-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K4VOQ3jjIYRY0BB0bzsucgprcyyOYczCzYM+UJQ3I0JFHPRtIiHQr8X/isHS1qag jCtymYoc/QkfW4ZWy+Cf0g== 0001144204-08-035741.txt : 20080618 0001144204-08-035741.hdr.sgml : 20080618 20080618113803 ACCESSION NUMBER: 0001144204-08-035741 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080618 DATE AS OF CHANGE: 20080618 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Sino Gas International Holdings, Inc. CENTRAL INDEX KEY: 0001326364 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 320028823 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-51364 FILM NUMBER: 08904949 BUSINESS ADDRESS: STREET 1: NO. 18 ZHONG GUAN CUN DONG ST. STREET 2: HAIDIAN DISTRICT CITY: BEIJING, STATE: F4 ZIP: 100083 BUSINESS PHONE: 011-86-10-82600527 MAIL ADDRESS: STREET 1: NO. 18 ZHONG GUAN CUN DONG ST. STREET 2: HAIDIAN DISTRICT CITY: BEIJING, STATE: F4 ZIP: 100083 FORMER COMPANY: FORMER CONFORMED NAME: Dolce Ventures, Inc DATE OF NAME CHANGE: 20050506 10-Q/A 1 v117077_10qa.htm Unassociated Document


U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

Amendment No. 1 to
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 March 31, 2008
 
or
 
o
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
32-0028823
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)

No.18 Zhong Guan Cun Dong St.
Haidian District
Beijing, P. R. China
100083
(Address of principal executive offices)
(Zip Code)
 
Issuer’s telephone number:  86-10-82600527
 

 
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 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 o
(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 o No x
 
As of May 12, 2008, the Registrant had 24,877,271 shares of common stock outstanding. 

Explanatory Note
This Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 initially filed with the Securities and Exchange Commission on May 15, 2008 is being filed to revise the earnings per share data in the Financial Statements.



Sino Gas International Holdings, Inc.
 
Table of Contents
 
   
 
Page
PART I -  
FINANCIAL INFORMATION
1
   
 
 
Item 1.  
Financial Statements
1
   
 
 
   
Notes to Financial Statements (Unaudited)
 7
   
 
 
Item 2.  
Management's Discussion and Analysis or Plan of Operation
 28
   
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
 
 
 
Item 4.  
Controls and Procedures
 36
   
 
 
PART II -  
OTHER INFORMATION
 37
   
 
 
Item 1.  
Legal Proceedings
 37
 
 
 
Item 1A.
Risk Factors
37
   
 
 
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds
 38
   
 
 
Item 3.  
Defaults Upon Senior Securities
 38
   
 
 
Item 4.  
Submission of Matters to a Vote of Security Holders.
 38
   
 
 
Item 5.  
Other Information
 38
   
 
 
Item 6.  
Exhibits
 38


 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
SINO GAS INTERNATIONAL HOLDINGS, INC.

REVIEWED FINANCIAL STATEMENTS
MARCH 31, 2008 AND DECEMBER 31, 2007
(Stated in US dollars)



SINO GAS INTERNATIONAL HOLDINGS, INC.

CONTENTS
PAGES
   
INDEPENDENT AUDITOR’S REPORT
1
   
CONSOLIDATED BALANCE SHEETS
2 – 3
   
CONSOLIDATED STATEMENTS OF INCOME
4
   
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
5
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
6
   
NOTES TO FINANCIAL STATEMENTS
7 – 27
 


Board of Directors and Stockholders
Sino Gas International Holdings, Inc.

Report of Independent Registered Public Accounting Firm

We have reviewed the accompanying consolidated interim balance sheets of Sino Gas International Holdings, Inc. as of March 31, 2008 and December 31, 2007, and the related consolidated statements of income, stockholders’ equity, and cash flows for the three-month periods ended March 2008 and 2007. These consolidated interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

Samuel H. Wong & Co., LLP
June 3, 2008
Certified Public Accountants

1


SINO GAS INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2008 AND DECEMBER 31, 2007
(Stated in US Dollars)

 
     
3/31/2008
 
12/31/2007
 
   
Note
         
ASSETS
                   
Current Assets
                   
Cash & cash equivalents
   
2(e)
 
$
8,021,212
 
$
10,915,590
 
Restricted cash
   
3
   
664,061
   
478,920
 
Notes receivable
   
 
   
586,711
   
825,119
 
Accounts receivable
   
2(f),4
   
6,162,418
   
7,315,253
 
Inventory
   
 
   
246,891
   
207,976
 
Advances to suppliers
   
2(g)
 
 
1,041,556
   
27,372
 
Prepayments and others
   
 
   
465,669
   
320,380
 
Other receivables
   
5
   
9,849,587
   
3,100,695
 
Total Current Assets
   
 
   
27,038,104
   
23,191,305
 
     
 
             
Non-Current Assets
   
 
             
Investment
   
2(h)
 
 
2,703,156
   
4,007,310
 
Property, plant & equipment, net
   
2(j),6
   
26,852,967
   
24,572,565
 
Construction in progress
   
2(l)
 
