----

----

| Nevada                                                         |   | 45-0538522                        |
|----------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (IRS Employer Identification No.) |

| Large Accelerated Filer | o |   | Accelerated Filer         | o |
|-------------------------|---|--------|---------------------------|---|
| Non-accelerated filer   | o |   | Smaller reporting company | x |

----

| 1. | We had originally recorded a tax benefit that we received from the local government as a tax credit for the period in which the income was generated. However, we now feel it is more appropriate to record the benefit as other income when we receive it from the government.  Accordingly, our effective estimated tax rate is changed to 25% and this preferential tax treatment is currently accounted for as other income when it was received. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | We have revised our calculation of basic earnings per share to include the shares of Series M preferred stock as  participating securities under the two-class accounting method.   As such, we have revised our calculation of basic earnings per share to include the shares of Series M preferred stock. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Originally, the Series A and Series B preferred stock was classified as permanent equity.  After review and consideration, management has now concluded that, as a result of certain potential merger and acquisition activity, there exists one potential situation where the redemption provision could occur outside of the control of the Company. Accordingly, the Series A and Series B preferred stock has now been classified as temporary equity. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | Originally we recognized a consumption tax refund receivable when the consumption tax had been paid and the relevant products had been used for production. Initially we recorded these refunds as a tax receivable of approximately $8.2 million in the quarter ending September 30, 2010.  After additional review and analysis of the policy, management now believes that the policy is retroactive to January 2010 and it should be accounted for retroactively in the period when the tax receivable was earned.  Accordingly, we have now adopted the policy retroactively and recorded an estimated consumption tax refund amounting to $28,300,000, of which $25,110,00  has been recorded as deduction from cost of goods sold and $2,740,000 as deduction from inventories, respectively. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.   | We have added additional disclosures of our related party transactions to ensure that we include all of the disclosures required under US GAAP and the rules and regulations of the SEC. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | Originally we accrued the 2nd quarter dividend for Series A shareholders in the 3rd quarter.  We have revised to accrue the 2nd quarter dividend in the same quarter. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7.   | Though the amount of the off-the-books account during the period ending September 30, 2010 was determined to be immaterial to the earnings of the Company, we have updated subsequent event in the footnote in connection with its existence and also in connection with the investigation commenced by the Audit Committee in April 2011. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 8. | We have added revised disclosure of our internal controls and procedures over financial reporting (ICFR) for the three   months ended December 31, 2010 |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| PART I - FINANCIAL INFORMATION                                                     |                     |
|------------------------------------------------------------------------------------|--------------------------|
|                                                                               |                     |
| Item 1.  Financial Statements                                            |   1                 |
|                                                                               |                     |
| Report of Independent Registered Public Accounting Firm                            |   1                 |
|                                                                               |                     |
| Restated Consolidated Balance Sheets                                               |   2                 |
|                                                                               |                     |
| Restated Consolidated Statements of Operations and Comprehensive Income (loss)     |   3                 |
|                                                                               |                     |
| Restated Consolidated Statements of Cash Flows                                     |   4                 |
|                                                                               |                     |
| Notes to Restated Consolidated Financial Statements (Unaudited)                    |   5 – 39 |
|                                                                               |                     |
| Item 2.  Management’s Discussion and Analysis or Plan of Operation |   40                |
|                                                                               |                     |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk      |   48                |
|                                                                               |                     |
| Item 4. Controls and Procedures                                                    |   48                |
|                                                                               |                     |
| 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.  (Removed and Reserved)                                          |   51                |
|                                                                               |                     |
| Item 5.  Other Information                                               |   51                |
|                                                                               |                     |
| Item 6.  Exhibits                                                        |   51                |
|                                                                               |                     |

----

|   |   |                                                                                                                       |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|
|   |   | /s/ PATRIZIO & ZHAO, LLC                                                                                               |   |
|   |   | Parsippany, New Jersey                                                                                                     |   |
|   |   | November 15, 2010(Except for the Note 2, 6, 7, 16, 20, 22, 23, 24, 25, 26 and 27 as to which the date is October 28, 2011) |   |

----

|                                                                                                    |   | September 30, |             |   | December 31, |   |
|---------------------------------------------------------------------------------------------------------|--------|---------------|------------------|--------|--------------|--------|
|                                                                                                    |   | 2010          |             |   | 2009         |   |
| Assets                                                                                                  |   | (Restated)    |             |   | (Restated)   |   |
| Current assets:                                                                                         |   | (Unaudited)   |             |   |         |   |
| Cash and cash equivalents                                                                               |   | $             | 44,932,623       |   |         | $      | 14,030,655 |   |
| Restricted cash                                                                                         |   |          | 68,422,905       |   |         |   | 6,012,690 |   |
| Trade notes receivable                                                                                  |   |          | 3,292,506        |   |         |   | 400,491 |   |
| Inventories                                                                                             |   |          | 77,135,949       |   |         |   | 32,595,045 |   |
| Advance payments                                                                                        |   |          | 18,173,457       |   |         |   | 7,417,202 |   |
| Prepaid taxes                                                                                           |   |          | 22,270,047       |   |         |   | 15,263,949 |   |
| Tax refund receivable                                                                                   |   |          | 28,345,187       |   |         |   | - |   |
| Due from unrelated parties                                                                              |   |          | -                |   |         |   | 1,068,741 |   |
| Deferred tax assets                                                                                     |   |          |             |   |         |   | 3,486,922 |   |
| Other current assets                                                                                    |   |          | 379,515          |   |         |   | 581,706 |   |
| Total current assets                                                                                    |   |          | 262,952,189      |   |         |   | 80,857,401 |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
| Property, plant and equipment, net                                                                      |   |          | 129,086,205      |   |         |   | 131,824,617 |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
| Intangibles, net                                                                                        |   |          | 12,256,149       |   |         |   | 6,378,316 |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
| Total assets                                                                                            |   | $             | 404,294,543      |   |         | $      | 219,060,334 |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
| Liabilities                                                                                             |   |          |             |   |         |   |   |   |
| Current liabilities:                                                                                    |   |          |             |   |         |   |   |   |
| Accounts payable – trade and accrued expenses                                                     |   | $             | 57,040,944       |   |         | $      | 2,888,860 |   |
| Accounts payable – construction related                                                           |   |          | 21,625,440       |   |         |   | 45,374,656 |   |
| Short-term bank loans                                                                                   |   |          | 123,104,239      |   |         |   | 82,885,500 |   |
| Notes payable                                                                                           |   |          | 52,844,100       |   |         |   | 13,719,134 |   |
| Current portion of long-term bank loans                                                                 |   |          | 20,508,900       |   |         |   | 7,628,400 |   |
| Advances from customers                                                                                 |   |          | 23,151,303       |   |         |   | 16,549,644 |   |
| Dividend payable                                                                                        |   |          | 694,784          |   |         |   | - |   |
| Due to former shareholder                                                                               |   |          | -                |   |         |   | 733,500 |   |
| Due to unrelated parties                                                                                |   |          | -                |   |         |   | 953,550 |   |
| Other current liabilities                                                                               |   |          | 272,740          |   |         |   | 290,631 |   |
| Total current liabilities                                                                               |   |          | 299,242,450      |   |         |   | 171,023,875 |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
|  Long-term bank loans                                                                              |   |          | 19,461,000       |   |         |   | 37,408,500 |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
| Total liabilities                                                                                       |   |          | 318,703,450      |   |         |   | 208,432,375 |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
| Equity                                                                                                  |   |          |             |   |         |   |   |   |
| Temporary Equity                                                                                        |   |          |             |   |         |   |   |   |
| Series A convertible preferred stock, $0.001 par value, 20,000,000 shares                               |   |          |             |   |         |   |   |   |
|   authorized, 6,738,336 shares issued and outstanding at                                      |   |          |             |   |         |   |   |   |
|   September 30, 2010                                                                          |   |          | 21,018,143       |   |         |   | - |   |
|      Series B convertible preferred stock, $0.001 par value, 20,000,000 shares |   |          |             |   |         |   |   |   |
|         authorized, 5,400,010 shares issued and outstanding at  |   |          |             |   |         |   |   |   |
|         September 30, 2010                                      |   |          | 16,701,565       |   |         |   | - |   |
|                                                                                                    |   |          |             |   |         |   |   |   |
| Stockholders’ equity:                                                                             |   |          |             |   |         |   |   |   |
| Series M preferred stock, $0.001 par value, 47,658 shares                                               |   |          |             |   |         |   |   |   |
| authorized, issued and outstanding at September 30, 2010                                                |   |          | 48               |   |         |   | 48 |   |
| Common stock, $0.001 par value, 50,000,000 shares authorized,                                           |   |          |             |   |         |   |   |   |
|   3,181,504 issued and outstanding at September 30,2010                                       |   |          | 3,182            |   |         |   | - |   |
| Additional paid-in capital                                                                              |   |          | 25,358,650       |   |         |   | 20,229,949 |   |
| Retained earnings (deficit)                                                                             |   |          | 19,050,390       |   |         |   | (10,664,819 | ) |
| Accumulated other comprehensive income                                                                  |   |          | 3,459,115        |   |         |   | 1,062,781 |   |
| Total stockholders’ equity                                                                        |   |          | 47,871,385       |   |         |   | 10,627,959 |   |
| Total equity                                                                                            |   |          | 85,591,093  |   |         |   | 10,627,959  |   |
| Total liabilities and equity                                                                            |   | $             | 404,294,543      |   |         | $      | 219,060,334 |   |

----

|                                                                                                                           |   | For the Three Months |        |   | For the Nine Months |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|-------------|--------|---------------------|--------|
|                                                                                                                           |   | Ended September 30,  |        |   | Ended September 30, |   |
|                                                                                                                           |   | 2010                 |        |   | 2009                |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                           |   | (Restated)           |        |   | (Restated)          |   |   | (Restated) |   |   | (Restated) |   |
| Sales                                                                                                                          |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|   External parties                                                                                                   |   |                 | 112,547,711 |   |                |   | - |   |   |   | 314,729,952 |   |   |   | - |   |
|   Related parties                                                                                                    |   |                 | 38,796,255  |   |                |   | 7,362,101 |   |   |   | 85,983,117 |   |   |   | 7,362,101 |   |
| Total Sales                                                                                                                    |   | $                    | 151,343,966 |   |                | $      | 7,362,101 |   |   | $ | 400,713,069 |   |   | $ | 7,362,101 |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Cost of Sales                                                                                                                  |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|   External parties                                                                                                   |   |                 | 84,197,313  |   |                |   | - |   |   |   | 271,636,985 |   |   |   | - |   |
|   Related parties                                                                                                    |   |                 | 34,397,567  |   |                |   | 6,091,133 |   |   |   | 78,865,712 |   |   |   | 6,091,133 |   |
| Cost of sales                                                                                                                  |   |                 | 118,594,880 |   |                |   | 6,091,133 |   |   |   | 350,502,697 |   |   |   | 6,091,133 |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                                                                   |   |                 | 32,749,086  |   |                |   | 1,270,968 |   |   |   | 50,210,372 |   |   |   | 1,270,968 |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                                                                             |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|          Selling expenses                                                                   |   |                 | 97,871      |   |                |   | 3,404 |   |   |   | 441,284 |   |   |   | 3,404 |   |
|          General and administrative expenses                                           |   |                 | 2,157,939   |   |                |   | 839,699 |   |   |   | 4,176,551 |   |   |   | 2,076,292 |   |
|                  Total operating expenses |   |                 | 2,255,810   |   |                |   | 843,103 |   |   |   | 4,617,835 |   |   |   | 2,079,696 |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations                                                                                                  |   |                 | 30,493,276  |   |                |   | 427,865 |   |   |   | 45,592,537 |   |   |   | (808,728 | ) |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expenses):                                                                                                       |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|          Interest expense, net                                                    |   |                 | (3,850,712  | )      |                |   | (568,242 | ) |   |   | (6,514,174 | ) |   |   | (821,422 | ) |
|          Non-operating income (expense)                                           |   |                 | 1,897,007   |   |                |   | (86,426 | ) |   |   | 1,906,606 |   |   |   | (227,332 | ) |
|                  Total other expenses               |   |                 | (1,953,705  | )      |                |   | (654,668 | ) |   |   | (4,607,568 | ) |   |   | (1,048,754 | ) |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before provision for income Taxes                                                                                |   |                 | 28,539,571  |   |                |   | (226,803 | ) |   |   | 40,984,969 |   |   |   | (1,857,482 | ) |
|                                                                                                                      |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Provision (benefit) for income taxes                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|          Current tax provision                                                         |   |                 | 7,383,399   |   |                |   | - |   |   |   | 10,574,976 |   |   |   |   |   |
|          Deferred tax benefit                                                          |   |                 | -           |   |                |   | (56,700 | ) |   |   | - |   |   |   | (464,370 | ) |
|                  Total                         |   |                 | 7,383,399   |   |                |   | (56,700 | ) |   |   | 10,574,976 |   |   |   | (464,370 | ) |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) attributable to Keyuan Petrochemicals, Inc. stockholders                                                     |   |                 | 21,156,172  |   |                |   | (170,103 | ) |   |   | 30,409,993 |   |   |   | (1,393,112 | ) |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Dividends to Series A convertible preferred stockholders                                                                       |   |                 | 396,300     |   |                |   | - |   |   |   | 684,798 |   |   |   | - |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Dividends to Series B convertible preferred stockholders                                                                       |   |                 | 9,986       |   |                |   | - |   |   |   | 9,986 |   |   |   | - |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) attributable to Keyuan Petrochemicals, Inc. common stockholders                                              |   |                 | 20,749,886  |   |                |   | - |   |   |   | 29,715,209 |   |   |   | - |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income                                                                                                     |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|          Foreign currency translation adjustment                                       |   |                 | 2,202,386   |   |                |   | 24,841 |   |   |   | 2,396,334  |   |   |   | 20,363 |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income (loss)                                                                                                    |   | $                    | 23,358,558  |   |                | $      | (145,262 | ) |   | $ | 32,806,327 |   |   | $ | (1,372,749 | ) |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                                                      |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|   Attributable to common stock                                                                                       |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|   -Basic                                                                                                             |   | $                    | 0.41        |   |                | $      | 0.00 |   |   | $ | 0.60 |   |   | $ | 0.00 |   |
|   -Diluted                                                                                                           |   | $                    | 0.37        |   |                | $      | 0.00 |   |   | $ | 0.57 |   |   | $ | 0.00 |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|   Attributable to Series M preferred stocks                                                                          |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|   -Basic                                                                                                             |   | $                    | 408.14      |   |                | $      | 0.00 |   |   | $ | 599.99 |   |   | $ | 0.00 |   |
|   -Diluted                                                                                                           |   | $                    | 365.09      |   |                | $      | 0.00 |   |   | $ | 567.25 |   |   | $ | 0.00 |   |
|                                                                                                                           |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|          Weighted average number of common shares outstanding                          |   |                 |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
|                 Basic                               |   |                 | 3,181,504   |   |                |   | - |   |   |   | 1,867,972 |   |   |   | - |   |
|                 Diluted                             |   |                 | 57,948,173  |   |                |   |   |   |   |   | 53,609,751 |   |   |   | - |   |

