UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





(Mark One)





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





For the quarterly period ended March 31, 2011





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





For the transition period for          , 2011





Commission File No. 001-34793





LONGWEI PETROLEUM


INVESTMENT HOLDING LIMITED





(Name of registrant as specified in its charter)





Colorado

84-1536518(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)No. 30 Guanghau Avenue, Wan Bailin District, Taiyuan City, Shanxi Province,China

030024(Address of principal executive offices)

(Zip Code)





(727) 641-1357


(Registrant’s telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x    No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o





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


Large accelerated filer
o

Accelerated filer
oNon-accelerated filer

(Do not check if a smaller reporting company)
o

Smaller reporting company
x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).


Yes o No x





As of May 16, 2011, the registrant had 100,727,966 shares of its common stock issued and outstanding.








1





TABLE OF CONTENTS











PAGEPART IITEM 1.

Condensed Consolidated Financial Statements

F-1Condensed Consolidated Balance Sheet as of March 31, 2011 (Unaudited) and June 30, 2010

F-1Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the Nine Months Ended March 31, 2011 and March 31, 2010

F-2Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the Three Months Ended March 31, 2011 and March 31, 2010

F-3Unaudited Condensed Consolidated Statement of Cash Flows for the Nine Months Ended March 31, 2011 and March 31, 2010

F-4Notes to the Unaudited Condensed Consolidated Financial Statements

F-5ITEM 2.

Management’s Discussion and Analysis or Plan of Operation

3ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

9ITEM 4.

Controls and Procedures

9PART IIITEM 1.

Legal Proceedings

10ITEM 1A.

Risk Factors

10ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

10ITEM 3.

Defaults Upon Senior Securities

10ITEM 4.

Removed and Reserved

10ITEM 5.

Other Information

10ITEM 6

Exhibits

10SIGNATURES

11








2





ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 Longwei Petroleum Investment Holding Limited and Subsidiaries
 Condensed Consolidated Balance Sheets
 
 March 31,

2011

June 30,

2010Assets
(In Thousands)Current Assets:(Unaudited)Cash

$
32,363


$
10,125Accounts Receivable, Net of Allowance for Doubtful Accounts of $0 in 2010 and $0 in 2009


27,746



25,837Inventories


59,751



33,745Advances to Suppliers


48,623



74,287Total Current Assets


168,483



143,994Deposit


32,774



-Property Plant and Equipment, Net


46,055



43,577Total Assets

$
247,312


$
187,571Liabilities and Stockholders' EquityCurrent Liabilities:Accounts Payable

$
401


$
578Warrant Derivative


5,394



2,084Taxes Payable


5,103



7,129Total Current Liabilities


10,898



9,791Total Liabilities


10,898



9,791Stockholders' Equity:Preferred Stock, No Par Value, 100,000,000 Shares Authorized; 1,313,411 and 6,934,273 Issued and Outstanding as of March 31, 2011 and June 30, 2010


601



3,172Common Stock, No Par Value; 500,000,000 Shares Authorized; 100,329,198 and 92,633,485 Issued and Outstanding as of March 31, 2011 and June 30, 2010


31,275



20,887Additional Paid-in Capital


7,992



7,406Retained Earnings


174,805



134,124Other Comprehensive Income


21,741



12,191Total Stockholders' Equity


236,414



177,780Total Liabilities and Stockholders' Equity

$
247,312


$
187,571
 
 
 
 
 
 The accompanying notes to these consolidated financial statements are an integral part of these balance sheets.
 
 
 
 
 F - 1
 Longwei Petroleum Investment Holding Limited and Subsidiaries
 Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income
 
 
 For the Nine Months Ended

March 31,2011



2010(In Thousands, Except

Per Share Data)Net Sales

$
353,106


$
227,496Cost of Sales


283,397



182,436Gross Profit


69,709



45,060Operating Expenses


4,097



2,847Operating Income


65,612



42,213Derivative Income (Expense)


(7,948
)


(15,483
)Interest Income


12



14Interest Expense


-



(53
)Income Before Income Tax Expense


57,676



26,691Income Tax Expense


(16,809
)