 
12,830,941
   
11,556,820
 
Intangible assets, net
   
2(k),7
   
2,112,337
   
2,028,250
 
Total non-current assets
   
 
   
44,499,401
   
42,164,945
 
     
 
             
TOTAL ASSETS
   
 
 
$
71,537,505
 
$
65,356,250
 
     
 
             
LIABILITIES & STOCKHOLDERS' EQUITY
   
 
             
     
 
             
Current Liabilities
   
 
             
Bank Loans
   
8
 
$
7,120,276
 
$
2,734,444
 
Accounts payable
   
 
   
1,417,807
   
716,707
 
Other payables
   
9
   
9,715,659
   
10,383,657
 
Unearned revenue
   
2(m)
 
 
640,615
   
312,573
 
Accrued liabilities
   
 
   
41,428
   
362,263
 
     
 
             
Total current liabilities
   
 
   
18,935,786
   
14,509,644
 
                     
TOTAL LIABILITIES
       
$
18,935,786
 
$
14,509,644
 
 
See accompanying notes to financial statements and accountant’s report

2


SINO GAS INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF MARCH 31, 2008 AND DECEMBER 31, 2007
(Stated in US Dollars)

STOCKHOLDERS' EQUITY
                   
                     
Preferred Stock A US $0.001 par value; 20,000,000 shares authorized; 275,111 shares issued and outstanding as of March 31, 2008 and December 31, 2007
   
10
 
$
275
 
$
275
 
     
 
             
Preferred Stock B US $0.001 par value; 5,000,000 shares authorized; 4,971,859 shares issued and outstanding as of March 31, 2008 and December 31, 2007
   
10
   
4,972
   
4,972
 
     
 
             
Common Stock US $0.001 par value; 250,000,000 shares authorized; 25,282,380 shares issued and outstanding as of March 31, 2008 and December 31, 2007
   
10
   
25,283
   
25,283
 
                     
Additional Paid in Capital
         
35,247,303
   
35,247,303
 
Statutory Reserve
         
3,481,730
   
3,258,201
 
Retained Earnings
         
10,358,228
   
10,432,430
 
Accumulated Other Comprehensive Income
         
3,483,929
   
1,878,142
 
                     
TOTAL STOCKHOLDERS' EQUITY
         
52,601,719
   
50,846,606
 
                     
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
       
$
71,537,505
 
$
65,356,250
 

See accompanying notes to financial statements and accountant’s report

3


SINO GAS INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated in US Dollars)

 
 
3/31/2008
 
3/31/2007
 
Net Sales
         
           
Revenues
 
$
4,342,116
 
$
2,438,227
 
Cost of revenues
   
(2,975,472
)
 
(1,837,630
)
Gross Profit
   
1,366,645
   
600,597
 
               
Operating Expenses
             
               
Selling and marketing expenses
   
(181,704
)
 
(56,198
)
General & administrative expenses
   
(833,451
)
 
(441,374
)
Total operating expenses
   
(1,015,154
)
 
(497,572
)
               
Operating Income/(Loss)
   
351,490
   
103,025
 
               
Other Income (Expenses)
             
               
Other income
   
-
   
36,088
 
Other expenses
   
(845
)
 
(1,495
)
Interest income
   
33,166
   
-
 
Interest expense
   
(60,467
)
 
(5,370
)
Total other income (expense)
   
(28,146
)
 
29,223
 
               
Earnings before tax
   
323,344
   
132,248
 
               
Income tax
   
(174,017
)
 
(16,865
)
               
Net income
 
$
149,327
 
$
115,383
 
               
Earnings per share
             
Basic
   
0.009
   
0.008
 
Diluted
   
0.007
   
0.004
 
               
Weighted Average Shares Outstanding
             
Basic
   
17,165,894
   
14,730,597
 
Diluted
   
22,017,096
   
28,724,652
 

See accompanying notes to financial statements and accountant’s report

4


SINO GAS INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AS OF MARCH 31, 2008 AND DECEMBER 31, 2007
(Stated in US Dollars)

                   
Common Stock
         
Accumulated
     
   
Preferred Stock A
 
Preferred Stock B
 
Common Stock
 
Additional
         
Other
     
   
Shares
 
 
 
Shares
     
Shares
     
Paid in
 
Statutory
 
Retained
 
Comprehensive
     
   
Outstanding
 
Amount
 
Outstanding
 
Amount
 
Outstanding
 
Amount
 
Capital
 
Reserve
 
Earnings
 
Income
 
Total
 
                                               
Balance, January 1, 2007
   
-
   
-
   
4,023,268
   
4,023
   
14,693,186
   
14,694
   
18,488,040
   
2,025,022
   
3,958,239
   
824,296
   
25,314,314
 
Net Income
                                                   
7,707,370
         
7,707,370
 
Issue of stock and warrant
   
275,111
   
275
   
948,591
   
949
   
10,589,194
   
10,589
   
16,759,263
                     
16,771,076
 
Appropriations of Retained Earnings
                                             
1,233,179
   
1,233,179
         
-
 
Foreign Currency Translation Adjustment
   
  
   