----

|                                                     |   | For the Nine Months Ended September 30, |        |
|----------------------------------------------------------|--------|-----------------------------------------|-------------|
|                                                     |   | 2010                                    |        |   | 2009 |   |
|                                                     |   | (Restated)                              |        |   | (Restated) |   |
| Cash flows from operating activities:                    |   |                                    |        |   |   |   |
| Net income (loss)                                        |   | $                                       | 30,409,993  |   |   | $ | (1,393,112 | ) |
| Adjustments to reconcile net income (loss) to net cash   |   |                                    |        |   |   |   |   |   |
|   provided by (used in) operating activities:  |   |                                    |        |   |   |   |   |   |
|       Share-based payments |   |                                    | 770,270     |   |   |   | - |   |
| Depreciation and amortization                            |   |                                    | 6,374,361   |   |   |   | 270,183 |   |
| Deferred tax assets                                      |   |                                    | 3,496,430   |   |   |   | (464,370 | ) |
| Changes in current assets and current liabilities:       |   |                                    |        |   |   |   |   |   |
| Notes receivable                                         |   |                                    | (2,833,738  | ) |   |   | - |   |
| Inventories                                              |   |                                    | (43,112,327 | ) |   |   | (29,215,139 | ) |
| Advance payments for raw materials                       |   |                                    | (10,420,393 | ) |   |   | - |   |
| Prepaid taxes                                            |   |                                    | (6,085,388  | ) |   |   | (11,200,246 | ) |
| Tax refund receivable                                    |   |                                    | (28,345,187 | ) |   |   | - |   |
| Other current assets                                     |   |                                    | 209,357     |   |   |   | (349,133 | ) |
| Accounts payable – trade and accrued expenses      |   |                                    | 53,154,501  |   |   |   | (44,994 | ) |
| Advances from customers                                  |   |                                    | 6,154,441   |   |   |   | 3,026,569 |   |
| Other current liabilities                                |   |                                    | (22,713     | ) |   |   | 4,839,897 |   |
| Total adjustments                                        |   |                                    | (20,660,386 | ) |   |   | (33,137,233 | ) |
|                                                     |   |                                    |        |   |   |   |   |   |
| Net cash provided by (used in) operating activities      |   |                                    | 9,749,607   |   |   |   | (34,530,345 | ) |
|                                                     |   |                                    |        |   |   |   |   |   |
| Cash flows from investing activities:                    |   |                                    |        |   |   |   |   |   |
| Advance payments for construction in progress            |   |                                    | -           |   |   |   | (9,982,433 | ) |
| Due from unrelated parties                               |   |                                    | 1,071,478   |   |   |   | - |   |
| Additions to property and equipment                      |   |                                    | (781,468    | ) |   |   | (53,220,371 | ) |
| Additions to intangible assets                           |   |                                    | (5,900,639  | ) |   |   | (51,307 | ) |
| Accounts payable – construction related            |   |                                    | (24,248,530 | ) |   |   | 15,816,422 |   |
|                                                     |   |                                    |        |   |   |   |   |   |
| Net cash used in investing activities                    |   |                                    | (29,859,159 | ) |   |   | (47,437,689 | ) |
|                                                     |   |                                    |        |   |   |   |   |   |
| Cash flows from financing activities:                    |   |                                    |        |   |   |   |   |   |
| Restricted cash                                          |   |                                    | (61,205,447 | ) |   |   | (2,661,048 | ) |
| Proceeds from short-term bank loans                      |   |                                    | 37,854,656  |   |   |   | 66,698,450 |   |
| Proceeds from bank notes                                 |   |                                    | 38,169,758  |   |   |   | 7,329,500 |   |
| Due to former shareholder                                |   |                                    | (735,500    | ) |   |   | 5,703,007 |   |
| Due to unrelated parties                                 |   |                                    | (956,150    | ) |   |   | - |   |
| Repayment of long-term bank loans                        |   |                                    | (5,884,000  | ) |   |   | - |   |
| Capital contribution in cash                             |   |                                    | -           |   |   |   | 9,650,000 |   |
| Proceeds from issuance of preferred stock and warrants   |   |                                    | 42,081,321  |   |   |   | - |   |
|                                                     |   |                                    |        |   |   |   |   |   |
| Net cash provided by financing activities                |   |                                    | 49,324,638  |   |   |   | 86,719,909 |   |
|                                                     |   |                                    |        |   |   |   |   |   |
| Effect of foreign currency translation on cash           |   |                                    | 1,686,882   |   |   |   | 3,565 |   |
|                                                     |   |                                    |        |   |   |   |   |   |
| Net increase in cash and cash equivalents                |   |                                    | 30,901,968  |   |   |   | 4,755,440 |   |
|                                                     |   |                                    |        |   |   |   |   |   |
| Cash and cash equivalents – beginning of period    |   |                                    | 14,030,655  |   |   |   | 9,094,537 |   |
|                                                     |   |                                    |        |   |   |   |   |   |
| Cash and cash equivalents – ending of period       |   | $                                       | 44,932,623  |   |   | $ | 13,849,977 |   |
| Supplemental schedule of non cash activities:            |   |                                    |        |   |   |   |   |   |
|    Preferred stock dividends declared     |   | $                                       | 694,784     |   |   | $ | - |   |

----

----

|                          |   | September 30, 2010 |       |   | December 31, 2009 |   |
|-------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                          |   |               |       |   |              |   |
| Raw materials                 |   | $                  | 42,004,148 |   |              | $      | 14,740,077 |   |
| Work in process               |   |               | 3,130,045  |   |              |   | 1,558,588 |   |
| Finished goods                |   |               | 32,001,756 |   |              |   | 16,296,380 |   |
|                          |   |               |       |   |              |   |   |   |
|     Total |   | $                  | 77,135,949 |   |              | $      | 32,595,045 |   |

|                          |   | September 30, 2010 |        |   | December 31, 2009 |   |
|-------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                          |   |               |        |   |              |   |
| Value-added taxes (VAT)       |   | $                  | 15,114,376  |   |              | $      | 15,263,949 |   |
| Customs duties                |   |               | 14,359,332  |   |              |   | - |   |
| Company income tax payable    |   |               | (7,203,661) |   |              |   |   |   |
|                          |   |               |        |   |              |   |   |   |
|     Total |   | $                  | 22,270,047  |   |              | $      | 15,263,949 |   |

----

|                              |   | September 30, 2010 |       |   | December 31, 2009 |   |
|-----------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                              |   |               |       |   |              |   |
| Consumption tax refund receivable |   | $                  | 28,345,187 |   |              | $      | - |   |

|                           |   | September 30, 2010 |        |   | December 31, 2009 |   |
|--------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                           |   |               |        |   |              |   |
| Buildings                      |   | $                  | 1,541,190   |   |              | $      | 1,511,010 |   |
| Machinery and equipment        |   |               | 133,263,153 |   |              |   | 130,044,758 |   |
| Vehicles                       |   |               | 542,573     |   |              |   | 305,536 |   |
| Office equipment and furniture |   |               | 129,048     |   |              |   | 120,367 |   |
| Subtotal                       |   |               | 135,475,964 |   |              |   | 131,981,671 |   |
| Less: accumulated depreciation |   |               | 6,389,759   |   |              |   | 157,054 |   |
|                           |   |               |        |   |              |   |   |   |
|     Total  |   | $                  | 129,086,205 |   |              | $      | 131,824,617 |   |

|                             |   | September 30, 2010 |       |   | December 31, 2009 |   |
|----------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                             |   |               |       |   |              |   |
| Land use rights                  |   | $                  | 11,586,152 |   |              | $      | 5,613,187 |   |
| Software                         |   |               | 150,500    |   |              |   | 3,668 |   |
| Technology                       |   |               | 1,422,150  |   |              |   | 1,393,650 |   |
|     Subtotal |   |               | 13,158,802 |   |              |   | 7,010,505 |   |
| Less: accumulated amortization   |   |               | 902,653    |   |              |   | 632,189 |   |
|                             |   |               |       |   |              |   |   |   |
|     Total    |   | $                  | 12,256,149 |   |              | $      | 6,378,316 |   |

----

|                          |   | September 30, 2010 |       |   | December 31, 2009 |   |
|-------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                          |   |               |       |   |              |   |
| Accounts payable              |   | $                  | 56,963,022 |   |              | $      | 2,838,860 |   |
| Accrued expenses              |   |               | 77,922     |   |              |   | 50,000 |   |
|                          |   |               |       |   |              |   |   |   |
|     Total |   | $                  | 57,040,944 |   |              | $      | 2,888,860 |   |

----

|                                                                             |   | September 30, |   |   | December 31, |   |
|----------------------------------------------------------------------------------|--------|---------------|--------|--------|--------------|--------|
|                                                                             |   | 2010          |   |   | 2009         |   |
| On January 12, 2009, the Company obtained a loan from Bank of China,             |   |          |   |   |         |   |
| the principal of which was repaid in full by January 11, 2010.The interest       |   |          |   |   |         |   |
| was calculated using an annual fixed interest rate of 5.31% and paid quarterly.  |   |          |   |   |         |   |
| The loan was guaranteed by a third party entity and an individual person.        |   | $             | -      |   |         | $      | 5,868,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On April 28, 2009, the Company obtained a loan from Bank of China,               |   |          |   |   |         |   |   |   |
| the principal of which was repaid in full by April 27, 2010.The interest         |   |          |   |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.31% and paid quarterly.  |   |          |   |   |         |   |   |   |
| The loan was guaranteed by a third party entity and an individual person.        |   | $             | -      |   |         | $      | 5,868,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On April 28, 2009, the Company obtained a loan from Agricultural Bank of         |   |          |   |   |         |   |   |   |
| China, the principal of which was repaid in full by April 27, 2010.The interest  |   |          |   |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.31% and paid monthly.    |   |          |   |   |         |   |   |   |
| The loan was guaranteed by a third party entity and two individual persons.      |   | $             | -      |   |         | $      | 5,868,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On May 11, 2009, the Company obtained a loan from Agricultural Bank of           |   |          |   |   |         |   |   |   |
| China, the principal of which was repaid in full by May 10, 2010.The interest    |   |          |   |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.31% and paid monthly.    |   |          |   |   |         |   |   |   |
| The loan was guaranteed by a third party entity and two individual persons.      |   | $             | -      |   |         | $      | 8,802,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On July 15, 2009, the Company obtained a loan from Industrial and                |   |          |   |   |         |   |   |   |
| Commercial Bank of China, the principal of which was repaid in full by           |   |          |   |   |         |   |   |   |
| July 14, 2010.The interest was calculated using an annual fixed interest rate of |   |          |   |   |         |   |   |   |
| 5.31% and paid monthly. The loan was guaranteed by a third party entity.         |   | $             | -      |   |         | $      | 1,467,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On July 21, 2009, the Company obtained a loan from Industrial Bank Co., Ltd.,    |   |          |   |   |         |   |   |   |
| the principal of which was repaid in full by July 20, 2010. The interest was     |   |          |   |   |         |   |   |   |
| calculated using an annual fixed interest rate of 5.31% and paid quarterly.      |   |          |   |   |         |   |   |   |
| The loan was guaranteed by a third party entity.                                 |   | $             | -      |   |         | $      | 6,601,500 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On August 12, 2009, the Company obtained a loan from Bank of China,              |   |          |   |   |         |   |   |   |
| the principal of which was repaid in full by August 11, 2010.The interest        |   |          |   |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 4.779% and paid quarterly. |   |          |   |   |         |   |   |   |
| The loan was guaranteed by a third party entity and an individual person.        |   | $             | -      |   |         | $      | 8,802,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On September 1, 2009, the Company obtained a loan from Industrial and            |   |          |   |   |         |   |   |   |
| Commercial Bank of China, the principal of which was repaid in full by           |   |          |   |   |         |   |   |   |
| August 20, 2010. The interest was calculated using an annual fixed interest rate |   |          |   |   |         |   |   |   |
| of 5.31% and paid monthly. The loan was guaranteed by a third party entity.      |   | $             | -      |   |         | $      | 1,467,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |
| On September 22, 2009, the Company obtained a loan from China                    |   |          |   |   |         |   |   |   |
| Construction Bank, the principal of which was repaid in full by September 21,    |   |          |   |   |         |   |   |   |
| 2010.The interest was calculated using an annual fixed interest rate of 4.779%   |   |          |   |   |         |   |   |   |
| and paid monthly. The loan was guaranteed by a third party entity.               |   | $             | -      |   |         | $      | 11,736,000 |   |
|                                                                             |   |          |   |   |         |   |   |   |

