~~ reflect the effect of this pronouncement.

In May 2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic 855, Subsequent Events. This pronouncement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. FASB ASC Topic 855 provides guidance on the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The pronouncement was effective for the Company during the annual period ended September 30, 2009. The Company has evaluated subsequent events for the period from September 30, 2009, the date of these financial statements, through February 10, 2010, which represents the date these financial statements are available for filing with the SEC.

In June 2009, the FASB issued ASC Topic 810-10, "Amendments to FASB Interpretation No. 46(R)" (“ASC 810-10”). ASC 810-10 is intended to (1) address the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” as a result of the elimination of the qualifying special-purpose entity concept in ASC 860-20, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provided timely and useful information about an enterprise's involvement in a variable interest entity. This statement will be effective for the Company on October 1, 2010. The Company does not expect the adoption of 810-10 to have a material impact on its results of operations, financial condition or cash flows.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of management, our chief executive officer and chief financial officer have carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.

-36-

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures. It is our management’s responsibility to establish and maintain adequate internal controls over financial reporting. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, our management, including our chief executive and chief financial officers, concluded that because of the significant deficiencies in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of ~~December~~March 31, ~~2009~~2010.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that there were material weaknesses in our internal controls over financial reporting as of the end of the period covered by this report. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework. Our management concluded that, as of September 30, 2009, our internal control over financial reporting was not effective based on these criteria. Our chief executive officer and chief financial officer identified weaknesses related to our accounting personnel’s ability to identify various accounting and disclosure issues, account for transactions that include an equity-based component, and prepare financial statements and footnotes in accordance with U.S. GAAP. Until June 2006, we were a privately-owned company engaged with all of our assets and operations located in China, and our financial statements were prepared in accordance with PRC GAAP. Since we became a publicly-traded company, we have significantly expanded the scope of our business, so that we presently have four business segments. We have also engaged in two financings, entered into joint ventures, acquired and disposed of companies and assets, and granted equity-based incentives. All of these events presented complex accounting issues which were new to our financial staff. Furthermore, we do not have a large accounting department and it has been difficult for us to hire qualified personnel who understand English and Chinese and are familiar with both U.S. GAAP and PRC GAAP. We are addressing these issues by reviewing and revising our internal accounting policies and procedures, expanding the resources allocated to our accounting department, and hiring outside accounting advisors. We expect resolution of these matters may take several months. Accordingly, based on the foregoing, the certifying officers have concluded that our disclosure controls and procedures are not effective at this time.

The conclusion of chief executive officer and chief financial officer regarding our disclosure controls and procedures is based solely on management’s conclusion that our internal control over financial reporting was not effective.

Our material weaknesses related to:

• an insufficient complement of personnel in our corporate accounting and financial reporting function with an appropriate level of technical accounting knowledge, experience, and training in the application of US GAAP commensurate with our complex financial accounting and reporting requirements and materiality thresholds. • Lack of internal audit function - the monitoring function of internal control is not well performed due to insufficient resources. In addition, the scope and effectiveness of internal audit function have yet to be developed. • Insufficient or lack of written policies and procedures relating to periodic review of current policies and procedures and their implementation.

• Lack of internal audit function - the monitoring function of internal control is not well performed due to insufficient resources. In addition, the scope and effectiveness of internal audit function have yet to be developed. • Insufficient or lack of written policies and procedures relating to periodic review of current policies and procedures and their implementation.

Remediation and Changes in Internal Control over Financial Reporting

The Company has discussed the material weaknesses in its internal control over financial reporting with the audit committee of the board of directors and is in the process of developing and implementing remediation plans to address the material weaknesses. During the fiscal year ended September 30, 2009, management conducted a program to plan the remediation of all identified deficiencies using a risk-based approach based on the “Internal Control — Integrated Framework” issued by COSO. These plans contemplate various changes in process, procedures, policy, training and organizational design, and are currently being implemented. In addition, the Company intends to hire and/or appoint new managers in the accounting area and/or engage accounting professionals from external resources to address internal control weaknesses related to technical accounting.

