10-Q 1 v352622_10q.htm FORM 10-Q
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark one)
x
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the Quarterly Period Ended June 30, 2013
 
or
 
¨
Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission File Number 000-51364
 
SINO GAS INTERNATIONAL HOLDINGS, INC.
(Name of small business issuer in its charter)
 
Utah
90-0438712
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
 
No. 18 Zhong Guan Cun Dong St.
Haidian District
Beijing, PRC
100083
(Address of principal executive offices)
(Zip Code)
 
Issuer’s telephone number:  86-10-82600527
 
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 ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§32.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x No ¨
 
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  ¨
Accelerated filer  ¨
Non-accelerated filer  ¨
(Do not check if a smaller reporting company)
Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
 
As of June 30, 2013, the Registrant had 31,802,382 shares of common stock outstanding.
 
 
 
Sino Gas International Holdings, Inc.
 
Table of Contents
 
 
Page
Special Note Regarding Forward-Looking Statements
4
 
 
 
PART I
FINANCIAL INFORMATION
5
 
 
 
Item 1.
Financial Statements (Unaudited)
5
 
 
 
 
Notes to Financial Statements (Unaudited)
14
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
42
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
Item 4.
Controls and Procedures
49
 
 
 
PART II
OTHER INFORMATION
51
 
 
 
Item 1.
Legal Proceedings
51
 
 
 
Item 1A.
Risk Factors
51
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
51
 
 
 
Item 3.
Defaults Upon Senior Securities
51
 
 
 
Item 4.
Mining Safety Disclosure
51
 
 
 
Item 5.
Other Information
51
 
 
 
Item 6.
Exhibits
51
 
 
2
 
Except as otherwise indicated by the context, references in this Form 10-Q to:
 
“SGAS”, the “Company”, “we”, “our”, or “us” are references to Sino Gas International Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.
 
“U.S. Dollar”, “$”, and “US$” mean the legal currency of the United States of America.
 
“RMB” means Renminbi, the legal currency of China.
 
“China” or the “PRC” are references to the People’s Republic of China.
 
“U.S.” is a reference to the United States of America.
 
“SEC” is a reference to the Securities & Exchange Commission of the United States of America.
 
This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement of us by such companies, or any relationship with any of these companies.
 
 
3
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding our future financial position, business strategy and plans and objectives of management for future operations. When used in this filing, the words believe, may, will, estimate, continue, anticipate, intend, expect, and similar expressions are intended to identify forward-looking statements.
 
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption “Risk Factors” in Part II, Item 1A of this report and those discussed in other documents we file with the Securities and Exchange Commission (SEC). Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements.
 
In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements.
 
 
4
 
PART I:             FINANCIAL INFORMATION
 
Item 1.   Financial Statements (Unaudited)

 
Exhibit 31.1
 
CERTIFICATION
 
I, Yuchuan Liu, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Sino Gas International Holdings, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
 
a)
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 15, 2013
 
/s/ Yuchuan Liu
 
Yuchuan Liu
 
Chief Executive Officer
 
 (Principal Executive Officer)
 
 
5
 

Sino Gas International Holdings, Inc.
Consolidated Balance Sheets
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
 
 
Notes
 
6/30/2013
 
12/31/2012
 
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash & cash equivalents
 
2(e)
 
$
10,912,830
 
$
13,836,027
 
Restricted cash
 
 
 
 
-
 
 
232,326
 
Notes receivable
 
 
 
 
646,392
 
 
65,254
 
Accounts receivable
 
2(f),3
 
 
10,985,628
 
 
11,951,962
 
Other receivables
 
4
 
 
5,875,565
 
 
3,228,774
 
Related party receivable
 
5
 
 
387,496
 
 
343,551
 
Inventory
 
 
 
 
2,010,685
 
 
719,342
 
Advance to suppliers
 
2(g)
 
 
3,955,983
 
 
5,364,552
 
Prepaid expenses and taxes
 
 
 
 
1,609,469
 
 
969,229
 
Total Current Assets
 
 
 
 
36,384,048
 
 
36,711,017
 
 
 
 
 
 
 
 
 
 
 
Non-Current Assets
 
 
 
 
 
 
 
 
 
Investment
 
2(h),6
 
 
23,511,366
 
 
23,213,107
 
Property, plant & equipment, net
 
2(j),7
 
 
53,661,642
 
 
53,267,196
 
Construction in progress
 
2(m)
 
 
49,420,008
 
 
43,384,156
 
Intangible assets, net
 
2(k),9
 
 
960,627
 
 
949,987
 
Goodwill
 
2(l),8
 
 
4,598,321
 
 
1,677,975
 
Deposit
 
 
 