(10,964
)Net Income


40,867



15,727Foreign Currency Translation Adjustment


9,550



158Comprehensive Income

$
50,417


$
15,885Net Income

$
40,867


$
15,727Preferred Stock Dividends Paid in Cash


(186
)


(365
)Preferred Stock Deemed Dividends


-



(8,644
)Net Income Attributable to Common Stockholders

$
40,681


$
6,718Earnings per Common Share:Basic

$
0.42


$
0.08Diluted

$
0.40


$
0.07Weighted Average Common Shares Outstanding:Basic


96,931,079



84,262,503Diluted


101,508,266



93,712,618
 
 
 The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
 F - 2
 Longwei Petroleum Investment Holding Limited and Subsidiaries
 Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income
 
 
 For the Three Months Ended March 31,2011



2010(In Thousands, Except

Per Share Data)Net Sales

$
119,574


$
96,899Cost of Sales


95,486



77,376Gross Profit


24,088



19,523Operating Expenses


1,081



1,440Operating Income


23,007



18,083Derivative Income (Expense)


9,221



(1,207
)Interest Income


3



5Interest Expense


-



-Income Before Income Tax Expense


32,231



16,881Income Tax Expense


(5,860
)


(4,784
)Net Income


26,371



12,097Foreign Currency Translation Adjustment


3,272



25Comprehensive Income

$
29,643


$
12,122Net Income

$
26,371


$
12,097Preferred Stock Dividends Paid in Cash


(25
)


(209
)Preferred Stock Deemed Dividends


-



-Net Income Attributable to Common Stockholders

$
26,346


$
11,888Earnings per Common Share:Basic

$
0.26


$
0.14Diluted

$
0.26


$
0.12Weighted Average Common Shares Outstanding:Basic


100,197,482



86,160,133Diluted


102,136,976



100,210,772
 
 
 The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
 F - 3
 Longwei Petroleum Investment Holding Limited and Subsidiaries
 Unaudited Condensed Consolidated Statements of Cash Flows
 
 For the Nine Months Ended March 31,2011


2010(In Thousands)Cash Flows From Operating Activities:Net Income

$
40,867


$
15,727Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:Depreciation and Amortization


1,399



231Stock Based Compensation


857



316Change in Warrant Derivative Liability


7,948



15,483(Increase) Decrease in Assets:Accounts Receivable


(915
)


1,871Inventories


(22,451
)


(14,876
)Advances to Suppliers


28,007



(23,325
)Increase  (Decrease) in Liabilities:Accounts Payable


(189
)


(769
)Taxes Payable


(2,258
)


3,626Net Cash Provided By (Used in) Operating activities


53,265



(1,716
)Cash Flows From Investing Activities:Deposit made to Acquire Fixed Assets


(32,232
)


-Purchase and Improvements to Land and Buildings


(1,960
)


(7,654
)Net Cash Provided By (Used in) Investing Activities


(34,192
)


(7,654
)Cash Flows From Financing Activities:Proceeds from Preferred Stock Sale


-



13,820Proceeds from Common Stock Sale


-



76Proceeds from the Exercise of Warrants


2,908



-Payment of Dividends


(186
)


-Net Cash Provided By (Used in) Financing Activities


2,722



13,896Effect of Exchange Rate Changes in Cash


443



158(Decrease) Increase in Cash


22,238



4,684Cash, Beginning of Period


10,125



7,308Cash, End of Period

$
32,363


$
11,992Supplemental Cash Flow Information:Cash Paid During the Period forInterest, Net of Amounts Capitalized

$
-


$
-Income Taxes

$
17,250


$
7,338Supplemental Schedule of Noncash Investing and Financing Activities:Conversion of Preferred Stock into Common Stock

$
2,572


$
4,218
 
 
 
 The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
 
 F - 4
 Longwei Petroleum Investment Holding Limited and Subsidiaries
 Footnotes to the Unaudited Condensed Consolidated Financial Statements
 