The following specific remedial actions are currently in process, to address the material weaknesses in our internal control over financial reporting described above:

• Reorganize and restructure our corporate accounting staff by: • revising the reporting structure and establishing clear roles, responsibilities, and accountability; • hiring additional technical accounting personnel to address our complex accounting and financial reporting requirements; • assessing the technical accounting capabilities at our subsidiaries to ensure the right complement of knowledge, skills, and training; and • establishing internal audit functions, • Improve period-end closing procedures by: • ensuring that account reconciliations and analyses for significant financial statement accounts are reviewed for completeness and accuracy by qualified accounting personnel; • implementing a process that ensures the timely review and approval of complex accounting estimates by qualified accounting personnel and subject matter experts, where appropriate; • developing better monitoring controls for corporate accounting and at our subsidiaries, • documenting and implementing antifraud programs and controls as well as comprehensive risk assessment of procedures, programs and controls, and • making efforts to develop written policies and procedures, but the progress has been slowed due to limited resources and personnel changes.

-37-

	•	assessing the technical accounting capabilities at our subsidiaries to ensure the right complement of knowledge, skills, and training; and

	•	establishing internal audit functions,

•	Improve period-end closing procedures by:

	•	ensuring that account reconciliations and analyses for significant financial statement accounts are reviewed for completeness and accuracy by qualified accounting personnel;

	•	implementing a process that ensures the timely review and approval of complex accounting estimates by qualified accounting personnel and subject matter experts, where appropriate;

	•	developing better monitoring controls for corporate accounting and at our subsidiaries,

	•	documenting and implementing antifraud programs and controls as well as comprehensive risk assessment of procedures, programs and controls, and

	•	making efforts to develop written policies and procedures, but the progress has been slowed due to limited resources and personnel changes.

During 2009, we hired an internal audit manager and, we will increase our efforts to hire qualified personnel. We anticipate that we will be able to complete the remediation before September 30, 2010.

Other than as described above, management does not believe that there have been any other changes in our internal control over financial reporting, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

36We are a defendant in a purported class action commenced on October 16, 2009 in the Supreme Court of the State of New York, Nassau County, by alleged class representative plaintiffs Stephen Trecaso and Linda Watts against the Company and its directors which alleges a claim for breach of fiduciary duty, and which makes a demand for injunctive relief or alternatively, damages arising out of the merger agreement. The complaint generally alleges that we and the board of directors engaged in a defective sales process which will permit Skywide to buy us for an unfair price. We filed motions to dismiss this action on the grounds that there is no jurisdiction over the Company or Mr. Robert Adler in New York and that Mr. Adler was not properly served. These motions have been adjourned pending the settlement hearing.

We are a defendant in athree other class ~~action~~actions ~~commenced~~that onhave ~~October~~been 16filed against us, ~~2009~~our directors and Skywide in the ~~Supreme~~Eighth Judicial District Court of the State of ~~New~~Nevada ~~York,~~in ~~Nassau County, by alleged class representative plaintiffs Stephen Trecaso~~ and ~~Linda~~for ~~Watts~~Clark ~~against~~County ~~us and our directors~~ which ~~alleges~~ allege a claim for breach of fiduciary duty, and which ~~makes~~also make a demand for injunctive relief for a meaningful auction with third parties or alternatively, damages arising out of the merger agreement. The ~~complaint~~alleged ~~generally,~~class ~~alleges~~representative ~~that~~plaintiffs wein each of those three actions and the ~~board~~respective dates of ~~directors~~ ~~engaged~~commencement inof athose ~~defective~~actions ~~sales~~are ~~process~~(i) ~~which~~Robert ~~will~~E. ~~permit~~Guzman, ~~Skywide~~October to27, ~~buy the~~2009, ~~company~~(ii) ~~for~~Carol anKarch, ~~unfair~~October ~~price~~27, 2009 and (iii) Robert Grabowski, November 2, 2009. WeAs ~~believe~~of ~~that~~the ~~this~~date ~~action~~of ~~is without~~this ~~merit~~report, ~~that~~only we ~~have~~and ~~valid~~directors ~~defenses~~Robert ~~to,~~I. Adler and weGreg ~~will~~Marcinkowski ~~vigorously~~have ~~defend, the~~been ~~action~~served in these three actions. AsThe ofcomplaints ~~February~~generally 1,allege ~~2010,~~that ~~none~~we ofand ~~our~~the board of directors ~~has~~engaged ~~been served~~in ~~with~~a defective sales process inwhich ~~this~~will ~~action,~~permit ~~except~~Skywide ~~Robert~~to I.buy ~~Adler~~us for an unfair price and permitted Skywide disclosure of material inside information. We and Mr. ~~Adler~~Marcinkowski ~~have~~removed ~~made~~each ~~motions~~of tothese ~~dismiss~~actions ~~this~~to ~~lawsuit~~the onUnited ~~various~~States ~~grounds~~District ~~which include~~Court for the ~~court’s~~District ~~lack~~ of ~~jurisdiction~~Nevada, ~~over~~where ~~the~~they ~~Company~~are ~~and~~presently pending. Plaintiffs have filed motions seeking to remand the ~~plaintiffs’ failure~~actions back to ~~join~~the ~~necessary~~Nevada ~~parties~~State asCourts; ~~defendants~~however, these motions have been adjourned pending the settlement hearing..