 
605,572
 
 
562,790
 
Total Non-current Assets
 
 
 
 
132,757,536
 
 
123,055,211
 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
 
 
$
169,141,584
 
$
159,766,228
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES & STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
Bank loans
 
10(a)
 
$
26,825,248
 
$
21,810,580
 
Accounts payable
 
 
 
 
15,176,006
 
 
17,073,587
 
Other payables - current portion
 
11(a)
 
 
9,532,420
 
 
9,578,447
 
Accrued liabilities
 
 
 
 
180,723
 
 
38,259
 
Convertible Bonds
 
12
 
 
8,405,679
 
 
8,020,825
 
Unearned revenue
 
2(n)
 
 
6,662,588
 
 
3,813,148
 
Related party payable
 
 
 
 
187,051
 
 
-
 
Notes payable
 
 
 
 
113,119
 
 
-
 
Total Current Liabilities
 
 
 
 
67,082,834
 
 
60,334,846
 
 
 
 
 
 
 
 
 
 
 
Non-current Liabilities
 
 
 
 
 
 
 
 
 
Long-term bank loans
 
10(b)
 
 
10,439,223
 
 
11,557,765
 
Total Non-current Liabilities
 
 
 
 
10,439,223
 
 
11,557,765
 
 
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
 
$
77,522,057
 
$
71,892,611
 
 
See Accompanying Notes to Financial Statements and Accountant’s Report
 
 
6
 
Sino Gas International Holdings, Inc.
Consolidated Balance Sheets
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
STOCKHOLDERS' EQUITY
 
Notes
 
6/30/2013
 
12/31/2012
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock B US$0.001 par value; 5,000,000 shares authorized; 200,997 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively.
 
13
 
$
201
 
$
201
 
 
 
 
 
 
 
 
 
 
 
Additional paid in capital - Preferred Stock B
 
 
 
 
233,655
 
 
233,655
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock B-1 US$0.001 par value; 3,000,000 shares authorized; nil shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively.
 
13
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
Additional paid in capital - Preferred Stock B-1
 
 
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
Common Stock US$0.001 par value; 250,000,000 shares authorized; 31,802,382 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively.
 
13
 
 
31,801
 
 
31,801
 
 
 
 
 
 
 
 
 
 
 
Additional paid in capital - Common Stock
 
 
 
 
38,069,322
 
 
38,069,322
 
 
 
 
 
 
 
 
 
 
 
Additional paid in capital - Beneficial Conversion Feature
 
 
 
 
515,851
 
 
515,851
 
 
 
 
 
 
 
 
 
 
 
Statutory reserve
 
2(w)
 
 
6,738,287
 
 
6,150,234
 
Retained earnings
 
 
 
 
31,447,895
 
 
30,024,006
 
Minority Interest
 
 
 
 
7,372,994
 
 
7,374,492
 
Accumulated other comprehensive income
 
2(x)
 
 
7,209,521
 
 
5,474,055
 
Total Stockholders' Equity
 
 
 
 
91,613,527
 
 
87,873,617
 
 
 
 
 
 
 
 
 
 
 
Total Liabilities & Stockholders' Equity
 
 
 
$
169,141,584
 
$
159,766,228
 
 
See Accompanying Notes to Financial Statements and Accountant’s Report
 
 
7

Sino Gas International Holdings, Inc.
Consolidated Statements of Income
For the three months and six months ended June 30, 2013 and 2012
(Stated in US Dollars)
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
Note
 
6/30/2013
 
6/30/2012
 
6/30/2013
 
6/30/2012
 
Sales revenue
 
2(q)
 
 
14,862,867
 
$
10,819,666
 
 
28,292,758
 
$
21,573,269
 
Cost of revenue
 
 
 
 
9,710,563
 
 
6,472,799
 
 
19,600,777
 
 
14,539,830
 
Gross Profit
 
 
 
 
5,152,304
 
 
4,346,867
 
 
8,691,981
 
 
7,033,439
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling expense
 
 
 
 
1,183,255
 
 
749,948
 
 
2,398,953
 
 
1,515,635
 
General and administrative expense
 
 
 
 
1,224,119
 
 
1,126,767
 
 
2,871,477
 
 
2,084,131
 
Total operating expense
 
 
 
 
2,407,374
 
 
1,876,715
 
 
5,270,430
 
 
3,599,766
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
 
2,744,930
 
 
2,470,152
 
 
3,421,551
 
 
3,433,673
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Income/(Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment loss
 
 
 
 
(2,112)
 
 
-
 
 
(2,112)
 
 
-
 
Other income
 
 
 