----

|                                                                                |   | September 30, |      |   | December 31, |   |
|-------------------------------------------------------------------------------------|--------|---------------|-----------|--------|--------------|--------|
|                                                                                |   | 2010          |      |   | 2009         |   |
| On September 23, 2009, the Company obtained a loan from Huaxia Bank,                |   |          |      |   |         |   |
| the principal of which was repaid in full by September 22, 2010.The interest        |   |          |      |   |         |   |
| was calculated using an annual fixed interest rate of 4.779% and paid quarterly.    |   |          |      |   |         |   |
| The loan was guaranteed by a third party entity and an individual person.           |   | $             | -         |   |         | $      | 7,335,000 |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On October 29, 2009, the Company obtained a loan from Shanghai Pudong               |   |          |      |   |         |   |   |   |
| Development Bank, the principal of which was repaid in full by April 28,            |   |          |      |   |         |   |   |   |
| 2010.The interest was calculated using an annual fixed interest rate of 4.86%       |   |          |      |   |         |   |   |   |
| and paid quarterly. The loan was guaranteed by a third party entity.                |   | $             | -         |   |         | $      | 3,667,500 |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On November 18, 2009, the Company obtained a loan from China Merchants              |   |          |      |   |         |   |   |   |
| Bank, the principal of which is to be repaid in full by November 2, 2010.The        |   |          |      |   |         |   |   |   |
| interest was calculated using an annual fixed interest rate of 5.31% and paid       |   |          |      |   |         |   |   |   |
| monthly. The loan was guaranteed by a third party entity and an individual          |   |          |      |   |         |   |   |   |
| Person.                                                                             |   | $             | 2,994,000 |   |         | $      | 2,934,000 |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On December 1, 2009, the Company obtained a loan from Shanghai Pudong               |   |          |      |   |         |   |   |   |
| Development Bank, the principal of which was repaid in full by May 30,              |   |          |      |   |         |   |   |   |
| 2010.The interest was calculated using an annual fixed interest rate of 4.86%       |   |          |      |   |         |   |   |   |
| and paid quarterly. The loan was secured by a lien on the Company’s rights to |   |          |      |   |         |   |   |   |
| use sea areas.                                                                      |   | $             | -         |   |         | $      | 3,667,500 |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On December 1, 2009, the Company obtained a loan from China Merchants               |   |          |      |   |         |   |   |   |
| Bank, the principal of which is to be repaid in full by November 2, 2010.The        |   |          |      |   |         |   |   |   |
| interest was calculated using an annual fixed interest rate of 5.31% and paid       |   |          |      |   |         |   |   |   |
| monthly. The loan was guaranteed by a third party entity and an individual          |   |          |      |   |         |   |   |   |
| Person.                                                                             |   | $             | 5,988,000 |   |         | $      | 5,868,000 |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On December 31, 2009, the Company obtained a loan from Bank of China,               |   |          |      |   |         |   |   |   |
| the principal of which is to be repaid in full by December 30, 2010.The interest    |   |          |      |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.0445% and paid              |   |          |      |   |         |   |   |   |
| quarterly. The loan was guaranteed by a third party entity.                         |   | $             | 2,994,000 |   |         | $      | 2,934,000 |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On January 5, 2010, the Company obtained a loan from Bank of China,                 |   |          |      |   |         |   |   |   |
| the principal of which is to be repaid in full by January 4, 2011.The interest      |   |          |      |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.0445% and paid              |   |          |      |   |         |   |   |   |
| quarterly. The loan was guaranteed by a third party entity.                         |   | $             | 5,988,000 |   |         | $      | - |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On January 12, 2010, the Company obtained a loan from Shenzhen                      |   |          |      |   |         |   |   |   |
| Development bank, the principal of which is to be repaid in full by January 11,     |   |          |      |   |         |   |   |   |
| 2011.The interest was calculated using an annual fixed interest rate of 5.31%       |   |          |      |   |         |   |   |   |
| and paid monthly. The loan was guaranteed by a third party entity and an            |   |          |      |   |         |   |   |   |
| individual person.                                                                  |   | $             | 4,491,000 |   |         | $      | - |   |
|                                                                                |   |          |      |   |         |   |   |   |
| On February 3, 2010, the Company obtained a loan from Bank of China,                |   |          |      |   |         |   |   |   |
| the principal of which is to be repaid in full by February 2, 2011.The interest     |   |          |      |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.0445% and paid              |   |          |      |   |         |   |   |   |
| quarterly. The loan was guaranteed by a third party entity.                         |   | $             | 748,500   |   |         | $      |   |   |
|                                                                                |   |          |      |   |         |   |   |   |

----

|                                                                                 |   | September 30, |       |   | December 31, |   |
|--------------------------------------------------------------------------------------|--------|---------------|------------|--------|--------------|--------|
|                                                                                 |   | 2010          |       |   | 2009         |   |
| On April 15, 2010, the Company obtained a loan from Bank of China,                   |   |          |       |   |         |   |
| the principal of which is to be repaid in full by April 14, 2011.The interest        |   |          |       |   |         |   |
| was calculated using an annual fixed interest rate of 5.0445% and paid quarterly.    |   |          |       |   |         |   |
| The loan was guaranteed by a third party entity and an individual person.            |   | $             | 5,239,500  |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On April 21, 2010, the Company obtained a loan from Agricultural Bank of             |   |          |       |   |         |   |   |   |
| China, the principal of which is to be repaid in full by April 20, 2011.The interest |   |          |       |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.31% and paid monthly.        |   |          |       |   |         |   |   |   |
| The loan was guaranteed by a third party entity.                                     |   | $             | 5,988,000  |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On May 5, 2010, the Company obtained a loan from Agricultural Bank of                |   |          |       |   |         |   |   |   |
| China, the principal of which is to be repaid in full by May 4, 2011.The interest    |   |          |       |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.31% and paid monthly.        |   |          |       |   |         |   |   |   |
| The loan was guaranteed by a third party entity.                                     |   | $             | 8,982,000  |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On May 27, 2010, the Company obtained a loan from Shanghai Pudong                    |   |          |       |   |         |   |   |   |
| Development Bank, the principal of which is to be repaid in full by November 26,     |   |          |       |   |         |   |   |   |
| 2010. The interest was calculated using an annual fixed interest rate of 4.86%       |   |          |       |   |         |   |   |   |
| and paid quarterly. The loan was secured by a lien on the Company’s rights to  |   |          |       |   |         |   |   |   |
| use sea areas.                                                                       |   | $             | 3,742,500  |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On July 2, 2010, the Company obtained a loan from Bank of China, the                 |   |          |       |   |         |   |   |   |
| principal and interest of which are to be paid in full by July 1, 2011. The          |   |          |       |   |         |   |   |   |
| interest is calculated using an annual fixed interest rate of 3.47313%.              |   |          |       |   |         |   |   |   |
| The loan is secured by the Company’s cash deposit at the bank.                 |   | $             | 16,659,202 |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On July 29, 2010, the Company obtained a loan from Bank of China, the                |   |          |       |   |         |   |   |   |
| principal and interest of which are to be paid in full by July 28, 2011. The         |   |          |       |   |         |   |   |   |
| interest calculated using an annual fixed interest rate of 3.37469%.                 |   |          |       |   |         |   |   |   |
| The loan is secured by the Company’s cash deposit at the bank.                 |   | $             | 16,554,997 |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On July 30, 2010, the Company obtained a loan from Shanghai Pudong                   |   |          |       |   |         |   |   |   |
| Development Bank, the principal of which is to be repaid in full by January 29,      |   |          |       |   |         |   |   |   |
| 2011. The interest was calculated using an annual fixed interest rate of 4.86%       |   |          |       |   |         |   |   |   |
| and paid quarterly. The loan was secured by a lien on the Company’s rights to  |   |          |       |   |         |   |   |   |
| use sea areas.                                                                       |   | $             | 7,485,000  |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On August 5, 2010, the Company obtained a loan from Bank of China,                   |   |          |       |   |         |   |   |   |
| the principal of which is to be repaid in full by August 4, 2011.The interest        |   |          |       |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.31% and paid quarterly.      |   |          |       |   |         |   |   |   |
| The loan was guaranteed by a third party entity and an individual person.            |   | $             | 4,491,000  |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On August 9, 2010, the Company obtained a loan from Bank of China,                   |   |          |       |   |         |   |   |   |
| the principal of which is to be repaid in full by August 8, 2011. The interest       |   |          |       |   |         |   |   |   |
| was calculated using an annual fixed interest rate of 5.31% and paid quarterly.      |   |          |       |   |         |   |   |   |
| The loan was guaranteed by a third party entity and an individual person.            |   | $             | 4,491,000  |   |         | $      | - |   |
|                                                                                 |   |          |       |   |         |   |   |   |
| On July 20, 2010, the Company obtained a loan from Agricultural Bank of              |   |          |       |   |         |   |   |   |
| China, the principal of which is to be repaid in full by October 19, 2010. The       |   |          |       |   |         |   |   |   |
| interest is calculated using an annual fixed interest rate of 2.0178% and paid       |   |          |       |   |         |   |   |   |
| monthly. The loan was guaranteed by a third party entity.                            |   | $             | 2,315,540  |   |         | $      | - |   |

----

|                                                                               |   | September 30, |        |   | December 31, |   |
|------------------------------------------------------------------------------------|--------|---------------|-------------|--------|--------------|--------|
|                                                                               |   | 2010          |        |   | 2009         |   |
| On September 13, 2010, the Company obtained a loan from Huaxia Bank,               |   |          |        |   |         |   |
| the principal of which is to be repaid in full by September 12, 2011. The interest |   |          |        |   |         |   |
| was calculated using an annual fixed interest rate of 4.779% and paid quarterly.   |   |          |        |   |         |   |
| The loan was guaranteed by a third party entity and an individual person.          |   | $             | 11,976,000  |   |         | $      | - |   |
|                                                                               |   |          |        |   |         |   |   |   |
| On September 26, 2010, the Company obtained a loan from China                      |   |          |        |   |         |   |   |   |
| Construction Bank, the principal of which is to be repaid in full by September     |   |          |        |   |         |   |   |   |
| 1, 2011. The interest was calculated using an annual fixed interest rate of        |   |          |        |   |         |   |   |   |
| 5.31% and paid monthly. The loan was guaranteed by a third party entity.           |   | $             | 11,976,000  |   |         | $      | - |   |
|                                                                               |   |          |        |   |         |   |   |   |
| Total short-term bank loans                                                        |   | $             | 123,104,239 |   |         | $      | 82,885,500 |   |

|                                                                              |   | September 30, |      |   | December 31, |   |
|-----------------------------------------------------------------------------------|--------|---------------|-----------|--------|--------------|--------|
|                                                                              |   | 2010          |      |   | 2009         |   |
| On February 5, 2008, the Company obtained a loan from Bank of China,              |   |          |      |   |         |   |
| the principal of which is to be repaid in full by February 4, 2011. The interest  |   |          |      |   |         |   |
| was calculated using floating interest rate and paid quarterly. For the quarter   |   |          |      |   |         |   |
| ended September 30, 2010, the current interest rate is 5.4%. The loan was         |   |          |      |   |         |   |
| guaranteed by a third party entity and an individual person.                      |   | $             | 7,485,000 |   |         | $      | 7,335,000 |   |
|                                                                              |   |          |      |   |         |   |   |   |
| On April 18, 2008, the Company obtained a loan from Bank of China, the            |   |          |      |   |         |   |   |   |
| principal of which is to be repaid in full by January 18, 2011. The interest was  |   |          |      |   |         |   |   |   |
| calculated using floating interest rate and paid quarterly. For the quarter ended |   |          |      |   |         |   |   |   |
| September 30, 2010, the current interest rate is 5.4%. The loan was guaranteed    |   |          |      |   |         |   |   |   |
| by a third party entity and an individual person.                                 |   | $             | 2,994,000 |   |         | $      | 2,934,000 |   |
|                                                                              |   |          |      |   |         |   |   |   |
| On May 20, 2008, the Company obtained a loan from Industrial and                  |   |          |      |   |         |   |   |   |
| Commercial Bank of China, the principal of which is to be repaid in full by       |   |          |      |   |         |   |   |   |
| December 15, 2011. The interest was calculated using floating interest rate and   |   |          |      |   |         |   |   |   |
| paid quarterly. For the quarter ended September 30, 2010, the current interest    |   |          |      |   |         |   |   |   |
| rate is 6.048%. The loan was guaranteed by a third party entity.                  |   | $             | 4,491,000 |   |         | $      | 4,401,000 |   |
|                                                                              |   |          |      |   |         |   |   |   |