  
   
 
   
  
   
  
   
  
   
  
   
  
   
 
   
1,053,846
   
1,053,846
 
Balance, December 31, 2007
   
275,111
   
275
   
4,971,859
   
4,972
   
25,282,380
   
25,283
   
35,247,303
   
3,258,201
   
10,432,430
   
1,878,142
   
50,846,606
 
                                                                     
Balance, January 1, 2008
   
275,111
   
275
   
4,971,859
   
4,972
   
25,282,380
   
25,283
   
35,247,303
   
3,258,201
   
10,432,430
   
1,878,142
   
50,846,606
 
Net Income
                                                   
149,327
         
149,327
 
Issue of stock and warrant
                                                               
-
 
Appropriations of Retained Earnings
                                             
223,529
   
(223,529
)
       
-
 
Foreign Currency Translation Adjustment
                                                                                    
1,605,787
   
1,605,787
 
Balance, March 31, 2008
   
275,111
   
275
   
4,971,859
   
4,972
   
25,282,380
   
25,283
   
35,247,303
   
3,481,730
   
10,358,228
   
3,483,929
   
52,601,719
 

   
Accumulated Comprehensive Income
 
   
12/31/2007
 
3/31/2008
 
Total
 
Comprehensive Income
                   
Net Income
   
7,707,370
   
149,327
   
7,856,697
 
Comprehensive Other Income
                   
Foreign Currency Translation Adjustment
   
1,053,846
   
1,605,787
   
2,659,633
 
     
8,761,216
   
1,755,114
   
10,516,330
 

See accompanying notes to financial statements and accountant’s report

5


SINO GAS INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Stated in US Dollars)

   
3/31/2008
 
3/31/2007
 
Cash flow from operating activities
             
Net Income
 
$
149,327
 
$
115,383
 
Depreciation expense
   
640,248
   
38,844
 
Amortization expense
   
29,532
   
-
 
Invested in restricted time deposits
   
(185,141
)
 
3,124,541
 
Decrease/(increase) in accounts receivable
   
(5,357,649
)
 
310,419
 
Increase in inventory
   
(38,915
)
 
-
 
Increase in prepaid expenses
   
(831,430
)
 
-
 
Increase in accounts payable
   
(287,732
)
 
3,023,295
 
Cash sourced/(used) in operating activities
   
(5,881,760
)
 
6,612,482
 
               
Cash flows from investing activities
             
Cash received for investment sales proceeds
   
1304154
   
-
 
Cash paid for investment and acquisition
   
-
   
(930,801
)
Purchase of property, plant & equipment
   
(2,920,649
)
 
(3,320,688
)
Purchase of intangible assets
   
(113,620
)
 
(172,210
)
Increase in construction in progress
   
(1,274,121
)
 
(1,345,436
)
Cash souced/(used) in investing activities
   
(3,004,236
)
 
(5,769,135
)
               
Cash flows from financing activities
             
Proceeds from bank borrowings
   
4,385,832
   
(2,430,445
)
Cash sourced/(used) in financing activities
   
4,385,832
   
(2,430,445
)
               
Net Increase/(Decrease) in Cash & Cash Equivalents for the Year
   
(4,500,164
)
 
(1,587,098
)
               
Effect of Currency Translation on cash and cash equivalents
   
1,605,787
   
293,589
 
               
Cash & Cash Equivalents - Beginning of Year
 
$
10,915,590
 
$
3,638,673
 
                      
Cash & Cash Equivalents - End of Year
 
$
8,021,212
 
$
2,345,164
 
               
Supplementary cash flow information
             
Interest received
 
$
33,166
 
$
94,653
 
Interest paid
   
60,467
   
43,617
 
Income tax paid
   
-
   
16,865
 

See accompanying notes to financial statements and accountant’s report

6


SINO GAS INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

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 ultimate 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 Ltd. (“GIC”), an International Business Company incorporated in the British Virgin Islands, and its wholly-owned subsidiaries, involving an exchange of shares whereby the Company issued an aggregate of 14,361,646 shares to the shareholders of GIC in exchange for all of the issued and outstanding shares of GIC. 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 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. The Company owns and operates 24 natural gas distribution systems serving approximately 87,500 residential and five commercial and industrial customers. The Company’s facilities include approximately 700 kilometers of pipeline and delivery networks (including delivery trucks) with a designed daily capacity of approximately 70,000 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”.

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 PRC (“PRC GAAP”) 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.

7

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  
Method of Accounting

The Company maintains its general ledger and journals with the accrual method 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, which are compiled on the accrual basis of accounting.

(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 laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

(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.

8


The Company owned its subsidiaries soon after its inception and continued to acquire and own the equity interests throughout the reporting periods. The following table depicts the identities of the consolidating subsidiaries as of March 31, 2008 and December 31, 2007 (whichever applicable 2007).

Name of Company
 
Place of 
Incorporation
 
Date of 
Incorporation
 
Beneficiary 
interest %
 
Equity
Interest %
 
Registered
Capital
 
 
 
 The British
 
 
 
 
 
 
 
 
 
GAS Investment China Co., Ltd.
 