WeOn ~~are~~March ~~a defendant~~5, ~~in four other class actions that have been filed against us~~2010, ~~our directors~~counsel ~~and~~for ~~Skywide~~all inof the ~~Eighth~~plaintiffs ~~Judicial~~and ~~District~~all ~~Court~~ of the ~~State~~defendants ~~of Nevada~~ in ~~and~~the ~~for~~four ~~Clark~~actions ~~County~~entered ~~which~~into ~~allege~~ a ~~claim~~memorandum ~~for breach~~ of ~~fiduciary~~understanding proposing ~~duty and~~settlement ~~which also make a demand for injunctive relief for a meaningful auction with third parties or alternatively, damages arising out~~ of the ~~merger agreement. Skywide has also been named in these complaints. The alleged class representative plaintiffs in each of those~~ four actions, ~~and~~which ~~the~~was ~~respective~~formalized ~~dates~~into ofa ~~commencement~~stipulation of ~~those actions are (i) Johan L~~settlement. ~~Stoltz – October 26, 2009, (ii) Robert E. Guzman – October 27, 2009, (iii) Carol Karch – October 27, 2009 and (iv) Robert Grabowski – November 2, 2009.~~ AsBefore ~~of February 1, 2010, we and directors Robert I. Adler and Greg Marcinkowski have been served in~~ the ~~four~~Company ~~actions.~~can ~~The complaints~~proceed ~~generally~~with ~~allege~~the ~~that~~shareholders’ wemeeting and ~~the~~call ~~board~~for ~~of directors engaged in~~ a ~~defective~~ ~~sales~~vote on ~~process~~the ~~which~~proposal ~~will permit Skywide~~ to ~~buy~~approve usthe ~~for~~merger, anthe ~~unfair~~terms ~~price and permitted Skywide disclosure~~ of ~~material inside information. We have removed each of those four actions to~~ the ~~United~~settlement, ~~States~~and ~~District Court for~~ the ~~District~~amount of ~~Nevada. Plaintiffs~~attorneys’ infees ~~those~~and ~~actions~~disbursements ~~have filed motions seeking~~ to ~~remand~~be ~~the~~awarded ~~actions back~~ to ~~the~~and ~~Nevada~~apportioned ~~State Courts.~~among ~~The~~counsel ~~time~~for ~~within which we and Messrs. Adler and Marcinkowski must appear, answer or otherwise move with respect to~~ the ~~complaints~~plaintiffs in ~~those actions~~the ~~has~~four ~~been extended to February 16, 2010. We believe that these~~ actions ~~are~~ ~~without~~must ~~merit,~~be ~~that~~approved weby ~~have~~the ~~valid~~federal ~~defenses~~court toin the ~~actions~~Nevada ~~and we will vigorously defend these actions~~Actions.