 
29,983
 
 
12,362
 
 
31,442
 
 
34,699
 
Other expense
 
 
 
 
(57,552)
 
 
(8,352)
 
 
(123,867)
 
 
(127,094)
 
Interest income
 
 
 
 
58,811
 
 
54,647
 
 
100,162
 
 
155,965
 
Interest expense
 
 
 
 
(943,680)
 
 
(853,461)
 
 
(1,868,552)
 
 
(1,625,765)
 
Total other income/(expense)
 
 
 
 
(914,550)
 
 
(794,805)
 
 
(1,862,927)
 
 
(1,562,195)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before tax
 
 
 
 
1,830,380
 
 
1,675,348
 
 
1,558,624
 
 
1,871,478
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax
 
2(r),12
 
 
(416,059)
 
 
(91,182)
 
 
(778,683)
 
 
(329,439)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain/(Loss) from discontinued operations, net of tax
 
 
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
1,414,321
 
$
1,584,166
 
 
779,941
 
$
1,542,039
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- Common stockholders
 
 
 
$
1,415,111
 
$
1,584,292
 
$
781,439
 
$
1,542,968
 
- Non-controlling interest
 
 
 
 
(790)
 
$
(126)
 
 
(1,498)
 
$
(929)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share
 
2(z),13
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
$
0.03
 
$
0.05
 
$
0.03
 
$
0.05
 
Diluted
 
 
 
$
0.03
 
$
0.05
 
$
0.03
 
$
0.05
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
31,802,382
 
 
31,793,698
 
 
31,802,382
 
 
31,793,698
 
Diluted
 
 
 
 
31,802,382
 
 
31,793,698
 
 
31,802,382
 
 
31,793,698
 
 
See Accompanying Notes to Financial Statements and Accountant’s Report
 
 
8

Sino Gas International Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
 
 
Preferred Stock B
 
Preferred Stock B-1
 
Common Stock
 
 
 
 
 
 
 
APIC -
 
 
 
 
 
APIC -
 
 
 
 
 
APIC -
 
 
 
Shares
 
 
 
Preferred
 
Shares
 
 
 
Preferred
 
Shares
 
 
 
Common
 
 
 
Outstanding
 
Amount
 
Stock B
 
Outstanding
 
Amount
 
Stock B-1
 
Outstanding
 
Amount
 
Stock
 
Balance at January 1, 2012
 
209,681
 
210
 
243,750
 
-
 
-
 
-
 
31,793,698
 
31,792
 
36,302,875
 
Net Income
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Conversion of Preferred Stock B to Common Stock
 
(8,684)
 
(9)
 
(10,095)
 
-
 
-
 
-
 
8,684
 
9
 
68,435
 
Expiration of Convertible Bond
 
-
 
 
 
-
 
-
 
-
 
-
 
-
 
-
 
2,584,912
 
Conversion of Convertible Bonds to Common Stock
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Appropriation of Income to Non-controlling Interest
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Issuance of Subsidiary’s Common Stock
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
(886,900)
 
Appropriation of Retained Earnings
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Foreign Currency Translation Adjustment
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Balance at December 31, 2012
 
200,997
 
201
 
233,655
 
-
 
-
 
-
 
31,802,382
 
31,801
 
38,069,322
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2013
 
200,997
 
201
 
233,655
 
-
 
-
 
-
 
31,802,382
 
31,801
 
38,069,322
 
Net Income
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Appropriation of Income to Non-controlling Interest
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Appropriation of Retained Earnings
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Foreign Currency Translation Adjustment
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Balance at June 30, 2013
 
200,997
 
201
 
233,655
 
-
 
-
 
-
 
31,802,382
 
31,801
 
38,069,322
 
 
See Accompanying Notes to Financial Statements and Accountant’s Report
 
 
9
 
Sino Gas International Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
APIC -
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
APIC -
 
APIC -
 
APIC -
 
Convertible
 
APIC -
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
Warrants
 
Warrants
 
Warrants
 
Bonds
 
Beneficial
 
 
 
 
 
 
 
Other
 
 
 
 
 
Series:
 
Series:
 
Series:
 
Detachable
 
Conversion
 
Statutory
 
Retained
 
Minority
 
Comprehensive
 
 
 
 
 
A,B,J,C,D
 
E,G
 
F,R
 
Warrants
 
Feature
 
Reserve
 
Earnings
 
Interest
 
Income
 
Total
 
Balance at January 1, 2012
 
-
 
-
 
-
 
223,367
 
1,408,648
 
6,150,234
 
24,702,285
 
3,417,981
 
8,222,939
 
80,704,081
 
Net Income
 
-
 
-
 
-
 
-
 
-
 
-
 
6,383,440
 
-
 
-
 
6,383,440
 
Conversion of Preferred Stock B to Common Stock
 
-
 
-
 
-
 
-
 
(58,340)
 