 
Virgin
Islands
 
 
6/19/2003
 
 
100
 
 
100
 
 
USD 10,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The British  
 
 
 
 
 
 
 
 
 
 
Sino Gas Construction Limited
 
 
Virgin
Islands
 
 
1/9/2007
 
 
100
 
 
100
 
 
USD 50,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sino Gas Investment Development Limited
 
 
The British
Virgin Islands
 
 
1/9/2007
 
 
100
 
 
100
 
 
USD 50,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beijing Zhong Ran Wei Ye Gas Co., Ltd
 
 
PRC
 
 
8/29/2001
 
 
100
 
 
100
 
 
RMB
150,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Peixian Weiye Gas Co., Ltd
 
 
PRC
 
 
8/22/2005
 
 
100
 
 
90
 
 
RMB
5,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sihong Weiye Gas Co., Ltd
 
 
PRC
 
 
12/3/2004
 
 
100
 
 
95
 
 
RMB
10,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wuhe Weiye Gas Co., Ltd
 
 
PRC
 
 
1/30/2007
 
 
100
 
 
100
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changli Weiye Gas Co., Ltd
 
 
PRC
 
 
12/8/2006
 
 
100
 
 
100
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Yutian Zhongran Weiye Gas Co., Ltd
 
 
PRC
 
 
12/19/2003
 
 
100
 
 
90
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Yuxian Jinli Gas Co., Ltd
 
 
PRC
 
 
11/8/2005
 
 
100
 
 
100
 
 
RMB
9,500,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Zhangjiakou City Xiahuayuan
Jinli Gas Co., Ltd.
 
 
PRC
 
 
9/30/2005
 
 
100
 
 
100
 
 
RMB
2,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wuqiao Gas Co., Ltd
 
 
PRC
 
 
6/30/2004
 
 
100
 
 
95
 
 
RMB
2,000,000
 
 
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jinzhou Weiye Gas Co., Ltd
 
 
PRC
 
 
7/19/2004
 
 
100
 
 
95
 
 
RMB
5,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shenzhou Weiye Gas Co., Ltd
 
 
PRC
 
 
12/23/2005
 
 
100
 
 
95
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ningjin Weiye Gas Co., Ltd
 
 
PRC
 
 
12/3/2003
 
 
100
 
 
95
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Linzhang Weiye Gas Co., Ltd
 
 
PRC
 
 
7/6/2005
 
 
100
 
 
85
 
 
RMB
1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hengshui Weiye Gas Co., Ltd
 
 
PRC
 
 
12/20/2005
 
 
100
 
 
100
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Longyao Zhongran Weiye Gas Co., Ltd
 
 
PRC
 
 
10/13/2005
 
 
100
 
 
95
 
 
RMB
3,000,000
 
 
 
 
 
 
9
 
 
 
 
 
 
 
 
Xingtang Weiye Gas Co., Ltd
 
 
PRC
 
 
2/18/2004
 
 
100
 
 
95
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gucheng Weiye Gas Co., Ltd
 
 
PRC
 
 
3/21/2007
 
 
100
 
 
100
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Langfang Development
Region Weiye dangerous
Goods Transportation Co., Ltd
 
 
PRC
 
 
3/22/2005
 
 
100
 
 
95
 
 
RMB
 1,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beijing Chenguang Gas Ltd.
 
 
PRC
 
 
10/30/2002
 
 
100
 
 
100
 
 
RMB
20,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Xinji Zhongchen Gas Co., Ltd
 
 
PRC
 
 
2/7/2007
 
 
100
 
 
100
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shijiazhuang Chenguang Gas Co., Ltd
 
 
PRC
 
 
6/14/2007
 
 
100
 
 
100
 
 
RMB
2,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Luquan Chenguang Gas Co., Ltd
 
 
PRC
 
 
4/27/2007
 
 
100
 
 
100
 
 
RMB
2,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chenan Chenguang Gas Co., Ltd
 
 
PRC
 
 
1/23/2007
 
 
100
 
 
100
 
 
RMB
1,500,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nangong Weiye Gas Co., Ltd
 
 
PRC
 
 
6/25/2007
 
 
100
 
 
100
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sishui Weiye Gas Co., Ltd
 
 
PRC
 
 
12/22/2004
 
 
100
 
 
95
 
 
RMB
3,000,000
 
 
10

 
 
 
 
 
 
 
 
 
 
 
 
 
Guannan Weiye Gas Co., Ltd
 
 
PRC
 
 
6/19/2003
 
 
100
 
 
100
 
 
RMB
9,510,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sixian Weiye Gas Co., Ltd
 
 
PRC
 
 
9/3/2007
 
 
100
 
 
100
 
 
RMB
3,000,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Baishan Weiye Gas Co., Ltd
 
 
PRC
 
 
7/13/1007
 
 
100
 
 
100
 
 
RMB
15,000,000
 

(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 and Other Receivable

Accounts and other 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.


(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. 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.