----

|                                                                               |   | September 30, |       |   | December 31, |   |
|------------------------------------------------------------------------------------|--------|---------------|------------|--------|--------------|--------|
|                                                                               |   | 2010          |       |   | 2009         |   |
| On August 15, 2008, the Company obtained a loan from China Construction            |   |          |       |   |         |   |
| Bank, the principal of which is to be repaid in full by August 14, 2012. The       |   |          |       |   |         |   |
| interest was calculated using floating interest rate and paid monthly. For the     |   |          |       |   |         |   |
| quarter ended September 30, 2010, the current interest rate is 5.76%. The          |   |          |       |   |         |   |
| loan was guaranteed by a third party entity and an individual person.              |   | $             | 4,491,000  |   |         | $      | 4,401,000 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| On September 5, 2008, the Company obtained a loan from Bank of China, the          |   |          |       |   |         |   |   |   |
| principal of which is to be repaid in full by January 4, 2011. The interest was    |   |          |       |   |         |   |   |   |
| calculated using floating interest rate and paid quarterly. For the quarter ended  |   |          |       |   |         |   |   |   |
| September 30, 2010, the current interest rate is 5.4%. The loan was guaranteed     |   |          |       |   |         |   |   |   |
| by a third party entity and an individual person.                                  |   | $             | 2,245,500  |   |         | $      | 2,200,500 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| On October 14, 2008, the Company obtained a loan from China Construction           |   |          |       |   |         |   |   |   |
| Bank, the principal of which is to be repaid in full by October 12, 2012. The      |   |          |       |   |         |   |   |   |
| interest was calculated using floating interest rate and paid monthly. For the     |   |          |       |   |         |   |   |   |
| quarter ended September 30, 2010, the current interest rate is 5.76%. The loan     |   |          |       |   |         |   |   |   |
| was guaranteed by a third party entity.                                            |   | $             | 9,580,800  |   |         | $      | 10,709,100 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| On October 14, 2008, the Company obtained a loan from China Construction           |   |          |       |   |         |   |   |   |
| Bank, the principal of which is to be repaid in full by October 12, 2012. The      |   |          |       |   |         |   |   |   |
| interest was calculated using floating interest rate and paid monthly. For the     |   |          |       |   |         |   |   |   |
| quarter ended September 30, 2010, the current interest rate is 5.76%. The loan     |   |          |       |   |         |   |   |   |
| was guaranteed by a third party entity.                                            |   | $             | 898,200    |   |         | $      | 880,200 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| On October 15, 2008, the Company obtained a loan from China Construction           |   |          |       |   |         |   |   |   |
| Bank, the principal of which was repaid in full by July 30, 2010. The              |   |          |       |   |         |   |   |   |
| interest was calculated using floating interest rate and paid monthly. For the     |   |          |       |   |         |   |   |   |
| quarter ended September 30, 2010, the current interest rate is 5.76%. The loan     |   |          |       |   |         |   |   |   |
| was secured by a lien on the Company’s property and equipment.               |   | $             | -          |   |         | $      | 3,080,700 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| On October 15, 2008, the Company obtained a loan from Industrial and               |   |          |       |   |         |   |   |   |
| Commercial Bank of China in the amount of $6,894,900, $5,427,900 of which          |   |          |       |   |         |   |   |   |
| is to be repaid in full by October 15, 2010, and $1,467,000 of which is to be paid |   |          |       |   |         |   |   |   |
| in full by November 15, 2011. The interest was calculated using floating interest  |   |          |       |   |         |   |   |   |
| rate and paid quarterly. For the quarter ended September 30, 2010, the current     |   |          |       |   |         |   |   |   |
| average interest rate is 5.76%. The loan was secured by a lien on the              |   |          |       |   |         |   |   |   |
| Company’s property and equipment and guaranteed by a third party entity.     |   | $             | 5,538,900  |   |         | $      | 6,894,900 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| On November 21, 2008, the Company obtained a loan from Bank of China,              |   |          |       |   |         |   |   |   |
| the principal of which is to be repaid in full by December 20, 2010. The interest  |   |          |       |   |         |   |   |   |
| was calculated using floating interest rate and paid quarterly. For the quarter    |   |          |       |   |         |   |   |   |
| ended September 30, 2010, the current interest rate is 5.4%. The loan was          |   |          |       |   |         |   |   |   |
| guaranteed by a third party entity and an individual person.                       |   | $             | 2,245,500  |   |         | $      | 2,200,500 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| Total                                                                              |   | $             | 39,969,900 |   |         | $      | 45,036,900 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| Less: Current portion                                                              |   |          | 20,508,900 |   |         |   | 7,628,400 |   |
|                                                                               |   |          |       |   |         |   |   |   |
| Total non current portion                                                          |   | $             | 19,461,000 |   |         | $      | 37,408,500 |   |

----

----

|                       |   | For the Nine Months Ended September 30, |      |
|----------------------------|--------|-----------------------------------------|-----------|
|                       |   | 2010                                    |      |   | 2009 |   |
|                       |   |                                    |      |   |   |   |
| Cash paid for interest     |   | $                                       | 5,449,837 |   |   | $ | 872,248 |   |
| Cash paid for income taxes |   | $                                       | -         |   |   | $ | - |   |

|                                                           |   |   | For the Three MonthsEnded September 30, |   |
|----------------------------------------------------------------|--------|--------|-----------------------------------------|--------|
|                                                           |   |   | 2010                                    |   |   |   | 2009 |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Basic earnings (loss) per share                                |   |   |                                    |   |   |   |   |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Net income (loss) attributable to stockholders                 |   | $      | 21,156,172                              |   |   | $ | (170,103) |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Fixed dividends to Series A convertible preferred stockholders |   |   | 396,300                            |   |   |   | -  |   |
| Fixed dividends to Series B convertible preferred stockholders |   |   | 9,986                                   |   |   |   |   |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Net income (loss) attributable to common stockholders          |   | $      | 20,749,886                              |   |   | $ | (170,103) |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Denominator (weighted-average):                                |   |   |                                    |   |   |   |   |   |
| - Common stock                                                 |   |   | 3,181,504                               |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |   | 47,658                             |   |   |   |   |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Allocation of undistributed income/ (loss):                    |   |   |                                    |   |   |   |   |   |
| - Common stock                                                 |   |   | 1,298,515                               |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |   | 19,451,371                         |   |   |   |   |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Basic net income/ (loss) per share:                            |   |   |                                    |   |   |   |   |   |
| - Common stock                                                 |   | $      | 0.41                                    |   |   |   | 0.00 |   |
| - Series M convertible preferred stocks                        |   | $      | 408.14                                  |   |   |   |  0.00 |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Diluted earnings (loss) per share                              |   |   |                                    |   |   |   |   |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Denominator (weighted-average):                                |   |   |                                    |   |   |   |   |   |
| - Common stock (including 7,108,669 dilutive potential stocks  |   |   |                                    |   |   |   |   |   |
| for the three months ended September 30, 2010)                 |   |   | 10,290,173                              |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |   | 47,658                             |   |   |   |   |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Allocation of undistributed income/ (loss):                    |   |   |                                    |   |   |   |   |   |
| - Common stock                                                 |   |   | 3,756,816                               |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |   | 17,399,355                              |   |   |   |   |   |
|                                                           |   |   |                                    |   |   |   |   |   |
| Diluted net income/ (loss) per share:                          |   |   |                                    |   |   |   |   |   |
| - Common stock                                                 |   | $      | 0.37                                    |   |   |   | - |   |
| - Series M convertible preferred stocks                        |   | $      | 365.09                                  |   |   |   |  - |   |

|   Warrants          |   |   | 118,862  |   |   |   |   |   |
|--------------------------|--------|--------|---------------|--------|--------|--------|--------|--------|
|    Option |   |   | 117,771       |   |   |   | -      |   |

----

|                                                           |   | For the Nine MonthsEnded September 30, |       |
|----------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                           |   | 2010                                   |       |   |   2009 |   |
|                                                           |   |                                   |       |   |   |   |
| Basic earnings (loss) per share                                |   |                                   |       |   |   |   |
|                                                           |   |                                   |       |   |   |   |
| Net income (loss) attributable to stockholders                 |   | $                                      | 30,409,993 |   |   | $ | (1,393,112 | ) |
|                                                           |   |                                   |       |   |   |   |   |   |
| Fixed dividends to Series A convertible preferred stockholders |   |                                   | 684,798    |   |   |   | - |   |
| Fixed dividends to Series A convertible preferred stockholders |   |                                   | 9,986      |   |   |   |   |   |
|                                                           |   |                                   |       |   |   |   |   |   |
| Net income (loss) attributable to common stockholders     |   | $                                      | 29,715,209 |   |   | $ | (1,393,112 | ) |
|                                                           |   |                                   |       |   |   |   |   |   |
| Denominator (weighted-average):                                |   |                                   |       |   |   |   |   |   |
| - Common stock                                                 |   |                                   | 1,867,972  |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |                                   | 47,658     |   |   |   |   |   |
|                                                           |   |                                   |       |   |   |   |   |   |
| Allocation of undistributed income/ (loss):                    |   |                                   |       |   |   |   |   |   |
| - Common stock                                                 |   |                                   | 1,120,769  |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |                                   | 28,594,440 |   |   |   |   |   |
|                                                           |   |                                   |       |   |   |   |   |   |
| Basic net income/ (loss) per share:                            |   |                                   |       |   |   |   |   |   |
| - Common stock                                                 |   | $                                      | 0.60       |   |   |   | 0.00 |   |
| - Series M convertible preferred stocks                        |   | $                                      | 599.99     |   |   |   | 0.00 |   |
|                                                           |   |                                   |       |   |   |   |   |   |
| Diluted earnings (loss) per share                              |   |                                   |       |   |   |   |   |   |
|                                                           |   |                                   |       |   |   |   |   |   |
| Denominator (weighted-average):                                |   |                                   |       |   |   |   |   |   |
| - Common stock (including 4,083,779 dilutive potential stocks  |   |                                   |       |   |   |   |   |   |
| for the nine months ended September 30, 2010)                  |   |                                   | 5,951,751  |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |                                   | 47,658     |   |   |   |   |   |
|                                                           |   |                                   |       |   |   |   |   |   |
| Allocation of undistributed income/ (loss):                    |   |                                   |       |   |   |   |   |   |
| - Common stock                                                 |   |                                   | 3,376,115  |   |   |   |   |   |
| - Series M convertible preferred stocks                        |   |                                   | 27,033,877 |   |   |   |   |   |
|                                                           |   |                                   |       |   |   |   |   |   |
| Diluted net income/ (loss) per share:                          |   |                                   |       |   |   |   |   |   |
| - Common stock                                                 |   | $                                      | 0.57       |   |   |   | 0.00 |   |
| - Series M convertible preferred stocks                        |   | $                                      | 567.25     |   |   |   | 0.00 |   |

----

| ·   | A registration rights agreement with the investors, in which we agreed to file this registration statement with the SEC to register for resale the Shares, the Common Stock issuable upon conversion of the Series A Preferred Stock, the Series A Warrant Shares and the Series B Warrant Shares, within 30 calendar days of April 22, 2010, and to have this registration statement declared effective within 150 calendar days of April 22, 2010 or within 180 calendar days of April 22, 2010 in the event of a full review of the registration statement by the SEC. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A securities escrow agreement with the Series A Investors and Delight Reward, pursuant to which, Delight Reward delivered into an escrow account 5,000 shares of our Series M Preferred Stock convertible into 5,000,000 shares of Common Stock to be used as escrow shares after we amend our Articles of Incorporation to increase our authorized Common Stock to one hundred million (100,000,000) shares. With respect to the 2010 performance year, if we achieve less than 95% of the 2010 performance threshold, then those escrow shares for such year will be delivered to the investors in the amount of 500,000 shares of Common Stock for each full percentage point by which such threshold was not achieved up to a maximum of 5,000,000 shares of Common Stock. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We and the Keyuan International Shareholder, entered into a lock-up agreement whereby Keyuan International is prohibited from selling our securities until six (6) months after the effective date of the registration statement required to be filed under the registration rights agreement. For one (1) year thereafter, it will be permitted to sell up to 1/12 of its initial holdings every month. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | A registration rights agreement with the Series B Investors, in which we agreed to file a registration statement with the Commission to register for resale the Common Stock underlying the Series B Preferred Stock, the Series C Warrant Shares and the Series B Warrant Shares, placement agent warrants, within 30 calendar days of October 19, 2010 for resale the Common Stock and Common Stock underlying the Series A Preferred Stock, Series A Warrants, Series B Warrants and placement agent warrants issued in the April-May private placement (the “Prior Registration Statement”) , and to have the registration statement declared effective within 150 calendar days ( or 180 calendar days of the Closing Date in the event of a full review of the registration statement by the SEC)  following October 19, 2010. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A securities escrow agreement with the Series B Investors and Delight Reward, holder of all of our issued and outstanding Series M preferred stock, pursuant to which, Delight Reward agrees to deliver into an escrow account 3,400 shares of our Series M Preferred Stock convertible into 3,400,000 shares of Common Stock to be used as escrow shares  after we amend our Articles of Incorporation to increase our authorized Common Stock to one hundred million (100,000,000) shares. With respect to the 2010 performance year, if we achieve less than 95% of the 2010 performance threshold, then those escrow shares for such year will be delivered to the Investors in the amount of 500,000 shares of Common Stock for each full percentage point by which such threshold was not achieved up to a maximum of 3,400,000 shares of Common Stock. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A lock-up agreement with each of Messers Chunfeng Tao, Jicun Wang, Peijun Chen and Xin Yue (collectively, the “Affiliates”), whereby the Affiliates are prohibited from selling our securities that they directly or indirectly own (the “Lock-Up Shares”) until the registration statement is declared effective by the Commission (the “Lock-Up Period”). In addition, the Affiliates further agree that during the twenty four (24) months immediately following the Lock-Up Period, the Affiliates shall not offer, sell, contract to sell, assign, transfer more than twenty percent (20%) of the Lock-Up Shares in the aggregate, provided, that the Affiliates may Transfer not more than 0.83333% of the Lock-Up Shares during each calendar month following the Lock-Up Period, other than engaging in a transfer in a private sale of the Lock-Up Shares if the transferee agrees in writing to be bound by and subject to the terms of the lock-up agreement. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | A voting agreement with Delight Reward and the Series B Investors, pursuant to which the Delight Reward agreed to (i) give its written consent in any action to approve the issuance of the underlying shares which will result in issuance of securities greater than 20% of the then outstanding shares of Common Stock at a price less that the applicable market, and (ii) to appoint a person designated by the Series B Investors holding a majority of the preferred shares as a member of the board of directors of the Company and the subsidiary of the Company organized under the laws of the People’s Republic of China. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a) | pay a cumulative dividend at an annual rate of 6%, payable quarterly, at our option, in cash or in shares of Common Stock;                                                                                                                                                                                                                                                                                                                                          |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | have a preference over the Common Stock on liquidation, dissolution or winding up of the Company equal to the original purchase price per Series A Preferred Share;                                                                                                                                                                                                                                                                                                 |
| (c) | be convertible at any time after issuance, at the option of the holder, into shares of Common Stock, without the payment of additional consideration, at an initial conversion ratio of one-to-one (subject to anti-dilution adjustment);                                                                                                                                                                                                                           |
| (d) | automatically convert into shares of Common Stock at $3.50 per share, at the earlier to occur of the following: (i) the twenty four (24) month anniversary of the Closing of the Private Placement, and (ii)at such time that the Volume Weighted Average Price (“VWAP”) of the Common Stock is no less than $5.00 for a period of ten (10) consecutive trading days with the daily volume of the Common Stock equal to at least 50,000 shares per day; |

| (e) | the conversion price and the number of common shares underlying the Series A Preferred Stock are subject to customary adjustments, including weighted average broad-based anti-dilution protection for a period of twelve (12) months after the effective date of this registration statement; and |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (f) | requires that we, prior to taking certain corporate actions (including certain issuances or redemptions of its securities or changes in its organizational documents), obtain the approval of more than 50% of the Series A Preferred Shares then issued and outstanding, voting as a group.       |