~~Item 2. Submission~~The terms of ~~Matters~~the toproposed asettlement, ~~Vote~~as set forth in the memorandum of ~~Security~~understanding, ~~Holders.~~provide that:

On January 19, 2010, we held our 2010 annual meeting of shareholders. The only item on the agenda was the election of directors. All of the incumbent directors were reelected. The following table sets forth the number of shares voted in favor of each of the directors.-38-

Name	No. of Shares
Bo Huang	8,492,938
Tianzhou Deng	7,600,508
Robert I. Adler	7,414,051
Renjie Lu	7,414,051
Greg Marcinkowski	7,414,051
Baoheng Shi	7,414,051
Xiang Dong (Donald) Yang	8,494,938

·	the provisions of the original merger agreement, which accorded to Skywide a right to match or top an offer deemed by our board to be a “Superior Proposal,” would be eliminated;

~~Item~~ · any termination fee payable to Skywide would be limited to Skywide’s actual expenses, and would be subject to a cap of 3.% ~~Other~~of ~~Information~~the total value of the merger transaction, which is $552,861;

~~In October~~· ~~2009,~~an ~~Beijing~~updated ~~Shanglira~~fairness ~~Capital~~opinion ~~Co.,~~would ~~Ltd.,~~be a– ~~company controlled by Bo Huang~~ and ~~Tianzhou~~has ~~Deng~~been ~~advanced~~– usobtained ~~$17,208,000,~~ and ina ~~December~~discussion ~~2009,~~contained ~~Skywide advanced~~in usthe ~~$3,000,000.~~preliminary ~~The~~proxy ~~loans~~statement ~~are~~of ~~unsecured~~the ~~and~~fairness ~~are~~opinion ~~payable~~that ~~on demand. The~~we ~~proceeds~~originally offiled ~~the~~would ~~loans~~be ~~were~~revised ~~used~~so ~~primarily~~as to ~~reimburse~~reflect ~~us for paying~~ the ~~Abax/CCIF~~substance ~~senior~~of ~~debt in~~ the ~~quarter~~updated ~~ended~~fairness ~~December 31, 2009.~~opinion;

~~Item~~· ~~6.Exhibits~~counsel for the plaintiffs in the four actions could conduct, and they have already conducted, certain pre-trial confirmatory discovery consisting of a review of an agreed upon list of documents, the deposition of the chairman of the special committee of the board of directors and one of the members of the Brean Murray team who conducted the analysis upon which Brean Murray has based its fairness opinion and updated opinion;

·	counsel for the plaintiffs in the four actions would apply for an award of counsel fees (including costs and expenses), based upon the benefits that the settlement will provide to Sinoenergy’s shareholders, in an amount not to exceed, in the aggregate, $470,000;

·	for dismissal with prejudice of the four actions.

Item 5. Other Information.

On February 9, 2010, Sinogas signed a supplemental agreement, modifying an agreement dated July 29, 2009 with Qingdao City Land Reserve Center for the transfer of the certain land use rights in Qingdao City to the Land Reserve Center for a purchase price of RMB 112,222,883, which has a value of approximately $16.4 million, using a current conversion rate. These land rights related to the real estate where Sinogas’ former manufacturing facilities were located. The purchase price has been paid by the Land Reserve Center. The Company has the obligation to remove the buildings and other constructions on the land and pay the applicable tax and record the transfer documents. Upon completion of these steps, the land use rights will be transferred to the Land Reserve Center.

Item 6. Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1	Certification of Chief Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

37-39-

SIGNATURES

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

	SINOENERGY CORPORATION.
	(Registrant)
Dated: February 12, 2010	s/ Bo Huang
Dated: May 19, 2010	/s/ Bo Huang
	Bo Huang, Chief Executive Officer
	s/ ShiaoMing Sheng
	/s/ ShiaoMing Sheng
Dated: February 12, 2010	Chief Financial Officer
Dated: May 19, 2010	Chief Financial Officer

38-40-

Filing Compare · Sinoenergy CORP