Beijing Zhongran Xiangke Oil Gas Technology Co. Ltd is the Company’s 40% owned investment and is principally engaged in sale of compressed natural gas to domestic households and industrial firms around the suburbs of Beijing as well as the suburban areas of the Hebei Province and Tianjin.

11


  Name of 
Associate 
Company
 
  Place 
of 
Registration
 
  Form of 
Business 
Structure
 
    Registered 
Capital
 
Nominal 
Value of 
Registered 
Capital
 
    Principal 
Activities
Beijing Zhongran
Xiangke Oil Gas
Technology Co. Ltd
PRC
 
Sino foreign equity 
joint venture
 
RMB
20,000,000
 
40
 
Trading of natural 
gas and gas pipeline 
construction

The Company did not record any goodwill when it acquired its equity position in Xiangke. Accordingly, in accordance with SFAS 142, the Company has not taken an amortization expense of goodwill during the time it has carried a 40% stake in Xiangke.

(i)  
Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting periods, there was no impairment loss.

(j)  
Plant and Equipment

Plant and equipment, other than construction in progress, are stated at cost less depreciation and amortization and accumulated impairment loss.

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

Gas Pipelines
 
 
25 years
 
Motor Vehicles
 
 
10 years
 
Machinery & Equipment
 
 
20 years
 
Buildings
 
 
25 years
 
Leasehold Improvements
 
 
25 years
 
Office Equipment
 
 
8 years
 

12

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 amortization and accumulated impairment loss. Amortization is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the intangibles are as follows:

Land use rights
40 - 50 years
Franchises
30 years
Other intangibles
3 years


(l)  
Construction in Progress

Construction in progress represents the cost of constructing pipelines and is stated at cost. Costs comprise 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 network and branch pipeline network to make gas connection to resident users, industrial, and commercial users, with the objective of generating revenue on gas connection and gas usage fees collected from these customers. As of March 31, 2008, the pipelines under construction include mainly the projects in Beijing. These projects, once completed, will significantly increase the gas supply capacity.


(m)  
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 prepayment as unearned revenue when the payments are received.

(n)  
Financial Instruments

The carrying amounts of all financial instruments approximate fair value. The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items. The carrying amounts of borrowings approximate the fair value based on the Company’s expected borrowing rate for debt with similar remaining maturities and comparable risk.

13


(o)  
Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The consolidated financial statements are translated into United States dollars from RMB at March 31, 2008 exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

   
 
3/31/2008
 
12/31/2007
Years end RMB : US$ exchange rate  
   
7.0222
   
7.3141
 
Average yearly RMB : US$ exchange rate  
   
7.1757
   
7.6172
 

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
 
(p)  
Revenue Recognition

Revenue is recognized when services are rendered to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

Net sales consist of gas and connection fee revenue. Cost of sales include gas and connection cost.

Gas connection revenue is recognized when the outcome of a contract can be estimated reliably and the stage of completion at the balance sheet date can be measured reliably.

Sales of natural gas are recognized when goods are delivered and title has passed.

(q)  
Investment Income

Investment income represents the Group’s share of post-acquisition results of its investment in equity securities for the year.

14


(r)  
Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of December 31, 2007, there was no significant book to tax differences.

Pursuant to the tax laws of PRC, general enterprises are subject to income tax at an effective rate of 33%. Beijing Gas is in the natural gas industry whose development is encouraged by the government. According to the income tax regulation, any company engaged in the natural gas industry enjoys a favorable tax rate. Also, Beijing Gas is exempt from corporate income tax for its first two years and is then entitled to a 50% tax reduction for the succeeding three years. The Company’s first profitable tax year was 2003. Accordingly, the Company’s income is subject to a reduced tax rate of 7.5%. From 2008 onwards, the Company’s income is subject to a reduced tax rate of 9%. Subsidiaries of Beijing Gas are subject to the effective rate of 25%.

(s)  
Advertising

The Group expensed all advertising costs as incurred

(t)  
Concentration of Credit Risk

Concentration of credit risk is limited to accounts receivable and is subject to the financial conditions of major customers. The Company does not require collateral or other security to support accounts receivable. The Company conducts periodic reviews of its clients’ financial condition and customers’ payment practices to minimize collection risk on accounts receivable.

(u)  
Retirement Benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred.
  
(v)  
Statutory Reserves

As stipulated by the Company Law of the People's Republic of China (PRC) as applicable to Chinese companies with foreign ownership, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

i.  
Making up cumulative prior years' losses, if any;

ii.  
Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital;
 
15

iii.  
Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting.

(w)  
Statement of Cash Flows

In accordance with Statement of SFAS 95, “Statement of Cash Flows”, cash flows from the Company’s operations is calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
 
(x)  
Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other consolidated financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

(y)  
Recent Accounting Pronouncements
 
In December 2007, the Financial Accounting Standards Board issued FASB Statement No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R provides additional guidance on improving the relevance, representational faithfulness, and comparability of the financial information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company believes there will be no material impact on its financial statements upon adoption of this standard.

In December 2007, the Financial Accounting Standards Board issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This Statement is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company believes there will be no material impact on its financial statements upon adoption of this standard.