----

| (a)       | entitle the holder to purchase one (1) share of Common Stock;                                                                                                                                  |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)       | be exercisable at any time after the consummation of the Private Placement and shall expire on the date that is three (3) years following the original issuance date of the Series A Warrants; |
| (c)  | be exercisable, in whole or in part, at an exercise price of $4.50 per share;                                                                                                                  |
| (d)  | be exercised only for cash (except that there will be a cashless exercise option at any time during which a registration statement covering such shares is not effective); and                 |

| (e)  | be callable at $0.01 by us following the date that the VWAP of the Common Stock equals or exceeds $9.00 for fifteen (15) consecutive trading days with the average daily trading volume of no less than 75,000 shares. |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a) | entitle the holder to purchase one (1) share of Common Stock;                                                                                                                                                           |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | be exercisable at any time after consummation of the Private Placement and shall expire on the date that is three (3) years following the original issuance date of the Series B Warrants;                              |
| (c) | be exercisable, in whole or in part, at an exercise price of $5.25 per share;                                                                                                                                           |
| (d) | be exercised only for cash (except that there will be a cashless exercise option at any time during which registration statement covering such shares is not effective); and                                            |
| (e) | be callable at $0.01 by us following the date that the VWAP of the Common Stock equals or exceeds $10.50 for fifteen (15) consecutive trading days with the average daily trading volume of no less than 75,000 shares. |

----

----

| Cash proceeds of the Private Placement (net of fees and expenses)    |   | $      | 19,867,774  |   |
|----------------------------------------------------------------------|--------|--------|-------------|--------|
| Reduction for escrowed share arrangement                             |   |   | (11,900,000 | )      |
| Net proceeds allocated to securities issued in the Private Placement |   |   | 7,967,774   |   |
| Allocated to:                                                        |   |   |        |   |
| Issued Common Shares                                                 |   |   | 542,917     |   |
| Series A Preferred Stock                                             |   |   | 7,314,219   |   |
| Series A Warrants                                                    |   |   | 66,133      |   |
| Series B Warrants                                                    |   |   | 44,506      |   |
|                                                                 |   | $      | 7,967,774   |   |

| Cash proceeds of the Private Placement (net of fees and expenses)    |   | $      | 3,044,315 |   |
|----------------------------------------------------------------------|--------|--------|-----------|--------|
| Reduction for escrowed share arrangement                             |   |   | -         |   |
| Net proceeds allocated to securities issued in the Private Placement |   |   | 3,044,315 |   |
| Allocated to:                                                        |   |   |      |   |
| Issued Common Shares                                                 |   |   | 242,611   |   |
| Series A Preferred Stock                                             |   |   | 2,732,642 |   |
| Series A Warrants                                                    |   |   | 40,490    |   |
| Series B Warrants                                                    |   |   | 28,572    |   |
|                                                                 |   | $      | 3,044,315 |   |

----

|   | -  Merger or consolidation where the holders of the Company’s outstanding voting securities prior to such merger or consolidation do not own over 50% of the outstanding voting securities of the merged or consolidated entity immediately after such merger or consolidation; or the sale of all or substantially all of the Company’s properties or assets (collectively, an “Organic Change”). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|           |   | Effective initial conversion price of |   |   |                             |   |   |                                                            |   |
|----------------|--------|---------------------------------------|--------|--------|----------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|           |   | Series A convertible preferred stock  |   |   | Fair value of the common stock # |   |   | Intrinsic value per each share of the Series A preferred stocks |   |
| April 22, 2010 |   | $                                     | 3.57   |   |                             | $      | 2.38   |                                                            |   | $ | - |   |
| May 18, 2010   |   | $                                     | 3.49   |   |                             | $      | 2.79   |                                                            |   | $ | - |   |

----

|   | -    Annual dividends are determined as 6% of $3.5 for each share of the Series A convertible preferred stock. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

----

| (a) | pay a cumulative dividend at an annual rate of 6% during the first year immediately from and after the issuance date, payable quarterly, at our option, in cash or in shares of Common Stock;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Shall rank junior to our Series A preferred stock but have a preference over the Common Stock and Series M Preferred Stock and to all other classes and series of our equity securities on dividend rights and rights on liquidation, dissolution or winding up of the Company equal to the original purchase price per Series A Preferred Share;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | are convertible in whole or in part, at the option of the holders, at one-to-one ratio,  into shares of our common stock at $3.75 per share prior to the Maturity, and all outstanding shares of the Series B Preferred Stock shall automatically  convert to shares of common stock upon Maturity, provided, however, at no time may holders convert shares of Series B Preferred Stock if (i) we have not obtained the Shareholder Approval; or (ii) the number of shares of common stock to be issued pursuant to such conversion would cause the number of shares of common stock beneficially owned by such holder and its affiliates in excess of 9.99% of the then issued and outstanding shares of common stock outstanding at such time, unless the holder provides us with a waiver notice in such form and with such content specified in the Series B Certificate of Designation. |
| (e) | the conversion price and the number of common shares underlying the Series B Preferred Stock are subject to customary adjustments, including weighted average broad-based anti-dilution protection, at any time or from time to time after the issuance date; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (f) | requires that we, prior to taking certain corporate actions (including certain issuances or redemptions of its securities or changes in its organizational documents), obtain the approval of more than 50% of the Series B Preferred Shares then issued and outstanding, voting as a group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

----

| (a)       | entitle the holder to purchase one (1) share of Common Stock;                                                                                                                                                                                                    |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)       | be exercisable at any time after the consummation of the Private Placement and shall expire on the date that is three (3) years following the original issuance date of the Series C Warrants, subject to that the Company has obtained the shareholder approval |
| (c)  | be exercisable, in whole or in part, at an exercise price of $4.50 per share;                                                                                                                                                                                    |
| (d)  | be exercised only for cash (except that there will be a cashless exercise option at any time during which a registration statement covering such shares is not effective); and                                                                                   |
| (e)  | Non-callable                                                                                                                                                                                                                                                     |

| (a)       | entitle the holder to purchase one (1) share of Common Stock;                                                                                                                                                                                             |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)       | be exercisable at any time after consummation of the Private Placement and shall expire on the date that is three (3) years following the original issuance date of the Series C Warrants; subject to that the Company has obtained shareholder approval; |
| (c)       | be exercisable, in whole or in part, at an exercise price of $5.25 per share;                                                                                                                                                                             |
| (d)       | be exercised only for cash (except that there will be a cashless exercise option at any time during which registration statement covering such shares is not effective); and                                                                              |
| (e)  | Non-callable                                                                                                                                                                                                                                              |

----

----

|   | -  Merger or consolidation where the holders of the Company’s outstanding voting securities prior to such merger or consolidation do not own over 50% of the outstanding voting securities of the merged or consolidated entity immediately after such merger or consolidation; or the sale of all or substantially all of the Company’s properties or assets (collectively, an “Organic Change”). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|               |   | Effective initial conversion price of |   |   |                             |   |   |                                                            |   |
|--------------------|--------|---------------------------------------|--------|--------|----------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|               |   | Series B convertible preferred stock  |   |   | Fair value of the common stock # |   |   | Intrinsic value per each share of the Series B preferred stocks |   |
| September 28, 2010 |   | $                                     | 3.40   |   |                             | $      | 4.75   |                                                            |   | $ | 1.35 |   |

----

|   | -    Annual dividends are determined as 6% of $3.75 for each share of the Series B convertible preferred stock. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

----

| (a)  | On April 19, 2010, the Group issued 88,000 shares of common stock to Hayden Communications International, for the investor related services they will provide for a 12 months period. All the shares vested immediately after the signature of the agreement.  The related expenses for the three months and nine months ended September 30, 2010 were $52,790 and $94,105, respectively. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

|   | On April 19, 2010, the Group issued 48,000 shares of common stock to Chesapeake Group, Inc, for the investor related services they will provide in a period of 12 months. The related expenses for the three months and nine months ended September 30, 2010 were $41,550 and $95,310, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On April 19, 2010, the Group issued 50,000 shares of common stock to Hampton Growth Resources, LLC, for the investor related services they will provide for a 12 months period. The related expenses for the three months and nine months ended September 30, 2010 were $48,125 and $77,875, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On June 30, 2010, the Company granted 3,000,000 five-year options to its 56 CEO, CFO and various members of senior management to purchase in the aggregate 3,000,000 shares of the Company’s common stock at an exercise price of US$4.20 per share, in consideration of their services to the Company. 2,810,000 of these 3,000,000 options shall vest according to the following vesting schedule: 30% of the Options shall vest immediately after one year of the issuance, 40% of the Options shall vest immediately after two years of the issuance, 30% of the Options shall vest immediately after three years of the issuance.  The remaining 190,000 options shall vest according to the following vesting schedule:  40% of the Options shall vest immediately after one year of the issuance and 60% of the Options shall vest immediately after two years of the issuance. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

|   |   |
|--------|--------|

|   | The grant date fair value of these options was US$3.347 million.  The Company estimates the fair value of these options using the Black-Scholes option pricing model with the following assumptions: an expected life equal to the contractual term of the options (five), underlying stock price of $3.21 per share, no dividends, a risk free rate of 1.79%, which is a five-year yield on Treasury bonds at constant (or fixed) maturity and volatility of 47%. The expected volatility is calculated using historical data obtained from comparable public companies due to lack of liquidity of the Company’s underlying stock.  Exercise price of the option is the contractual exercise price of the option. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a)   | On July 1, 2010, the Company granted 80,000 five-year options to two outside directors to purchase up to 80,000 shares of the Company’s common stock at an exercise price of US$4.20 per share, in consideration of their services to the Company. Of these options, 40,000 of the options shall vest immediately after one year of the issuance and the remaining 40,000 of the options shall vest immediately after two years of the issuance, provided that the optionee is re-elected for successive one year terms at the end of 12 months of the issuance. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (b)   | On July 1, 2010, the Company granted 40,000 five-year options to a consultant to purchase an aggregate of 40,000 shares of the Company’s common stock at an exercise price of US$4.20 per share, in consideration of their services to the Company. Of these options, all 40,000 of the options shall vest immediately. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c)   | On July 27, 2010, the Company granted 420,000 three-year options to a consultant to purchase an aggregate of  420,000 shares of the Company’s common stock at an exercise price of US$4.20 per share, in consideration of their services to the Company. Of these options, 70,000 of the options shall vest immediately, 31,818 shall vest monthly beginning on September 1, 2010 and the remaining balance of 95,456 shall vest on May 1, 2011. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d)   | On August 4, 2010, the Company granted 700,000 five-year options to 79 managers and employees to purchase in the aggregate 700,000 shares of the Company’s common stock at an exercise price of US$4.50 per share, in consideration of their services to the Company. Of these options, 30% of the Options shall vest immediately after one year of the issuance, 40% of the options shall vest immediately after two years of the issuance and 30% of the options shall vest immediately after three years of the issuance.   |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                              |   | Number of options |      |   | Weighted Average Exercise Price |   |
|-----------------------------------|--------|-------------------|-----------|--------|---------------------------------|--------|
| Outstanding, December 31, 2009    |   |              | -         |   |                            |   | - |   |
|     Granted   |   |              | 4,240,000 |   |                            | $      | 4.25 |   |
|     Exercised |   |              | -         |   |                            |   | - |   |
|     Forfeited |   |              | (100,000) |   |                            |   | 4.20 |   |
|     Expired   |   |              | -         |   |                            |   | - |   |
| Outstanding, September 30, 2010   |   |              | 4,140,000 |   |                            | $      | 4.25 |   |
| Exercisable, September 30, 2010   |   |              | 141,818   |   |                            | $      | 4.20 |   |

|   (f) | Warrant activity during the period ending September 30, 2010 was as follows: |
|------------|------------------------------------------------------------------------------|

|                              |   | Number of Warrants |      |   | Weighted Average Exercise Price |   |
|-----------------------------------|--------|--------------------|-----------|--------|---------------------------------|--------|
| Outstanding, December 31, 2009    |   |               | --        |   |                            |   | -- |   |
|     Granted   |   |               | 4,397,768 |   |                            | $      | 4.58 |   |
|     Exercised |   |               | --        |   |                            |   | -- |   |
|     Forfeited |   |               | --        |   |                            |   | -- |   |
|     Expired   |   |               | --        |   |                            |   | -- |   |
| Outstanding, September 30, 2010   |   |               | 4,397,768 |   |                            | $      | 4.58 |   |
| Exercisable, September 30, 2010   |   |               | 4,397,768 |   |                            | $      | 4.58 |   |