 NOTE 1 - NATURE OF BUSINESS
 
 Longwei Petroleum Investment Holding Limited (the “Company”) is an energy company engaged in the wholesale distribution of finished petroleum products in the People’s Republic of China (the “PRC”).  The Company’s oil and gas operations consist of transporting, storage and selling finished petroleum products, entirely in the PRC.  The Company purchases diesel, gasoline, fuel oil and solvents (the “Products”) from various petroleum refineries in the PRC. The Company’s headquarters are located in Taiyuan City, Shanxi Province (“Taiyuan”). The Company has a storage capacity for its Products of 120,000 metric tons located at its fuel depot storage facilities in Taiyuan and in Gujiao, Shanxi (“Gujiao”), 50,000 metric tons and 70,000 metric tons of capacity respectively at each location. The Gujiao facility was acquired in January of 2009 and commenced operations in January of 2010. The Company is 1 of 3 licensed intermediaries in Taiyuan and the sole licensed intermediary in Gujiao that operates its own large scale storage tanks. The Company has the necessary licenses to operate and sell Products not only in Shanxi but throughout the entire PRC. The Company seeks to earn profits by selling its Products at competitive prices with timely delivery to coal mining operations, power supply customers, large-scale gas stations and small, independent gas stations. The Company also earns revenue under an agency fee by acting as a purchasing agent for other intermediaries in Shanxi, and through limited sales of diesel and gasoline at two retail gas stations, each located at the Company’s facilities. The sales price and the cost basis of the Company’s products are largely dependent on regulations and price control measures instituted and controlled by the PRC government as well as the price of crude oil. The price of crude oil is subject to fluctuation due to a variety of factors, all of which are beyond the Company’s control.
 
 The Company was incorporated under the laws of the State of Colorado on March 17, 2000 as Tabatha II, Inc.  On October 12, 2007, the Company changed its name to Longwei Petroleum Investment Holding Limited.
 
 Control by Principal Shareholders
 
 The Company’s directors, executive officers and their affiliates or related parties, own beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the common stock of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company's assets or business.
 
 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements.  The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the consolidated financial statements.
 
 In June 2009 the Financial Accounting Standards Board (“FASB”) established the Accounting Standards Codification ("Codification" or "ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.  All accounting references have been updated and therefore, FASB references have been replaced with ASC references.
 
 The Company operates in two segments in accordance with accounting guidance FASB ASC Topic 280, Segment Reporting.  Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.
 
 Principles of Consolidation
 
 The condensed consolidated financial statements, prepared in accordance with GAAP, include the assets, liabilities, revenues, expenses and cash flows of the Company and all of its subsidiaries. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books and records of the Company’s subsidiaries to present them in conformity with GAAP.  Many of our estimates and assumptions involved in the application of GAAP may have a material impact on reported financial condition, and operation performance and on the comparability of such reported information over different reporting periods. All significant intercompany balances and transactions have been eliminated in consolidation.
 
 
 
 
 F - 5
 Subsidiaries
State and Countries

Registered In
Percentage of

OwnershipLongwei Petroleum Investment Holding Limited
British Virgin Islands

100.0
%Taiyuan Yahua Energy Conversion Ltd.
People’s Republic of China

100.0
%Shanxi Zhonghe Energy Conversion Ltd.
People’s Republic of China

100.0
% (a)Taiyuan Longwei Economy & Trading Ltd.
People’s Republic of China

100.0
% (a)Shanxi Heitan Zhingyou Petrochemical Co., Ltd
People’s Republic of China

100.0
% (a)
 
 (a)
A total of 95% of the ownership units are held by the company. The remaining 5% of the ownership units are held in trust for the benefit of the company in accordance with local Chinese regulations, therefore no non-controlling interest is recognized.  The 5% ownership units are held in trust by our Chairman and CEO, Mr. Cai Yongjun, for the benefit of Taiyuan Yahua Energy Conversion Ltd. and Shanxi Zhonghe Energy Conversion Ltd.  The 5% ownership unit held in trust for the benefit of Taiyuan Longwei Economy & Trading Ltd. is held by an individual who is also an employee of the Company. This ownership structure is organized as such due to PRC business ownership laws.
 Management’s Representation of Interim Financial Information
 
 The accompanying unaudited condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the SEC.  Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading.  These condensed consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations.  All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements at June 30, 2010 as filed in the Company Form 10-K filed with the SEC on September 28, 2010.
 