 
(Z)
Earnings Per Share

Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method for warrants and the as-if method for convertible securities. Dilutive potential common shares include outstanding warrants, and convertible preferred stock.

16


3.
RESTRICTED CASH
 
Restricted Cash represents compensating balances held at banks to partially secure banking facilities in the form of loans and notes payable. The imposed restrictions dictate that funds cannot be withdrawn when there are outstanding loans and notes payable, and the funds are only allowed to be used to settle bank indebtedness. The funds deposited as compensating balances are interest bearing. The amount of cash restricted varies based on the Bank’s credit policy at the time that the Company requests for increase or extension of credit facilities.

4.
ACCOUNTS RECEIVABLE
 
For natural gas sales, it is due when the gas is sold. Normally, most of them are settled by prepayments from the customers.

In general for construction projects, deposits of 30% of total contract sum are received from client when the project commences. Second payment of 30% is received after the construction is completed for around 6 months. The final sum of the remaining portion normally acts as retention money for quality warranty to the developer. The retention money would be received by the company after the 1 year warranty period.

The phrase "receivables are due within one year of aging" means the receivable that are within one year of aging.

The "amounts are not due within one year" are mostly retention money from construction sales that are based on contracts. The continued demand from the natural gas sales from them also help assure the amount could be collected. No experience of wholly-unsettled accounts receivable in the year March 31, 2008 and December 31, 2007

Trade accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts and sales returns. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense is included in the general and administrative expenses.

Outstanding account balances are reviewed individually for collectibles. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection. The Company does not have any off-balance-sheet credit exposure to its customers, except for outstanding notes receivable discounted with banks that are subject to recourse for non-payment.

17

 
The credit and billing policy is that, for the residential customer, we collect prepayment from customers; for the industrial customers, we settle the payment based on the contract terms signed, from 10 days to one month; for the construction business, we collect the payment from customer based on the percentage of the construction progress. The risk that business faces from inability to collect account is Operation risk in industrial customers.
 
Accounts Receivable
 
           
   
3/31/2008
 
12/31/2007
 
Gross accounts receivable
 
$
6,193,385
 
$
7,352,013
 
Allowance for bad debt
   
30,967
   
(36,760
)
Net accounts receivable
 
$
6,162,418
 
$
7,315,253
 

Allowance for Bad Debt
 
           
   
3/31/2008
 
12/31/2007
 
Beginning balance
 
$
36,760
 
$
32,838
 
Addition
   
19,939
   
26,909
 
Less - write off
   
(25,732
)
 
(22,987
)
Ending balance
 
$
30,967
 
$
36,760
 
 
Accounts Receivable Aging Report
 
           
   
3/31/2008
 
12/31/2007
 
           
30 Days
 
$
4,681,398
 
$
5,557,172
 
30-60 Days
   
1,021,345
   
1,212,413
 
60-90 Days
   
23,157
   
8,747
 
90-180 Days
   
171,660
   
-
 
180-360 Days
   
257,490
   
27,489
 
>360 Days
   
7,369
   
509,433
 
Total
 
$
6,162,418
 
$
7,315,254
 
 
18


The followings are the largest ten accounts receivable as of March 31, 2008
 
       
Peixian jiangnan development Co., Ltd
 
$
290,507
 
Beijing xuancheng Construction Co., Ltd
   
297,881
 
Jiangshu honghu farm Co., Ltd
   
301,558
 
Sihong jinwan construction Co., Ltd
   
323,545
 
Xuzhou shenyuan real property Co., Ltd
   
351,048
 
Guannan construction Co., Ltd
   
359,716
 
Lianyun port development Co., Ltd
   
372,533
 
Huabei oil management machine Co., Ltd
   
412,549
 
Shanghai datun energy Co., Ltd
   
604,771
 
Hebei zhonggang stell development Co., Ltd
   
892,056
 
         
Total
 
$
4,206,165
 

5. OTHER RECEIVABLES

The followings are the ten largest other receivables as of March 31, 2008

Other receivables
 
   
3/31/2008
 
       
Beijing yanfang construction Co., Ltd.
 
$
15,434
 
Xisanzhuang Co., Ltd.
   
21,423
 
Shenzhen shenqi investment Co., Ltd.
   
23,732
 
Peixuan construction service department
   
28,481
 
Beijing zhongshi investment Co., Ltd.
   
42,722
 
Shangjianzhong
   
327,533
 
China gas investment Co., Ltd.
   
333,939
 
Tianjin feite zhixun service Co., Ltd.
   
356,014
 
Baishan zhaiwu service Co., Ltd.
   
1,968,852
 
Baoding city management Co., Ltd.
   