----

|                                                                                                           |   | Before Restatement |        |   | After Restatement |   |        | Effect of Change |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|-------------|------------------|--------|
|                                                                                                           |   |               |        |   |              |   |        |             |   |
| Assets                                                                                                         |   |               |        |   |              |   |        |             |   |
| Current assets:                                                                                                |   |               |        |   |              |   |        |             |   |
| Cash and cash equivalents                                                                                      |   | $                  | 44,932,623  |   |              | $      | 44,932,623  |             |   |   |   |
| Restricted cash                                                                                                |   |               | 68,422,905  |   |              |   | 68,422,905  |             |   |   |   |
| Trade notes receivable                                                                                         |   |               | 3,292,506   |   |              |   | 3,292,506   |             |   |   |   |
| Inventories                                                                                                    |   |               | 77,135,949  |   |              |   | 77,135,949  |             |   |   |   |
| Advance payments                                                                                               |   |               | 18,173,457  |   |              |   | 18,173,457  |             |   |   |   |
| Prepaid taxes                                                                                                  |   |               | 29,617,022  |   |              |   | 22,270,047  |             |   |   | (7,346,975 | ) |
| Tax refund receivable                                                                                          |   |               | 8,171,637   |   |              |   | 28,345,187  |             |   |   | 20,173,550 |   |
| Due from unrelated parties                                                                                     |   |               | -           |   |              |   | -           |             |   |   |   |   |
| Deferred tax assets                                                                                            |   |               | 105,631     |   |              |   | -           |             |   |   | (105,631 | ) |
| Other current assets                                                                                           |   |               | 379,515     |   |              |   | 379,515     |             |   |   |   |   |
| Total current assets                                                                                           |   |               | 250,231,245 |   |              |   | 262,952,189 |             |   |   | 12,720,944 |   |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Property, plant and equipment, net                                                                             |   |               | 129,086,205 |   |              |   | 129,086,205 |             |   |   |   |   |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Intangibles, net                                                                                               |   |               | 12,256,149  |   |              |   | 12,256,149  |             |   |   |   |   |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Total assets                                                                                                   |   | $                  | 391,573,599 |   |              | $      | 404,294,543 |             |   |   | 12,720,944 |   |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Liabilities                                                                                                    |   |               |        |   |              |   |        |             |   |   |   |   |
| Current liabilities:                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Accounts payable – trade and accrued expenses                                                            |   | $                  | 57,040,944  |   |              | $      | 57,040,944  |             |   |   |   |   |
| Accounts payable – construction related                                                                  |   |               | 21,625,440  |   |              |   | 21,625,440  |             |   |   |   |   |
| Short-term bank loans                                                                                          |   |               | 123,104,239 |   |              |   | 123,104,239 |             |   |   |   |   |
| Notes payable                                                                                                  |   |               | 52,844,100  |   |              |   | 52,844,100  |             |   |   |   |   |
| Current portion of long-term bank loans                                                                        |   |               | 20,508,900  |   |              |   | 20,508,900  |             |   |   |   |   |
| Advances from customers                                                                                        |   |               | 23,151,303  |   |              |   | 23,151,303  |             |   |   |   |   |
| Dividend payable                                                                                               |   |               | 694,784     |   |              |   | 694,784     |             |   |   |   |   |
| Due to former shareholder                                                                                      |   |               | -           |   |              |   | -           |             |   |   |   |   |
| Due to unrelated parties                                                                                       |   |               | -           |   |              |   | -           |             |   |   |   |   |
| Other current liabilities                                                                                      |   |               | 272,797     |   |              |   | 272,740     |             |   |   | (57 | )  |
| Total current liabilities                                                                                      |   |               | 299,242,507 |   |              |   | 299,242,450 |             |   |   | (57 | )  |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
|  Long-term bank loans                                                                                     |   |               | 19,461,000  |   |              |   | 19,461,000  |             |   |   |   |   |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Total liabilities                                                                                              |   |               | 318,703,507 |   |              |   | 318,703,450 |             |   |   | (57 | )  |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Equity                                                                                                         |   |               |        |   |              |   |        |             |   |   |   |   |
| Temporary Equity                                                                                               |   |               |        |   |              |   |        |             |   |   |   |   |
| Series A convertible preferred stock,                                                                          |   |               |        |   |              |   |        |             |   |   |   |   |
|  $0.001 par value, 20,000,000 shares authorized,                                                          |   |               |        |   |              |   |        |             |   |   |   |   |
|   6,738,336 shares issued and outstanding at September 30, 2010                                      |   |               | -           |   |              |   | 21,018,143  |             |   |   | 21,018,143 |   |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
|      Series B convertible preferred stock,                                            |   |               |        |   |              |   |        |             |   |   |   |   |
|         $0.001 par value, 20,000,000 shares authorized,                |   |               |        |   |              |   |        |             |   |   |   |   |
|         5,400,010 shares issued and outstanding at September 30, 2010  |   |               | -           |   |              |   | 16,701,565  |             |   |   | 16,701,565 |   |
|                                                                                                           |   |               |        |   |              |   |        |             |   |   |   |   |
| Stockholders’ equity:                                                                                    |   |               |        |   |              |   |        |             |   |   |   |   |
| Series A preferred stock, $0.001 par value, 20,000,000 shares                                                  |   |               |        |   |              |   |        |             |   |   |   |   |
|   authorized, 6,738,336 shares issued and outstanding at                                             |   |               |        |   |              |   |        |             |   |   |   |   |
|   September 30, 2010                                                                                 |   |               | 6,738       |   |              |   | -           |             |   |   | (6,738 | ) |
|      Series B preferred stock, $0.001 par value, 20,000,000 shares                    |   |               |        |   |              |   |        |             |   |   |   |   |
|         authorized, 5,400,010 shares issued and outstanding at         |   |               |        |   |              |   |        |             |   |   |   |   |
|         September 30, 2010                                             |   |               | 5,400       |   |              |   | -           |             |   |   | (5,400 | ) |
| Series M preferred stock, $0.001 par value, 47,658 shares                                                      |   |               |        |   |              |   |        |             |   |   |   |   |
|          authorized, issued and outstanding at September 30, 2010 |   |               | 48          |   |              |   | 48          |             |   |   |   |   |
| Common stock, $0.001 par value, 50,000,000 shares authorized,                                                  |   |               |        |   |              |   |        |             |   |   |   |   |
|          3,181,504 issued and outstanding at September 30,2010         |   |               | 3,182       |   |              |   | 3,182       |             |   |   |   |   |
|  Additional paid-in capital                                                                               |   |               | 62,428,778  |   |              |   | 25,358,650  |             |   |   | (37,070,128 | ) |
| Retained earnings (deficit)                                                                                    |   |               | 7,187,770   |   |              |   | 19,050,390  |             |   |   | 11,862,620 |   |
| Accumulated other comprehensive income                                                                         |   |               | 3,238,176   |   |              |   | 3,459,115   |             |   |   | 220,939 |   |
| Total stockholders’ equity                                                                               |   |               | 72,870,092  |   |              |   | 47,871,385  |             |   |   | (24,998,707 | )  |
|  Total equity                                                                                             |   |               | 72,870,092  |   |              |   | 85,591,093  |             |   |   | 12,721,001 |   |
| Total liabilities and equity                                                                                   |   | $                  | 391,573,599 |   |              | $      | 404,294,543 |             |   |   | 12,720,944 |   |

----

|                                                                                                                           |   | For the Three Months     |        |   |              |   |        | For the Nine Months      |   |   |                                   |    |
|--------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|--------|-------------------|--------|-------------|--------------------------|--------|--------|----------------------------------------|---------|
|                                                                                                                           |   | Ended September 30, 2010 |        |   |              |   |        | Ended September 30, 2010 |   |   |                                   |    |
|                                                                                                                           |   | Before Restatement       |        |   | After Restatement |   |        |  Effect of Change   |   |   | Before Restatement                     |    |   | After Restatement |   |   | Effect of Change |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |
| Sales                                                                                                                          |   | $                        | 151,343,966 |   |              | $      | 151,343,966 |                     |   |   |                                   |    |   | $ | 400,713,069 |   |   | $ | 400,713,069 |   |   |   |   |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                                                  |   |                     | 138,277,229 |   |              |   | 118,594,880 |                     |   |   |  (19,682,349                      | )  |   |   | 370,185,046 |   |   |   | 350,502,697 |   |   |   | (19,682,349 | )  |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                                                                   |   |                     | 13,066,737  |   |              |   | 32,749,086  |                     |   |   | 19,682,349                        |    |   |   | 30,528,023 |   |   |   | 50,210,372 |   |   |   | 19,682,349 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                                                                             |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|          Selling expenses                                                                   |   |                     | 97,871      |   |              |   | 97,871      |                     |   |   |                                   |    |   |   | 441,284 |   |   |   | 441,284 |   |   |   |   |   |
|          General and administrative expenses                                           |   |                     | 1,645,321   |   |              |   | 2,157,939   |                     |   |   |  512,618                          |    |   |   | 3,539,109 |   |   |   | 4,176,551 |   |   |   | 637,442 |   |
|                  Total operating expenses |   |                     | 1,743,192   |   |              |   | 2,255,810   |                     |   |   |  512,618                          |    |   |   | 3,980,393 |   |   |   | 4,617,835 |   |   |   | 637,442 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations                                                                                                  |   |                     | 11,323,545  |   |              |   | 30,493,276  |                     |   |   | 19,169,731                        |    |   |   | 26,547,630 |   |   |   | 45,592,537 |   |   |   | 19,044,907 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expenses):                                                                                                       |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|          Interest expense, net                                                    |   |                     | (3,850,777  | )      |              |   | (3,850,712) |                     |   |   |       65 |    |   |   | (6,514,240 | ) |   |   | (6,514,174 | ) |   |   |         66 |   |
|          Non-operating income (expense)                                           |   |                     | 1,897,007   |   |              |   | 1,897,007   |                     |   |   |                                   |    |   |   | 1,906,606 |   |   |   | 1,906,606 |   |   |   |   |   |
|        Total other expenses                                                                 |   |                     | (1,953,770  | )      |              |   | (1,953,705  | )                        |   |   |       65 |    |   |   | (4,607,634 | ) |   |   | (4,607,568 | ) |   |   |           66 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before provision for income Taxes                                                                                |   |                     | 9,369,775   |   |              |   | 28,539,571  |                     |   |   | 19,169,796                             |    |   |   | 21,939,996 |   |   |   | 40,984,969 |   |   |   | 19,044,973 |   |
|                                                                                                                      |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision (benefit) for income taxes                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|          Current tax provision                                                         |   |                     | 1,477,677   |   |              |   | 7,383,399   |                     |   |   | 5,905,722                         |    |   |   | 3,392,623 |   |   |   | 10,574,976 |   |   |   | 7,182,353 |   |
|          Deferred tax benefit                                                          |   |                     | -      |   |              |   |        |                     |   |   |                                   |    |   |   | - |   |   |   | - |   |   |   |   |   |
|                  Total                         |   |                     | 1,477,677   |   |              |   | 7,383,399   |                     |   |   | 5,905,722                              |    |   |   | 3,392,623 |   |   |   | 10,574,976 |   |   |   | 7,182,353 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) attributable to Keyuan Petrochmicals, Inc. stockholders                                                      |   |                     | 7,892,098   |   |              |   | 21,156,172  |                     |   |   | 13,264,074                             |    |   |   | 18,547,373 |   |   |   | 30,409,993 |   |   |   |  11,862,620 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends to Series A preferred stockholders                                                                                   |   |                     | -           |   |              |   | 396,300     |                     |   |   | 684,798                                |    |   |   | - |   |   |   | 684,798 |   |   |   | 684,798 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends to Series B preferred stockholders                                                                                   |   |                     | -           |   |              |   | 9,986       |                     |   |   | 9,986                                  |    |   |   |   | - |   |   | 9,986 |   |   |   | 9,986 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) attributable to Keyuan Petrochemicals, Inc. common stockholders                                              |   |                     | 7,892,098   |   |              |   | 20,749,886  |                     |   |   | 12,569,290                             |    |   |   | 18,547,373 |   |   |   | 29,715,210 |   |   |   |  11,167,837 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income                                                                                                     |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|          Foreign currency translation adjustment                                       |   |                     | 1,976,139   |   |              |   | 2,202,386   |                     |   |   | 226,247                           |    |   |   |  2,175,395 |   |   |   |  2,396,334 |   |   |   | 220,939 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income (loss)                                                                                                    |   | $                        | 9,868,237   |   |              | $      | 23,358,558  |                     |   |   | 13,490,321                             |    |   | $ | 20,722,768 |   |   | $ | 32,806,327 |   |   |   | 12,083,559 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                                                      |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|   Attributable to common stock                                                                                       |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|   -Basic                                                                                                             |   | $                        | 2.26        |   |              | $      | 0.41        |                     |   |   | (1.85                                  | )  |   | $ | 9.56 |   |   | $ | 0.60 |   |   |   | (8.96 | )  |
|   -Diluted                                                                                                           |   | $                        | 0.14        |   |              | $      | 0.37        |                     |   |   | 0.23                                   |    |   | $ | 0.35 |   |   | $ | 0.57 |   |   |   | 0.22 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|   Attributable to Series M preferred stocks                                                                          |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|   -Basic                                                                                                             |   | $                        | 0.00        |   |              | $      | 408.14      |                     |   |   | 408.14                                 |    |   | $ | 0.00 |   |   | $ | 599.99 |   |   |   | 599.99 |   |
|   -Diluted                                                                                                           |   | $                        | 0.00        |   |              | $      | 365.09      |                     |   |   | 365.09                                 |    |   | $ | 0.00 |   |   | $ | 567.25 |   |   |   | 567.25 |   |
|                                                                                                                           |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|  Weighted average number of common shares outstanding                                                                     |   |                     |        |   |              |   |        |                     |   |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|                 Basic                               |   |                     | 3,181,504   |   |              |   | 3,181,504   |                     |   |   |                                   |    |   |   | 1,867,972 |   |   |   | 1,867,972 |   |   |   |   |   |
|                 Diluted                             |   |                     | 57,948,173  |   |              |   | 57,948,173  |                     |   |   |                                   |    |   |   | 53,609,751 |   |   |   | 53,609,751 |   |   |   |   |   |