-
 
-
 
-
 
-
 
-
 
Expiration of Convertible Bond
 
-
 
-
 
-
 
(223,367)
 
(1,092,522)
 
-
 
-
 
-
 
-
 
1,269,023
 
Conversion of Convertible Bonds to Common Stock
 
-
 
-
 
-
 
-
 
258,065
 
-
 
-
 
-
 
-
 
258,065
 
Appropriation of Income to Non-controlling Interest
 
-
 
-
 
-
 
-
 
-
 
-
 
(1,061,719)
 
1,061,719
 
-
 
-
 
Issuance of Subsidiary’s Common Stock
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
2,894,792
 
-
 
2,007,892
 
Appropriation of Retained Earnings
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
Foreign Currency Translation Adjustment
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
(2,748,884)
 
(2,748,884)
 
Balance at December 31, 2012
 
-
 
-
 
-
 
-
 
515,851
 
6,150,234
 
30,024,006
 
7,374,492
 
5,474,055
 
87,873,617
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2013
 
-
 
-
 
-
 
-
 
515,851
 
6,150,234
 
30,024,006
 
7,374,492
 
5,474,055
 
87,873,617
 
Net Income
 
-
 
-
 
-
 
-
 
-
 
-
 
779,939
 
-
 
-
 
779,939
 
Appropriation of Income to Non-controlling Interest
 
-
 
-
 
-
 
-
 
-
 
-
 
1,498
 
(1,498)
 
-
 
-
 
Appropriation of Retained Earnings
 
-
 
-
 
-
 
-
 
-
 
588,053
 
642,452
 
-
 
-
 
1,230,505
 
Foreign Currency Translation Adjustment
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
1,735,466
 
1,735,466
 
Balance at June 30, 2013
 
-
 
-
 
-
 
-
 
515,851
 
6,738,287
 
31,447,895
 
7,372,994
 
7,209,521
 
91,619,527
 
   
 
 
6/30/2013
 
12/31/2012
 
Total
 
Comprehensive Income
 
 
 
 
 
 
 
 
 
 
Net Income
 
$
779,939
 
$
6,383,440
 
$
7,163,379
 
Other Comprehensive Income
 
 
 
 
 
 
 
 
 
 
Foreign Currency Translation Adjustment
 
 
1,735,466
 
 
(2,748,884)
 
 
(1,013,418)
 
Total
 
$
2,515,405
 
$
3,634,556
 
$
6,149,961
 
 
See Accompanying Notes to Financial Statements and Accountant’s Report
 
 
10

Sino Gas International Holdings, Inc.
Consolidated Statements of Cash Flows
For the three months and six months ended June 30, 2013 and 2012
(Stated in US Dollars)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
6/30/2013
 
6/30/2012
 
6/30/2013
 
6/30/2012
 
Cash Flows from Operating Activities
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
1,414,321
 
$
1,584,165
 
779,939
 
$
1,542,039
 
Bad debt provision
 
(6,012)
 
 
(24,311)
 
(9,761)
 
 
(3,520)
 
Depreciation expense
 
425,937
 
 
459,908
 
836,739
 
 
756,082
 
Amortization expense of intangible assets
 
40,373
 
 
5,836
 
29,794
 
 
17,481
 
Amortization expense of convertible bonds
 
196,516
 
 
205,604
 
384,853
 
 
401,668
 
Loss/(gain) on disposal of property and equipment
 
-
 
 
-
 
-
 
 
 
 
Withdraw/(deposit) in restricted time deposits
 
-
 
 
143,102
 
232,326
 
 
(438,676)
 
Decrease/(increase) in accounts and other receivables
 
(2,479,696)
 
 
3,984,538
 
(2,251,834)
 
 
2,728,166
 
Decrease/(increase) in inventory
 
(269,938)
 
 
285,643
 
(1,291,345)
 
 
(866,164)
 
Decrease/(increase) in prepaid expenses
 
5,159,628
 
 
(1,243,171)
 
768,330
 
 
(1,321,653)
 
Decrease/(Increase) in related party receivable
 
(23,910)
 
 
508
 
(43,945)
 
 
(3,021)
 