 Use of Estimates
 
 The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  We base these estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events.  These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  By their nature, estimates are subject to an inherent degree of uncertainty.  Actual results may differ from management’s estimates.  The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
 
 Foreign Currency Translation and Other Comprehensive Income
 
 The accounts of the Company’s PRC subsidiaries are maintained in the PRC Renminbi (“RMB”) and the accounts of the US parent company are maintained in the US Dollar (“USD”).   The accounts of the PRC subsidiaries were translated into USD in accordance with the provisions of FASB ASC Topic 830, Foreign Currency Matters, with the RMB as the functional currency for the PRC subsidiaries.  According to ASC 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates; and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with FASB ASC Topic 220,Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements.
 
 Total comprehensive income is defined as all changes in stockholders’ equity during a period, other than those resulting from investments by and distributions to stockholders (i.e. issuance of equity securities and dividends).  Generally, for the Company, total comprehensive income equals net income plus or minus adjustments for currency translation. The gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income. The total comprehensive income represents the activity for a period net of related tax and was a gain of $9,550,124 and a gain of $158,063 for the nine month periods ended March 31, 2011 and 2010, respectively.  The total comprehensive income was a gain of $3,272,044 and a gain of $25,000 for the three month periods ended March 31, 2011 and 2010, respectively.
 
 Accumulated other comprehensive income related to the foreign currency translation in the consolidated statement of shareholders’ equity amounted to $21,740,683 and $12,190,559 as of March 31, 2011 and June 30, 2010, respectively.  The balance sheet amounts with the exception of equity at March 31, 2011 and June 30, 2010 were translated at RMB 6.5601 to $1.00 USD and at RMB 6.8086 to $1.00 USD, respectively.  The average translation rates applied to income and cash flow statement amounts for the nine and three month periods ended March 31, 2011 and 2010 were at RMB 6.6703 to $1.00 USD and RMB 6.5804 to $1.00 USD, and RMB 6.8287 to $1.00 USD and RMB 6.8277 to $1.00 USD, respectively.
 F - 6
 
 Concentration of Risk
 
 Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash.  The Company maintains cash balances at financial institutions or state owned banks within the PRC, which do not provide for insurance against lost funds.  The Company also maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for banks located in the US.  Balances at financial institutions or state owned banks within the PRC are not insured and amounted to $29,942,884 and $9,959,080 at March 31, 2011 and June 30, 2010, respectively.  As of March 31, 2011 the Company had cash balances of $2,321,318 in excess of federally insured limits in its US bank.  As of June 30, 2010 the Company did not have deposits in excess of federally insured limits in its US bank.  The Company has not experienced any losses with regard to its bank accounts and believes it is not exposed to any risk of loss on its cash in bank accounts.
 
 The Company operates in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the USD and RMB.
 
 The Company’s operations are carried out in the PRC.  Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the United States and PRC, and by the general state of the economy in the PRC.  The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the US.  These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange.  The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
 
 The Company is susceptible to credit risk on accounts receivable from customers and advances to suppliers.  Generally, the Company does not obtain security from its customers or vendors in support of these accounts.
 
 Payments of dividends may be subject to some restrictions due to the fact that the operating activities are conducted in subsidiaries residing in the PRC.
 
 Fair Value Measurements
 
 Effective January 1, 2009, the FASB ASC Topic 825 “Financial Instruments,” requires disclosure about fair value of financial instruments.
 
 The FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
 
 Various inputs are considered when determining the fair value of the Company’s warrant derivative liability and long-term debt.  The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in the three broad levels listed below.
 
 ·
Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
 
 ·
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
 
 ·
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
 
 The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.  The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.  The Company had a warrant derivative liability carried at fair value on a recurring basis at March 31, 2011.
 