----

|                                                     |   | For the Nine Months Ended September 30, 2010 |        |   |              |    |
|----------------------------------------------------------|--------|----------------------------------------------|-------------|--------|-------------------|---------|
|                                                     |   | Before Restatement                           |        |   | After Restatement |    |   | Effect of Change |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |
| Cash flows from operating activities:                    |   |                                         |        |   |              |    |   |   |   |   |
| Net income (loss)                                        |   | $                                            | 18,547,373  |   |              | $       | 30,449,993 |   |   |   | 11,902,620 |   |
| Adjustments to reconcile net income (loss) to net cash   |   |                                         |        |   |              |    |   |   |   |   |   |   |
|   provided by (used in) operating activities:  |   |                                         |        |   |              |    |   |   |   |   |   |   |
|       Share-based payments |   |                                         | 132,828     |   |              |    | 770,270 |   |   |   | 637,442 |   |
| Depreciation and amortization                            |   |                                         | 6,374,361   |   |              |    | 6,374,361 |   |   |   |   |   |
| Deferred tax assets                                      |   |                                         | 3,392,689   |   |              |    | 3,496,430 |   |   |   | 103,741 |   |
| Changes in current assets and current liabilities:       |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Notes receivable                                         |   |                                         | (2,833,738  | )      |              |    | (2,833,738 | ) |   |   |   |   |
| Inventories                                              |   |                                         | (43,112,327 | )      |              |    | (43,112,327 | ) |   |   |   |   |
| Advance payments for raw materials                       |   |                                         | (10,420,393 | )      |              |    | (10,420,393 | ) |   |   |   |   |
| Prepaid taxes                                            |   |                                         | (13,655,138 | )      |              |    | (6,085,388 | ) |   |   | 7,569,750 |   |
| Tax refund receivable                                    |   |                                         | (8,171,637  | )      |              |    | (28,345,187 | ) |   |   | (20,173,550 | )  |
| Other current assets                                     |   |                                         | 209,357     |   |              |    | 209,357 |   |   |   |   |   |
| Accounts payable – trade and accrued expenses      |   |                                         | 53,154,501  |   |              |    | 53,154,501 |   |   |   |   |   |
| Advances from customers                                  |   |                                         | 6,154,441   |   |              |    | 6,154,441 |   |   |   |   |   |
| Dividends payable                                        |   |                                         | 694,784     |   |              |    | 694,784 |   |   |   |   |   |
| Other current liabilities                                |   |                                         | (22,713     | )      |              |    | (22,713 | ) |   |   |   |   |
| Total adjustments                                        |   |                                         | (8,102,985  | )      |              |    | (20,660,386 | ) |   |   | (12,557,401 | )  |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Net cash provided by (used in) operating activities      |   |                                         | 10,444,388  |   |              |    | 9,749,607 |   |   |   | (694,781 | )  |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Cash flows from investing activities:                    |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Advance payments for construction in progress            |   |                                         | -           |   |              |    | - |   |   |   |   |   |
| Due from unrelated parties                               |   |                                         | 1,071,478   |   |              |    | 1,071,478 |   |   |   |   |   |
| Additions to property and equipment                      |   |                                         | (781,468    | )      |              |    | (781,468 | ) |   |   |   |   |
| Additions to intangible assets                           |   |                                         | (5,900,639  | )      |              |    | (5,900,639 | ) |   |   |   |   |
| Accounts payable – construction related            |   |                                         | (24,248,530 | )      |              |    | (24,248,530 | ) |   |   |   |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Net cash used in investing activities                    |   |                                         | (29,859,159 | )      |              |    | (29,859,159 | ) |   |   |   |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Cash flows from financing activities:                    |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Restricted cash                                          |   |                                         | (61,205,447 | )      |              |    | (61,205,447 | ) |   |   |   |   |
| Proceeds from short-term bank loans                      |   |                                         | 37,854,656  |   |              |    | 37,854,656 |   |   |   |   |   |
| Proceeds from bank notes                                 |   |                                         | 38,169,758  |   |              |    | 38,169,758 |   |   |   |   |   |
| Due to former shareholder                                |   |                                         | (735,500    | )      |              |    | (735,500 | ) |   |   |   |   |
| Due to unrelated parties                                 |   |                                         | (956,150    | )      |              |    | (956,150 | ) |   |   |   |   |
| Repayment of long-term bank loans                        |   |                                         | (5,884,000  | )      |              |    | (5,884,000 | ) |   |   |   |   |
| Capital contribution in cash                             |   |                                         | -           |   |              |    | - |   |   |   |   |   |
| Proceeds from issuance of preferred stock and warrants   |   |                                         | 42,081,321  |   |              |    | 42,081,321 |   |   |   |   |   |
| Preferred stock dividends declared                       |   |                                         | (694,784    | )      |              |    | (694,784 | ) |   |   |   |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Net cash provided by financing activities                |   |                                         | 48,629,854  |   |              |    | 49,324,638 |   |   |   | 694,784 |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Effect of foreign currency translation on cash           |   |                                         | 1,686,885   |   |              |    | 1,686,882 |   |   |   | 3 |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Net increase in cash and cash equivalents                |   |                                         | 30,901,968  |   |              |    | 30,901,968 |   |   |   |   |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Cash and cash equivalents – beginning of period    |   |                                         | 14,030,655  |   |              |    | 14,030,655 |   |   |   |   |   |
|                                                     |   |                                         |        |   |              |    |   |   |   |   |   |   |
| Cash and cash equivalents – ending of period       |   | $                                            | 44,932,623  |   |              | $       | 44,932,623 |   |   |   |   |   |
| Supplemental schedule of non cash activities:            |   |                                         |        |   |              |    |   |   |   |   |   |   |
|  Preferred stock dividends declared                 |   | $                                            |  -     |   |              |  $ |  694,784 |   |   |   | 694,784 |   |

----

| Name of parties                                            |   | Relationship                                                              |
|------------------------------------------------------------|--------|---------------------------------------------------------------------------|
| Mr. Chunfeng Tao                                           |   | Majority stockholder                                                      |
| Mr. Jicun Wang                                             |   | Principal stockholder                                                     |
| Mr. Peijun Chen                                            |   | Principal stockholder                                                     |
| Ms. Sumei Chen                                             |   | Member of the Company’s Board of Supervisors and spouse of Mr. Wang |
| Ms. Yushui Huang                                           |   | Vice President of Administration, Ningbo Keyuan                           |
| Mr. Weifeng Xue                                            |   | Vice President of Accounting, Ningbo Keyuan                               |
| Mr. Hengfeng Shou                                          |   | Vice President of Sales, Ningbo Keyuan                                    |
|                                                       |   | Petrochemical                                                             |
| Ningbo Kewei Investment Co., Ltd.                          |   | A company controlled by Mr. Tao                                           |
|   (Ningbo Kewei)                                 |   |                                                                      |
| Ningbo Pacific Ocean Shipping Co., Ltd                     |   | 100% ownership by Mr. Wang                                                |
|   (Ningbo Pacific)                               |   |                                                                      |
| Ningbo Hengfa Metal Product Co., Ltd                       |   | 100% ownership by Mr. Chen                                                |
|   (Ningbo Hengfa, former name "Ningbo Tenglong") |   |                                                                      |
| Shandong Tengda Stainless Steel Co., Ltd                   |   | 100% ownership by Mr. Chen                                                |
|   (Shandong Tengda)                              |   |                                                                      |
| Ningbo Xinhe Logistic Co., Ltd                             |   |                                                                      |
|   (Ningbo Xinhe)                                 |   | 10% ownership by Ms. Huang                                                |
| Ningbo Kunde Petrochemical Co, Ltd.                        |   | Mr. Tao’s mother was a 65% nominee shareholder                      |
|   (Ningbo Kunde)                                 |   | for Mr. Hu, a third party                                                 |
| Ningbo Jiangdong Jihe Construction Materials               |   | Controlled by Mr. Xue’s Brother-in-law                              |
| Store (Jiangdong Jihe)                                     |   |                                                                      |
| Ningbo Wanze Chemical Co., Ltd                             |   | Mr. Tao’s sister-in-law is the legal representative                 |
|   (Ningbo Wanze)                                 |   |                                                                      |
| Ningbo Zhenhai Jinchi Petroleum Chemical                   |   | Controlled by Mr. Shou                                                    |
| Co., Ltd (Zhenhai Jinchi)                                  |   |                                                                      |
|                                                       |   |                                                                      |

|                                                       |   | Three months ended September 30, |       |
|------------------------------------------------------------|--------|----------------------------------|------------|
|                                                       |   | 2010                             |       |   | 2009 |   |
| Sales of products (a)                                      |   | $                                | 38,796,256 |   |   | $ | 7,362,101 |   |
| Purchase of raw material (b)                               |   | $                                | 14,170,598 |   |   | $ | 2,530,203 |   |
| Purchase of transportation services (c)                    |   | $                                | 332,419    |   |   | $ | 313,349 |   |
| Credit line of guarantee provision for bank borrowings (d) |   | $                                | 33,097,500 |   |   | $ | -4,367,225 |   |
| Short-term financing from related parties (e)              |   | $                                | 12,479,262 |   |   | $ | 5,421,870 |   |
| Short-term financing to related parties (e)                |   | $                                | 12,839,420 |   |   | $ | 5,421,870 |   |
|                                                       |   |                             |       |   |   |   |   |   |

----

|                                                                                                                                                                                                 |   | Nine months ended September 30, |        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|-------------|
|                                                                                                                                                                                                 |   | 2010                            |        |   | 2009 |   |
| Sales of products (a)                                                                                                                                                                                |   | $                               | 85,983,117  |   |   | $ | 7,362,101 |   |
| Purchase of raw material (b)                                                                                                                                                                         |   | $                               | 19,850,135  |   |   | $ | 2,530,203 |   |
| Purchase of transportation services (c)                                                                                                                                                              |   | $                               | 3,376,808   |   |   | $ | 313,349 |   |
| Credit line of guarantee provision for bank borrowings (d)                                                                                                                                           |   | $                               | 158,132,500 |   |   | $ | 47,844,275 |   |
| Short-term financing from related parties (e)                         $ |   |                            | 14,415,800  |   |   | $ | 12,061,491 |   |
| Short-term financing to related parties (e)                                                                                                                                                          |   | $                               | 14,505,958  |   |   | $ | 12,061,491 |   |
|                                                                                                                                                                                                 |   |                            |        |   |   |   |   |   |

| (a)   | The Group sold finished products of $35,723,405 and $7,362,101 to Ningbo Kunde for the three months ended September 30, 2010 and 2009, respectively. Sales to Zhenhai Jinchi for the three months ended September 30, 2010 and 2009 were $2,940,964 and $0, respectively. The Group sold finished products of $79,072,843 and $7,362,101 to Ningbo Kunde for the nine months ended September 30, 2010 and 2009, respectively. The prices were based on market prices at the time of transactions. There were outstanding amounts of $3,955,536 and $47,896 received in advance from Kunde as of September 30, 2010 and 2009, respectively. Sales to Zhenhai Jinchi for the nine months ended September 30, 2010 and 2009 were $6,910,274 and $0 with no outstanding balance. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | The Group purchased raw materials of $14,154,723 and $2,530,203 from Ningbo Kunde during the three months ended September 30, 2010 and 2009, respectively with no outstanding balance. The Group purchased raw materials of $4,440,207 from Ningbo Kewei during the nine months ended September 30, 2010 with no outstanding amount payable to Ningbo Kewei at the nine months ended in respect of these purchase transactions. The Group purchased raw materials of $15,409,928 and $2,530,203 from Ningbo Kunde during the nine months ended September 30, 2010 and 2009, respectively. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c)   | The Group purchased transportation services of $323,910 and $313,349 from Ningbo Xinhe during the three months ended September 30, 2010 and 2009, respectively. The Group purchased transportation services of $3,376,808 and $313,349 from Ningbo Xinhe during the nine months ended September 30, 2010 and 2009, respectively, and amounts owed to Ningbo Xinhe as of September 30, 2010 and 2009 in respect of these purchase transactions was $0 and $142,093, respectively. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d)   | Guarantees for Bank Loans |
|-----------------|---------------------------|

|                |   | Guarantee provided(withdrawn)during |       |   | Guarantee provided during          |   |
|---------------------|--------|-------------------------------------|------------|--------|------------------------------------|--------|
|                |   | The three months ended September 30 |       |   | The nine months ended September 30 |   |
|                |   | 2010                                |       |   | 2009                               |   |   | 2010 |   |   | 2009 |   |
|                |   |                                |       |   |                               |   |   |   |   |   |   |   |
| Mr. Tao             |   | $                                   | -          |   |                               | $      | 11,768,000 |   |   | $ | 79,434,000 |   |   | $ | 26,478,000 |   |
| Jicun Wang and Chen |   | $                                   | -          |   |                               | $      | - |   |   | $ | - |   |   | $ | 28,684,500 |   |
| Ningbo Kewei        |   | $                                   | 33,097,500 |   |                               | $      | - |   |   | $ | 74,285,500 |   |   | $ | - |   |
| Ningbo Pacific      |   | $                                   | -          |   |                               | $      | - |   |   | $ | 4,413,000 |   |   | $ | - |   |
| Ningbo Hengfa       |   | $                                   | -          |   |                               | $      | (15,254,270 | ) |   | $ | - |   |   | $ | (6,428,270 | ) |
| Shandong Tengda     |   | $                                   | -          |   |                               | $      | (889,955 | ) |   | $ | - |   |   | $ | (889,955 | ) |
|                |   | $                                   | 33,097,500 |   |                               | $      | (4,367,225 | ) |   | $ | 158,132,500 |   |   | $ | 47,844,275 |   |
|                |   |                                |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |

|                |   | Guarantee utilized as of |       |
|---------------------|--------|--------------------------|------------|
|                |   | September 30,            |       |   | December 31, |   |
|                |   | 2010                     |       |   | 2009 |   |
| Mr. Tao             |   | $                        | 35,928,000 |   |   | $ | 30,807,000 |   |
| Jicun Wang and Chen |   | $                        | -          |   |   | $ | 14,670,000 |   |
| Ningbo Kewei        |   | $                        | 7,485,000  |   |   | $ | 3,667,500 |   |
| Ningbo Pacific      |   | $                        | 15,315,546 |   |   | $ | 24,498,900 |   |
| Ningbo Hengfa       |   | $                        | 39,371,100 |   |   | $ | 41,516,100 |   |
| Shandong Tengda     |   | $                        | 898,200    |   |   | $ | 880,200 |   |