Increase/(decrease) in accounts and other payables
 
3,933,927
 
 
1,291,210
 
1,235,348
 
 
3,823,659
 
Cash Sourced/(Used) in Operating Activities of Continued Operation
 
8,391,146
 
 
6,693,032
 
670,444
 
 
6,636,061
 
Cash Sourced/(Used) in Operating Activities of Discontinued Operation
 
-
 
 
-
 
-
 
 
-
 
Cash Sourced/(Used) in Operating Activities
 
8,391,146
 
 
6,693,032
 
670,444
 
 
6,636,061
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
 
 
Decrease/(Increase) in deposit
 
74,865
 
 
(2,613,479)
 
(42,782)
 
 
(2,305,650)
 
Proceeds from disposal of discontinued operation
 
-
 
 
-
 
-
 
 
-
 
Increase of investment in equity
 
(213,428)
 
 
13,473
 
(298,259)
 
 
(80,173)
 
Purchase of property, plant & equipment
 
(748,110)
 
 
(1,640,425)
 
(1,231,184)
 
 
(4,128,127)
 
Increase of goodwill
 
-
 
 
 
 
(2,920,345)
 
 
 
 
Purchase of other intangible assets
 
-
 
 
-
 
-
 
 
-
 
Increase in construction in progress
 
(2,248,735)
 
 
(707,318)
 
(6,035,852)
 
 
(1,172,128)
 
Cash Sourced/(Used) in Investing Activities of Continued Operation
 
(3,135,408)
 
 
(4,947,749)
 
(10,528,422)
 
 
(7,686,078)
 
Cash Sourced/(Used) in Investing Activities of Discontinued Operation
 
-
 
 
-
 
-
 
 
-
 
Cash Sourced/(Used) in Investing Activities
 
(3,135,408)
 
 
(4,947,749)
 
(10,528,422)
 
 
(7,686,078)
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Flows from Financing Activities
 
 
 
 
 
 
 
 
 
 
 
Increase/(decrease) of bank loans
 
363,045
 
 
2,239,384
 
3,896,126
 
 
4,815,441
 
Increase of statutory reserve
 
305,100
 
 
 
 
1,230,505
 
 
 
 
Increase of notes payable
 
113,119
 
 
 
 
113,119
 
 
 
 
Cash Sourced/(Used) in Financing Activities
 
781,264
 
 
2,239,384
 
5,239,750
 
 
4,815,441
 
 
 
 
 
 
 
 
 
 
 
 
 
Net increase in cash & cash equivalents for the periods
 
6,037,002
 
 
3,984,668
 
(4,618,228)
 
 
3,765,424
 
Effect of currency translation
 
(491,793)
 
 
(222,500)
 
1,695,031
 
 
(236,787)
 
Cash & cash equivalents at the beginning of periods
 
5,367,621
 
 
2,641,015
 
13,836,027
 
 
2,874,546
 
Cash & cash equivalents at the end of periods
 
10,912,830
 
$
6,403,183
 
10,912,830
 
$
6,403,183
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplementary cash flows information
 
 
 
 
 
 
 
 
 
 
 
Interest received
 
58,811
 
$
155,965
 
100,162
 
$
101,318
 
Interest paid
 
961,214
 
 
1,362,603
 
1,726,086
 
 
703,916
 
Income tax paid
 
484,000
 
 
1,416,910
 
781,853
 
 
762,507
 
 
See Accompanying Notes to Financial Statements and Accountant’s Report
 
 
11

Sino Gas International Holdings, Inc.
Notes to Financial Statements
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
 
Sino Gas International Holdings, Inc. (the “Company”) was incorporated under the laws of the State of Utah on August 19, 1983 as Evica Resources, Inc. The Company changed its name to American Arms, Inc. on April 5, 1984, and then changed its name to Dolce Ventures, Inc. on May 21, 2002, and ultimately changed its name to Sino Gas International Holdings, Inc. on November 17, 2006.
 
On September 7, 2006, the Company underwent a reverse-merger with Gas Investment China Co., Ltd. (“Gas (BVI)”), an International Business Company incorporated in the British Virgin Islands, and its wholly owned subsidiary Beijing Zhong Ran Weiye Gas Co., Ltd. (“Beijing Gas”), involving an exchange of shares whereby the Company issued an aggregate of 14,361,646 shares to the shareholders of Gas (BVI) in exchange for all of the issued and outstanding shares of Gas (BVI). For financial reporting purposes, this transaction is classified as a recapitalization of Sino Gas International Holdings, Inc. (Legal acquirer, accounting acquiree) and the historical financial statements of Gas Investment China Co. Ltd. (Legal acquiree, accounting acquirer)
 
The Company’s primary business operations are conducted through Beijing Gas. Beijing Gas is a natural gas services operator, principally engaging in the investment, operation, and management of city gas pipeline infrastructure, in the distribution of natural gas to residential and industrial users, in the construction and operation gas stations, and in the development and application of natural gas related technologies. Beijing Gas develops its operating subsidiaries, known as project companies. Each project company operates as a local natural gas distributor in a city or county. Pursuant to an exclusive franchise agreement with the local government or entities responsible for administering and/or regulating gas utilities, each project company is granted the exclusive right to develop and operate natural gas distribution systems and distribute natural gas at the operational location.
 