4,272,165
 
         
Total
 
$
7,390,295
 

19


 6.  PROPERTY, PLANT AND EQUIPMENT

  Property, Plant and Equipment consist of the following as of March 31, 2008 and December 31, 2007

   
03/31/08
 
12/31/07
 
At Cost
         
Gas Pipelines
 
$
20,925,765
 
$
18,885,734
 
Motor Vehicles
   
5,351,869
   
4,874,685
 
Machinery & Equipment
   
867,089
   
885,997
 
Buildings
   
1,748,881
   
1,405,638
 
Leasehold Improvements
   
72,036
   
68,942
 
Office Equipment
   
181,345
   
105,336
 
               
Total
 
$
29,146,985
 
$
26,226,336
 
               
Less: Accumulated Depreciation
   
(2,294,018
)
 
(1,653,771
)
               
Property, Plant and Equipment, net
 
$
26,852,967
 
$
24,572,565
 

   
03/31/08
 
12/31/07
 
Accumulated Depreciation
         
Gas Pipelines
 
$
1,074,075
 
$
591,419
 
Motor Vehicles
   
821,796
   
687,354
 
Machinery & Equipment
   
170,595
   
161,703
 
Buildings
   
131,312
   
128,514
 
Leasehold Improvements
   
38,269
   
34,070
 
Office Equipment
   
57,971
   
50,711
 
               
Total
 
$
2,294,018
 
$
1,653,771
 

Depreciation expense included in the consolidated statements of income for the period ended March 31, 2008 was $640,247.

20


7.  INTANGIBLE ASSETS

Intangible assets consist of the following as of March 31, 2008 and December 31, 2007

   
03/31/08
 
12/31/07
 
At Cost
         
Land use rights
 
$
471,747
 
$
452,345
 
Franchises
   
384,495
   
359,464
 
Goodwill
   
1,627,140
   
1,562,202
 
Other
   
13,813
   
9,563
 
Total
 
$
2,497,195
 
$
2,383,574
 
               
Less: Accumulated Amortization
   
(384,857
)
 
(355,324
)
               
Intangible Assets, net
 
$
2,112,338
 
$
2,028,250
 

The Group operates as a local natural gas distributor in a city or county, known as an operation location, under an exclusive franchise agreement between the Group and the local government or entities in charge of gas utility. Franchises are the rights to develop sites in Anping and Jinzhou in China. They are stated at cost less accumulated depreciation.

 
8. SHORT-TERM BANK LOANS

Short-term bank loans are as follows:

   
3/31/2008
 
12/31/2007
 
Loans from China Renmin Bank Co.,Ltd.
Interest rate at 7.22% per annual plus 10% fluctuation market rate
 
$
2,848,110
 
$
2,734,444
 
Loans from Huashang Bank Co., Ltd.
   
4,272,165
   
-
 
Total
 
$
7,120,276
 
$
2,734,444
 

Interest expenses for the short-term bank loans were $57,877 and $55,405 for the three months ended March 31, 2008, and the twelve months ended December 31, 2007.

21


9.  OTHER PAYABLES

Other payables at March 31, 2008 and December 31, 2007 consist of the following:

   
3/31/2008
 
12/31/2007
 
Employees’ welfare payables
 
$
218,637
 
$
176,236
 
Amount due to employees
   
30,061
   
150,711
 
Tax payable
   
243,439
   
922,620
 
Other Payable
   
9,223,522
   
9,134,091
 
Total
 
$
9,715,659
 
$
10,383,657
 

All the amounts due to employees are unsecured, interest free, and have no fixed repayment terms.

The followings are the ten largest other payables as of March 31, 2008

Beijing chengguang Co., Ltd.
 
$
19,833
 
Caiyou erchuang transportation Co.
   
25,674
 
Education department Co., Ltd.
   
38,528
 
Labor union department
   
60,757
 
Heshuchun
   
71,203
 
Beijing qianshi technology development Co.
   
78,602
 
Social insurance Co., Ltd.
   
117,263
 
Employee training program Co., Ltd.
   
411,860
 
Chenguang weizhong consultant Co., Ltd.
   
427,217
 
Baishan natural gas Co., Ltd
   
4,010,447
 
         
Total
 
$
5,261,384
 

10.    CAPITAL STOCK

The authorized capital stock consists of (i) 250,000,000 shares of common stock, par value $0.001 per share, of which there are 25,282,380 shares issued and outstanding, and (ii) 100,000,000 shares of preferred stock, par value $0.001 per share. The preferred stock consists of (i) series A convertible preferred stock, of which 20,000,000 shares have been authorized and 275,111 shares are issued and outstanding; and (ii) series B convertible preferred stock, of which 5,000,000 shares have been authorized and 4,971,859 shares are issued and outstanding.

22


The following is a summary of the material terms of its capital stock. This summary is subject to and qualified in its entirety by its Articles of Incorporation, as amended and corrected, certificates of designations for its series A and series B convertible preferred stock, its by-laws and by the applicable provisions of Utah law.

Common Stock

The Company is authorized to issue 250,000,000 shares of common stock, with a par value of $0.001. There are 25,282,380 shares of common stock issued and outstanding as of March 31, 2008. All shares of common stock have one vote per share on all matters including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the company, the holders of common stock will share equally in any balance of the company's assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of common stock are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the board of directors from funds legally available.

Preferred Stock

In addition to the 250,000,000 shares of common stock, The Company is authorized to issue 100,000,000 shares of preferred stock, with a par value of $0.001 per share. Shares of the preferred stock may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the board of directors prior to the issuance.