----

| (e)   | Short-term financing transactions with related parties |
|-----------------|--------------------------------------------------------|

|           |   | Three Months Ended September 30 |       |
|----------------|--------|---------------------------------|------------|
|           |   | 2010                            |       |   | 2009 |   |
|           |   | From                            |       |   | To |   |   | Balance |   |   | From |   |   | To |   |   | Balance |   |
| Ningbo Kewei   |   |                            | 4,100      |   |   |   | (4,100 | ) |   |   | - |   |   |   | 3,383,457 |   |   |   | (3,383,457 | ) |   |   | - |   |
| Ningbo Kunde   |   |                            | 6,774,800  |   |   |   | (6,774,800 | ) |   |   | - |   |   |   | (2,038,413 |   |   |   | (2,038,413 | ) |   |   | - |   |
| Jiangdong Jihe |   |                            | 3,236,200  |   |   |   | (3,326,358 | ) |   |   | (91,571 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
|           |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           |   |                            | 12,749,262 |   |   |   | (12,839,420 | ) |   |   | (91,571 | ) |   |   | 5,421,870 |   |   |   | (5,421,870 | ) |   |   | - |   |

|           |   | Nine Months Ended September 30 |       |
|----------------|--------|-------------------------------------|------------|
|           |   | 2010                                |       |   | 2009 |   |
|           |   | From                                |       |   | To |   |   | Balance |   |   | From |   |   | To |   |   | Balance |   |
|           |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ningbo Kewei   |   |                                | 1,471,000  |   |   |   | (1,471,000 | ) |   |   | - |   |   |   | 4,072,336 |   |   |   | (4,072,336 | ) |   |   | - |   |
| Ningbo Kunde   |   |                                | 9,708,600  |   |   |   | (9,708,600 | ) |   |   | - |   |   |   | (7,989,155 | ) |   |   | (7,989,155 | ) |   |   | - |   |
| Jiangdong Jihe |   |                                | 3,236,200  |   |   |   | (3,326,358 | ) |   |   | (91,571 | ) |   |   |   |   |   |   | - |   |   |   | - |   |
|           |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           |   |                                | 14,415,800 |   |   |   | (14,505,958 | ) |   |   | (91,571 | ) |   |   | 12,061,491 |   |   |   | (12,061,491 | )  |   |   | - |   |

|           |   | Three months ended September 30, 2010 |      | Three months ended September 30, 2009 |         |
|----------------|--------|---------------------------------------|-----------|---------------------------------------|--------------|
|           |   | Bills received                        |      |                                  | Bills repaid |   |   | Bills received |   |   | Bills repaid |   |
|           |   |                                  |      |                                  |         |   |   |   |   |   |   |   |
| Jiangdong Jihe |   | $                                     | 2,734,162 |                                  |         | $ | 4,589,520 |   |   | $ | - |   |   | $ | - |   |
|           |   |                                  |      |                                  |         |   |   |   |   |   |   |   |   |   |   |   |

|           |   | Nine months ended September 30, 2010 |      | Nine months ended September 30, 2009 |         |
|----------------|--------|--------------------------------------|-----------|--------------------------------------|--------------|
|           |   | Bills received                       |      |                                 | Bills repaid |   |   | Bills received |   |   | Bills repaid |   |
|           |   |                                 |      |                                 |         |   |   |   |   |   |   |   |   |   |   |   |
| Jiangdong Jihe |   | $                                    | 2,734,162 |                                 |         | $ | 4,589,520 |   |   | $ | - |   |   | $ | - |   |

| (f)   |  Amount due from related parties consist of the following: |
|-----------------|-----------------------------------------------------------------|

|          |   | September 30, |   |   | December 31, |   |
|---------------|--------|---------------|--------|--------|--------------|--------|
|          |   | 2010          |   |   | 2009         |   |
| Related Party |   |          |   |   |         |   |
| Ningbo Kunde  |   | $             | -      |   |         | $      | - |   |
| Executives    |   | $             | -      |   |         | $      | 261,493 |   |
| Mr. Tao       |   | $             | -      |   |         | $      |  - |   |
|          |   | $             | -      |   |         | $      | 261,493 |   |
|          |   |          |   |   |         |   |   |   |

| (g)   | Amount due to related parties consists of the following: |
|-----------------|----------------------------------------------------------|

|                |   | September 30, |      |   | December 31, |   |
|---------------------|--------|---------------|-----------|--------|--------------|--------|
|                |   | 2010          |      |   | 2009         |   |
| Related Party       |   |          |      |   |         |   |
|                |   |          |      |   |         |   |
| Former shareholders |   | $             | -         |   |         |   | 733,500 |   |
| Ningbo Kunde        |   | $             | 3,955,536 |   |         |   | 3,174,588 |   |
| Jiangdong Jihe      |   |          | 91,751    |   |         |   | - |   |
| Ningbo Xinhe        |   |          |  -   |   |         |   | 598,308 |   |
|                |   | $             | 4,047,287 |   |         | $      | 4,506,396 |   |

----

----

| ● heavy oil catalytic pyrolysis processing equipment- risers/generators/precipitators, fuel gas boilers, fractionating tower, absorbing re-absorbing and desorbing towers, heat exchangers, pumps, a stabilizing tower; |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● gas fractionation processing equipment- de-propanizing tower, refining propylene tower, de-ethanizination tower, heat exchangers, pumps; |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● ethylbenzene processing equipment- alkylation reactor, anti-alkylation reactor, dehydrogenation reactor, propylene absorbing tower, de-ethylene tower, ethylbenzene recovering tower, heating furnace for benzene, heating furnace for gas, steam overheating furnace, tail gas compressor, washing tower; and |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● liquefied petroleum gas (LPG) and sulfur recovery process- LPG desulfurization extraction tower, dry gas desulfurization tower, regenerating tower, LPG de-mecaptan extraction tower. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ● BTX Aromatics: consisting of benzene, toluene, xylene and other chemical components for further processing into oil resin, gasoline and solvents materials widely used in paint, ink, construction coating and pesticide. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● Propylene: a chemical intermediate as one of the building blocks for an array of chemical and plastic products that are commonly used to produce polypropylene, acrylonitrile, oxo chemicals, propylene oxide, cumene, isopropyl alcohol, acrylic acid and other chemicals for paints, household detergents, automotive brake fluids, indoor/outdoor carpeting, textile, insulating materials, auto parts and electrical appliances. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● Styrene: a precursor to polystyrene and several copolymers widely used for packaging materials, construction materials, electronic parts, home appliances, household goods, home furnishings, toys, sporting goods and others.  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● LPG:  a mixture of hydrocarbon gases used as fuel in heating appliances and vehicles. A replacement for chlorofluorocarbons as an aerosol propellant and a refrigerant which reduces damage to the ozone layer.            |
|                                                                                                                                                                                                                                         |
| ● MTBE & Other Chemicals: MTBE, oil slurry, sulphur and others are used for a variety of applications including fuel components, refrigeration systems, fertilizers, insecticides and fungicides, etc.                             |

| ●   | Complete SBS facility by September 30, 2011 |
|---------------------|---------------------------------------------|

| ●   | Begin SBS production and sales by December 31, 2011 |
|---------------------|-----------------------------------------------------|

| ●   | Complete storage capacity expansion by December 31, 2011 |
|---------------------|----------------------------------------------------------|

| ●   | Complete pretreatment facility by March 31, 2012 |
|---------------------|--------------------------------------------------|

| ●   | Complete asphalt facility by June 30, 2012 |
|---------------------|--------------------------------------------|

| ●   | Start asphalt production and sales by September 30, 2012 |
|---------------------|----------------------------------------------------------|

----

----

| VehiclesFurniture, machinery and equipmentBuildings and improvements |   5 years  5 to 10 years  45 years |
|----------------------------------------------------------------------|------------------------------------------------------------------|

| Rights to use landSoftwareTechnology | 15-50 years10 years9-20 years |
|--------------------------------------|-------------------------------|

----

----

|                                                                                           |   | For the three monthsEnded September 30, |        |   | For the nine monthsEnded September 30, |   |
|------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-------------|--------|----------------------------------------|--------|
|                                                                                           |   | 2010                                    |        |   | 2009                                   |   |   | 2010 |   |   | 2009 |   |
|                                                                                           |   |                                    |        |   |                                   |   |   |   |   |   |   |   |
| Sales                                                                                          |   | $                                       | 151,343,966 |   |                                   | $      | 7,362,101 |   |   | $ | 400,713,069 |   |   | $ | 7,362,101 |   |
| Cost of sales                                                                                  |   |                                    | 118,594,880 |   |                                   |   | 6,091,133 |   |   |   | 350,502,697 |   |   |   | 6,091,133 |   |
| Gross profit                                                                                   |   |                                    | 32,749,086  |   |                                   |   | 1,270,968 |   |   |   | 50,210,372 |   |   |   | 1,270,968 |   |
|                                                                                           |   |                                    |        |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                                             |   |                                    |        |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Selling expenses                                                                               |   |                                    | 97,871      |   |                                   |   | 3,404 |   |   |   | 441,284 |   |   |   | 3,404 |   |
| General and administrative expenses                                                            |   |                                    | 2,157,939   |   |                                   |   | 839,699 |   |   |   | 4,176,551 |   |   |   | 2,076,292 |   |
| Total operating expenses                                                                       |   |                                    | 2,255,810   |   |                                   |   | 843,103 |   |   |   | 4,617,835 |   |   |   | 2,079,696 |   |
|                                                                                           |   |                                    |        |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Gain (loss) from operations                                                                    |   |                                    | 30,493,276  |   |                                   |   | 427,865 |   |   |   | 45,592,537 |   |   |   | (808,728 | ) |
|                                                                                           |   |                                    |        |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expenses):                                                                       |   |                                    |        |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
|       Interest expense, net                                      |   |                                    | (3,850,712  | )      |                                   |   | (568,242 | ) |   |   | (6,514,174 | ) |   |   | (821,421 | ) |
| Non-operating income (expenses)                                                                |   |                                    | 1,897,007   |   |                                   |   | (86,426 | ) |   |   | 1,906,606 |   |   |   | (227,332 | ) |
|            Total other Income(expenses) |   |                                    | (1,953,705  | )      |                                   |   | (654,668 | ) |   |   | (4,607,568) |   |   |   | (1,048,754 | ) |
|                                                                                           |   |                                    |        |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before provision for income tax                                                  |   |                                    | 28,539,571  |   |                                   |   | (226,803 | ) |   |   | 40,984,969 |   |   |   | (1,857,482 | ) |
| Provision(benefit) for income tax                                                              |   |                                    | 7,383,399   |   |                                   |   | (56,700 | ) |   |   | 10, 574,976 |   |   |   | (464,370 | ) |
| Income (net) loss                                                                              |   |                                    | 21,156,172  |   |                                   |   | (170,103 | ) |   |   | 30,409,993 |   |   |   | (1,393,112 | ) |
| Other comprehensive income                                                                     |   |                                    |        |   |                                   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustment                                                        |   |                                    | 2,202,386   |   |                                   |   | 24,841 |   |   |   | 2,396,334 |   |   |   | 20,363 |   |
| Comprehensive income (loss)                                                                    |   | $                                       | 23,358,558  |   |                                   | $      | (145,262 | ) |   | $ | 32,806,327 |   |   |   | (1,372,749 | ) |

|  Product       | Total Sale for Jan. 2010 to Sep 2010 (Unit: Metric Ton) |
|---------------------|---------------------------------------------------------|
| BTX Light Aromatics | 228,395                                                 |
| BTX Heavy Aromatics | 116,789                                                 |
| LPG                 | 8,736                                                   |
| MTBE and Others     | 68,795                                                  |
| Styrene             | 31,111                                                  |
| Propylene           | 28,157                                                  |
| Total               | 481,983                                                 |

----

----

|                                                |   | For the Nine Months Ended September 30, |        |
|-----------------------------------------------------|--------|-----------------------------------------|-------------|
|                                                |   | 2010                                    |        |   | 2009 |   |
| Net cash provided by (used in) operating activities |   |                                    | 9,749,607   |   |   |   | (34,530,345 | ) |
| Net cash used in investing activities               |   |                                    | (29,859,159 | ) |   |   | (47,437,689 | ) |
| Net cash provided by financing activities           |   |                                    | 49,324,638  |   |   |   | 86,719,909 |   |

----

| ● investors’ perception of, and demand for, securities of petrochemical manufacturing and supply companies; |
|-------------------------------------------------------------------------------------------------------------------------|
| ● conditions of the U.S. and other capital markets in which we may seek to raise funds;                           |
| ● our future results of operations, financial condition and cash flow;                                            |
| ● PRC governmental regulation of foreign investment in petrochemical manufacturing companies in China;            |
| ● economic, political and other conditions in China; and                                                          |
| ● PRC governmental policies relating to foreign currency borrowings.                                              |

----

| a)   | Restructuring of our accounting department, and streamlining the department’s roles to ensure that the CFO maintains adequate oversight; and |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | Termination of Mr. Xue in August 2011, our former Vice President of Accounting/ PRC  CFO and hiring of Mr. Fan Zhang as Vice President of Accounting/PRC CFO. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a)   | Engagement of a compliance officer to monitor the Company’s corporate governance and compliance, reporting directly to the Audit Committee; |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | Evaluation of the duties and responsibilities of the CEO and his role in day-to-day operations of the Company and the control environment; |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | Engagement of an outside consultant to assist with SOX 404 compliance; and |
|----------------|----------------------------------------------------------------------------|

| d)   | The addition of one or one or more additional independent, bilingual Chinese-speaking directors to facilitate the Board oversight and assist and augment the efforts of the current independent directors. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a)   | Additional training in U.S. GAAP for our accounting staff; and |
|----------------|----------------------------------------------------------------|

| b)   | Hiring of additional qualified accounting personnel, including an experienced controller. |
|----------------|-------------------------------------------------------------------------------------------|

----

----

|  Exhibit No. | Document                                                                                                                                                              |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |                                                                                                                                                                  |
| 3.1               | Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to the Company’s Amendment No.1 to Form S-1 filed on July 23, 2010).            |
|              |                                                                                                                                                                  |
| 3.2               | Articles of Merger (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on May 19, 2010)                                                |
|              |                                                                                                                                                                  |
| 3.3               | Amended Bylaws of Keyuan Petrochemicals, Inc. dated June 29, 2010 (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on July 7, 2010) |
|              |                                                                                                                                                                  |
| 31.1              | Certification  of  Chief  Executive  Officer  required  by Rule 13a-14/15d-14(a) under the Exchange Act   |
|              |                                                                                                                                                                  |
| 31.2              | Certification of  Chief Financial Officer required by Rule 13a-14/15d-14(a) under the Exchange Act                                                          |
|              |                                                                                                                                                                  |
| 32.1              | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.               |
|              |                                                                                                                                                                  |
| 32.2              | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     |

----

| Date:   November 1, 2011 | Keyuan Petrochemicals, Inc.                                          |   |
|------------------------------------|----------------------------------------------------------------------|--------|
|                               |                                                                 |   |
|                               | By:   /s/ Chunfeng Tao                                |   |
|                               | Chunfeng Tao                                                         |   |
|                               | Chief Executive Officer & President                              |   |
|                               |                                                                 |   |
|                               | By:   /s/ Fan Zhang                                   |   |
|                               | Fan ZhangActing Chief Financial Officer/Vice President of Accounting |   |

----