The Company holds equity interests of 51% each in Sino Gas Construction, Ltd., and Tongyuan International Holding Limited. It holds a 100% interest in Beijing Gas, which in turn holds an equity interest of 90% to 100% in its operating subsidiaries, and an individual shareholder nominally holds the remainder of the equity interest in such project companies. Each such individual shareholder has relinquished any and all rights, power and interest to Beijing Gas in the respective project companies under enforceable contracts. This structure was intended to comply with a PRC law that required a limited liability company to have at least two shareholders.
 
The Company owns and operates natural gas distribution systems in 34 small and medium size cities serving approximately 293,758 residential and seven industrial customers. The Company’s facilities include approximately 2,039 kilometers of pipeline and delivery networks (including delivery trucks) with a daily capacity of approximately 156,000 cubic meters of natural gas.
 
The common stock of the Company is currently quoted on the National Association of Securities Dealers' Over-the-Counter Bulletin Board under the symbol “SGAS”.
 
 
12
 
Sino Gas International Holdings, Inc.
Notes to Financial Statements
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
Basis of Presentation and Organization
 
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
 
This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the People’s Republic of China (“PRC”) or in the accounting standards used in the places of their domicile. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books of account of the Company’s subsidiaries to present them in conformity with US GAAP.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
(a)
Method of Accounting
 
The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.
 
 
(b)
Use of estimates
 
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those estimates.
 
 
(c)
Economic and political risks
 
The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, and by the general state of the PRC economy.
 
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment, and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to law and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
 
 
13
 
Sino Gas International Holdings, Inc.
Notes to Financial Statements
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
 
(d)
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its subsidiaries (the “Group”). Significant inter-company transactions have been eliminated in consolidation. Investments in which the company has a 20 percent to 50 percent voting interest and where the company exercises significant influence over the investor are accounted for using the equity method.
 
The Company owned its subsidiaries after inception and continued to acquire equity interests throughout the reporting periods. The following table depicts the identities of the consolidating subsidiaries as of June 30, 2013:
 
 
 
Place of
 
Date of
 
Beneficial
 
Equity
 
Registered
 
Name of Company
 
Incorporation
 
Incorporation
 
Interest %
 
Interest %
 
Capital
 
GAS Investment China Co., Ltd.
 
The British Virgin Islands
 
6/19/2003
 
100
 
100
 
USD 10,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Sino Gas Construction, Ltd.
 
The British Virgin Islands
 
1/9/2007
 
51
 
51
 
USD 98,039
 
 
 
 
 
 
 
 
 
 
 
 
 
Sino Gas Investment Development, Ltd.
 
The British Virgin Islands
 
1/9/2007
 
100
 
100
 
USD 50,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Tongyuan International Holding Limited
 
Hong Kong
 
12/20/2011
 
51
 
51
 
HKD 10,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Beijing Zhong Ran Weiye Gas Co., Ltd.
 
PRC
 
8/29/2001
 
100
 
100
 
RMB 206,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Beijing Chenguang Gas Co., Ltd.
 
PRC
 
10/30/2002
 
100
 
100
 
RMB 35,239,600
 
 
 
 
 
 
 
 
 
 
 
 
 
Guannan Weiye Gas Co., Ltd.
 
PRC
 
6/19/2003
 
100
 
100
 
RMB 9,510,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Ningjin Weiye Gas Co., Ltd.
 
PRC
 
12/3/2003
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Yutian Zhongran Weiye Gas Co., Ltd.
 
PRC
 
12/19/2003
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Xingtang Weiye Gas Co., Ltd.
 
PRC
 
2/18/2004
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Wuqiao Gas Co., Ltd.
 
PRC
 
6/30/2004
 
100
 
100
 
RMB 2,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Sihong Weiye Gas Co., Ltd.
 
PRC
 
12/3/2004
 
100
 
95
 
RMB 10,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Langfang Weiye Dangerous Goods Transportation Co., Ltd.
 
PRC
 
3/22/2005
 
100
 
95
 
RMB 1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Linzhang Weiye Gas Co., Ltd.
 
PRC
 
7/6/2005
 
100
 
100
 
RMB 1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Jiangsu Weiye Gas Co., Ltd.
 