On August 30, 2006, the Company’s board of directors designated 20,000,000 shares of its authorized $0.001 par value per share preferred stock as series A convertible preferred stock and 5,000,000 shares of its preferred stock as series B convertible preferred stock. On August 31, 2006, the Company filed certificates of designations for the series A and series B convertible preferred stock with the Office of the Secretary of State of Utah. On September 6, 2006, the board of directors amended the designations of the Series B convertible preferred stock and the Company filed an amended certificate of designations for the Series B convertible preferred stock with the Office of the Secretary of State of Utah. The board of directors created the series A convertible preferred stock to allow the Company to consummate the share exchange transaction with the Gas (BVI) Shareholders and the series B convertible preferred stock in connection with its private financing transactions, although the Company does not have sufficient unissued authorized common stock to allow for a complete conversion. Each of the shares of series A convertible preferred stock was automatically converted into one share of its common stock upon the effectiveness of its reverse stock-split on November 17, 2006. Therefore, as of December 31, 2006, the Company has no shares of series A convertible preferred stock issued and outstanding.

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Conversion

The Company issued 14,361,646 of its common shares upon the automatic conversion of its series A convertible preferred shares after the 304.44-for-1 reverse stock-split on November 17, 2006. The Company no longer has any series A convertible preferred shares outstanding.

Each share of the series B convertible preferred stock will become convertible into common stock, at the option of its holder after the 304.44-for-1 reverse stock-split, based on the then applicable conversion rate, which is initially one share of series B convertible preferred stock for one share of common stock.

Total Capitalization

The Following table depicts an analysis of total capitalization for the issuance of Preferred Stock A, Preferred Stock B, Common Stock, and the related additional Paid in Capital as of March 31, 2008:

   
Preferred Stock A
 
Preferred Stock B
 
Common Stock
         
Name of Shareholder
 
Number of 
Shares 
Outstanding
 
Capital
 
Number of 
Shares 
Outstanding
 
Capital
 
Number of 
Shares 
Outstanding
 
Capital
 
Additional  
Paid in
Capital
 
% of Equity
Holdings
 
                                   
Private Investor
   
275,111
   
275
   
-
   
-
   
-
   
-
   
1,210,213
   
0.90
%
Investor Relations firm
   
-
   
-
   
4,971,859
   
4,972
   
-
   
-
   
6,994,270
   
16.29
%
Management / Insider
   
-
   
-
   
-
   
-
   
12,653,661
   
12,654
   
4,252,959
   
41.45
%
Investor - 1st Round Raising
   
-
   
-
   
-
   
-
   
5,628,722
   
5,629
   
2,997,371
   
18.44
%
Less : Cost of Stock Issurance
   
-
   
-
   
-
   
-
   
-
   
-
   
(412,241
)
 
-
 
Investor - 2nd Round Raising
   
-
   
-
   
-
   
-
   
6,999,997
   
7,000
   
15,743,000
   
22.93
%
Less : Cost of Stock Issurance
   
-
   
-
   
-
   
-
   
-
   
-
   
(1,957,133
)
 
-
 
Beneficial Conversion Feature
   
-
   
-
   
-
   
-
   
-
   
-
   
6,418,864
   
-
 
     
275,111
   
275
   
4,971,859
   
4,972
   
25,282,380
   
25,283
   
35,247,303
   
100.00
%

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11.  SEGMENT INFORMATION

The Company has contracted with customers usually in two revenue segments altogether, one is for the construction and installation of gas facilities and another one is the subsequent sales of gas to that customers through the gas facilities the Company constructs. However, the respective gas facilities contracts and gas supply contracts have separately provided for the basis of revenue recognition and distinctive from each other for the relevant cost-and-revenue to be incurred and hence separate calculation and subsequent payment of fees for respective business without any interdependence on each other in this respect.
 
For management purposes, the company is currently organized into two major operating divisions - gas pipeline construction (installation of gas facilities) and sales of piped gas. These principal operating activities are the basis on which the Company reports its primary segment information.

3/31/2008 Balance Sheet Segment Report
 
                   
   
Gas Distribution
 
Gas pipeline 
Installation 
 
Others 
 
Total 
 
Assets
                         
Current Assets
 
$
14,147,456
 
$
4,688,771
 
$
8,201,877
 
$
27,038,104
 
Non-Current Assets
   
11,194,047
   
33,305,354
   
-
   
44,499,401
 
Total Assets
 
$
25,341,504
 
$
37,994,124
 
$
8,201,877
 
$
71,537,505
 
                           
Liabilities
                         
Current Liabilities
   
1,604,946
   
17,175,131
   
155,709
   
18,935,786
 
Total Liabilities
 
$
1,604,946
 
$
17,175,131
 
$
155,709
 
$
18,935,786
 
                           
Net Assets
 
$
23,736,558
 
$
20,818,993
 
$
8,046,168
 
$
52,601,719
 

25


3/31/2008 Income Statement Segment Report
 
                   
   
Gas Distribution
 
Gas pipeline 
Installation