PRC
 
8/22/2005
 
100
 
98.9
 
RMB 45,694,900
 
 
 
 
 
 
 
 
 
 
 
 
 
Zhangjiakou City Xiahuayuan Jinli Gas Co., Ltd.
 
PRC
 
9/30/2005
 
100
 
100
 
RMB 2,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Longyao Zhongran Weiye Gas Co., Ltd.
 
PRC
 
10/13/2005
 
100
 
100
 
RMB 3,000,000
 
 
 
14
 
Sino Gas International Holdings, Inc.
Notes to Financial Statements
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
Yuxian Jinli Gas Co., Ltd.
 
PRC
 
11/8/2005
 
100
 
100
 
RMB 9,500,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Hengshui Weiye Gas Co., Ltd.
 
PRC
 
12/20/2005
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Changli Weiye Gas Co., Ltd.
 
PRC
 
12/8/2006
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Chenan Chenguang Gas Co., Ltd.
 
PRC
 
1/23/2007
 
100
 
100
 
RMB 1,500,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Wuhe Weiye Gas Co., Ltd.
 
PRC
 
1/30/2007
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Gucheng Weiye Gas Co., Ltd.
 
PRC
 
3/21/2007
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Luquan Chenguang Gas Co., Ltd.
 
PRC
 
4/27/2007
 
100
 
100
 
RMB 2,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Shijiazhuang Chenguang Gas Co., Ltd.
 
PRC
 
6/14/2007
 
100
 
100
 
RMB 2,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Nangong Weiye Gas Co., Ltd.
 
PRC
 
6/25/2007
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Sixian Weiye Gas Co., Ltd.
 
PRC
 
9/3/2007
 
100
 
100
 
RMB 3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Baishan Weiye Gas Co., Ltd.
 
PRC
 
7/13/2007
 
100
 
100
 
RMB 15,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Xinhe Weiye Gas Co., Ltd.
 
PRC
 
7/2/2009
 
100
 
100
 
RMB 300,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Hebei Weiye Gas (Group) Co., Ltd.
 
PRC
 
12/18/2009
 
100
 
100
 
RMB 75,439,270
 
 
 
 
 
 
 
 
 
 
 
 
 
Gaocheng Weiye Gas Co., Ltd.
 
PRC
 
1/27/2010
 
100
 
100
 
RMB 200,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Jiangsu Zhong Ran Weiye Energy Investment Co., Ltd.
 
PRC
 
3/10/2011
 
100
 
99
 
RMB 200,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Fusong Weiye Gas Co., Ltd.
 
PRC
 
7/29/2011
 
100
 
90
 
RMB 10,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Jize Weiye Gas Co., Ltd.
 
PRC
 
9/20/2011
 
100
 
100
 
RMB 1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Baishan Weiye Cheyong Gas Co., Ltd.
 
PRC
 
8/13/2012
 
100
 
100
 
RMB 1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Baishan Weiye Wuzi Co., Ltd.
 
PRC
 
11/5/2012
 
100
 
100
 
RMB 1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
Baishan Liquified Gas Co., Ltd.
 
PRC
 
8/31/2012
 
100
 
100
 
RMB 2,000,000
 
 
 
(e)
Cash and Cash Equivalents
 
The Company considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents.
 
 
(f)
Accounts Receivable
 
Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. The Company extends unsecured credit to customers in the normal course of business and does not accrue interest on trade accounts receivable.
 
 
15
 
Sino Gas International Holdings, Inc.
Notes to Financial Statements
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
 
(g)
Advances to Suppliers
 
Advances to suppliers represent the cash paid in advance for purchasing raw materials. The advances to suppliers are interest free and unsecured.
 
 
(h)
Investments in Equity Securities
 
The equity method of accounting was used to account for the Company’s investment in equity securities for which the Company did not have controlling equity interest. A non-controlling equity interest for the Company is typically a position of less than 50% beneficial ownership.
 
The consolidated statement of income includes the Company’s share of the post-acquisition results of the investment’s performance for the year. In the consolidated balance sheet, investments in equity securities are stated at the Company’s share of the net assets of the investments plus any potential premium, or less discounts paid at the time of acquisition, and less any identified impairment loss.
 
The Company did not record any goodwill when it acquired its equity positions in Xiangke Oil Gas and Qujing Gas. Accordingly, in accordance with SFAS 142, the Company has not taken an amortization expense of goodwill during the time it has carried stakes in their equity securities.
 
 
(i)
Accounting for the Impairment of Long-Lived Assets
 
The Company has adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), ASC 360-10-35. The Company evaluates its long lived assets for impairment when indicators of impairment are present or annually, whichever occurs sooner. In the event that there are indications of impairment, the Company will record a loss to statements of income equal to the difference between the carrying value and the fair value of the long lived asset. The Company typically, but not exclusively, uses the expected future discounted flows method to determine fair value of long lived asset subject to impairment. The fair value of long lived assets held for disposition will include the cost of disposal.
 
The Company’s long-lived assets are grouped by their presentation on the consolidated balance sheets, and further segregated by their operating and asset type. Long-lived assets subject to impairment include buildings, equipment, vehicles, accounting software licenses, franchise and land use rights. The Company makes its determinations based on various factors that impact those assets.
 
 
(j)
Property, Plant and Equipment
 
Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and impairment loss. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the property, plant and equipment are as follows:
 
Assets Class
 
Estimated Useful Life
 
Gas Pipelines (Up to December 31, 2007)
 
25 years
 
Gas Pipelines (Starting from January 1, 2008)
 
50 years
 
Buildings
 
25 years
 
Leasehold Improvements
 
25 years
 
Machinery & Equipment
 
20 years
 
Motor Vehicles
 
10 years
 
Office Equipment
 
8 years
 
 
 
16
 
Sino Gas International Holdings, Inc.
Notes to Financial Statements
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.
 
 
(k)
Intangible Assets
 
Intangible assets are stated at cost less accumulated amortization and impairment loss. Amortization is provided over their estimated useful lives using the straight-line method. Estimated useful lives of the intangibles are as follows:
 
Asset Class
 
Estimated Useful Life
 
Land use rights
 
20 - 50 years
 
Franchises
 
30 years
 
Accounting software
 
3 years
 
 
 
(l)
Goodwill
 
Goodwill impairment tests are performed annually and more frequently whenever events or changes in circumstances indicate goodwill carrying values exceed estimated reporting unit fair values. Upon indication that the carrying values of such assets may not be recoverable, the Company recognizes an impairment loss as a charge against current operations.  
 
 
(m)
Construction in Progress
 
Construction in progress represents the cost of constructing pipelines and is stated at cost. Costs are comprised of direct and indirect incremental costs of acquisition or construction. Completed items are transferred from construction in progress to the gas pipelines of fixed assets when they are ready for their intended use. The major cost of construction relates to construction materials, direct labor wages, and other overhead. Construction of pipeline, through which to distribute natural gas, is one of the Group’s principal businesses. The Group builds city main pipeline networks and branch pipeline networks to make gas connection to residential users, industrial and commercial users, with the objective of generating revenue on gas connection and gas usage fees collected from these customers. These projects, once completed, will significantly increase the gas supply capacity.
 
 
(n)
Unearned Revenue
 
Unearned revenue represents prepayments by customers for gas purchases and advance payments on construction and installation of pipeline contracts. The Company records such prepayments as unearned revenue when the payments are received.
 
 
(o)
Financial Instruments
 
The Company adopted ASC 820-10, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements.
 
ASC 820-10 includes a fair value hierarchy that is intended to increase the consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing an asset or liability based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
 
 
17
 
Sino Gas International Holdings, Inc.
Notes to Financial Statements
As of June 30, 2013 and December 31, 2012
(Stated in US Dollars)
 
Level 1 – inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
 
Level 2 – observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 – instrument valuations are obtained without observable market values and require a high-level of judgment to determine the fair value.
 
The Company’s financial instruments consist mainly of cash, bank notes receivable, and debt obligations. Based on the borrowing rates currently available to the Company for loans and similar terms and average maturities, the fair value of debt obligations also approximates its carrying value due to the short-term nature of the instruments. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
 
The following tables present the Company’s financial assets and liabilities at fair value in accordance with ASC 820-10:
 
At June 30,
 
Quoted in
 
Significant
 
 
 
 
 
2013:
 
Active Markets
 
Other
 
Significant
 
 
 
 
 
for Identical
 
Observable
 
Unobservable
 
 
 
 
 
Assets
 
Inputs
 
Inputs
 
 
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
 
$
10,912,830
 
$
-
 
$
-
 
$
10,912,830
 
Notes receivable
 
 
646,392
 
 
-
 
 
-
 
 
646,392
 
Total financial assets
 
$
11,559,222
 
$
-
 
$
-
 
$
11,559,222
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable
 
$
-
 
$
-
 
$
-
 
$
-
 
Total financial liabilities
 
$
-
 
$
-
 
$
-
 
$
-
 
 
At December 31,
 
Quoted in
 
Significant
 
 
 
 
 
2012:
 
Active Markets
 
Other
 
Significant
 
 
 
 
 
for Identical
 
Observable
 
Unobservable
 
 
 
 
 
Assets
 
Inputs
 
Inputs
 
 
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
 
$