 The following are the major categories of assets and liabilities measured at fair value on a recurring basis as reported during the nine months ended March 31, 2011, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
 
 
 
 
 F - 7
 
 Description

Quoted Prices in Active Markets for Identical Assets


Significant Other Observable Inputs


Significant Unobservable Inputs


Total at

March 31, 2011Warrant Derivative Liability

$
-


$
5,394,367


$
-


$
5,394,367Total

$
-


$
5,394,367


$
-


$
5,394,367
 
 The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction.  For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion.  For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
 
 Valuation Techniques
 
 The Company’s financial assets valued based upon Level 2 inputs are comprised of detachable common stock purchase warrants, namely the stock warrants issued in connection with the Company’s October 2009 Financing.  The Company estimated the fair value of the derivative liabilities using a Lattice pricing model and available information that management deems most relevant.  Among the factors considered in determining the fair value of financial instruments are discounted anticipated cash flow, the cost, terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price and trading history of similarly traded securities, and other factors generally pertinent to the valuation of financial instruments.
 
 The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the consolidated balance sheets at fair value in accordance with ASC 825.
 
 Reclassification
 
 Certain reclassifications have been made to the consolidated financial statements as of June 30, 2010 and for the nine and three months ended March 31, 2010 in order to be comparable with the condensed consolidated financial statements as of and for the nine and three months ended March 31, 2011. These reclassifications had no effect on net income or cash flows as previously reported.
 
 Recent Accounting Pronouncements
 
 Accounting Standards Update (“ASU”) ASU No. 2010-09 (ASC Topic 855), which amends Subsequent Events Recognition and Disclosures, ASU No. 2009-16 (ASC Topic 860), which amends Accounting for Transfer of Financial Assets, ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-08, Earnings per Share, ASU No. 2009-12(ASC Topic 820), Investments in Certain Entities That Calculate Net Asset Value per Share, and various other ASU’s No. 2009-2 through ASU No. 2011-3 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company, or their effect on the financial statements would not have been significant.
 
 In April 2010, the FASB issued Accounting Standard Update, 2010-17, Revenue Recognition-Milestone Method (Topic 605): “Milestone Method of Revenue Recognition-a consensus of the FASB Emerging Issues Task Force.” This is an update regarding the milestone method of revenue recognition. The scope of this update is limited to arrangements that include milestones relating to research or development deliverables. The update specifies criteria that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The criteria apply to milestones in arrangements within the scope of this update regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting.  The update will be effective for fiscal years, and interim periods within those years, beginning on or after September 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. This update is not expected to have a material impact on the Company’s financial statements.
 
 
 
 
 
 
 F - 8
 
 
 In March 2010, the FASB issued Accounting Standard Update, 2010-13, Compensation-Stock Compensation (Topic 718): “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades-a consensus of the FASB Emerging Issues Task Force.” This is an update regarding the effect of denominating the exercise price of a share-based payment awards in the currency of the market in which the underlying equity security trades and that currency is different from (1) entity’s functional currency, (2) functional currency of the foreign operation for which the employee provides services, and (3) payroll currency of the employee. The update clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should be considered an equity award assuming all other criteria for equity classification are met. The update will be effective for interim and annual periods beginning on or after December 15, 2010, will be applied prospectively. Affected entities will be required to record a cumulative catch-up adjustment for all awards outstanding as of the beginning of the annual period in which the guidance is adopted. This update is not expected to have a material impact on the Company’s financial statements.
 
 Other accounting standards have been issued or proposed by the FASB or other standard-setting bodies that do not require adoption until a future date and are not expected to have a material impact on the Company’s financial statements.
 
 NOTE 3 – COMMITMENTS AND CONTINGENCIES
 
 The Company has no rent expense or lease commitments for the nine and three month periods ended March 31, 2011 and 2010.
 
 The Company has various purchase commitments for materials, supplies and services incident to the ordinary conduct of business, generally for quantities required for the Company’s business and at prevailing market prices.  No material annual loss is expected from these commitments.
 
 The Company has advances to several refineries for inventory in the amount of $48,623,418, as of March 31, 2011, which will be offset against future purchases from the suppliers.
 
 Legal Matters
 
 The Company is not involved in any legal matters except for those arising in the normal course of business.  While incapable of estimation, in the opinion of the management, the individual regulatory and legal matters in which it might be involved in the future are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
 
 NOTE 4 – ACCOUNTS RECEIVABLE
 
 The Company’s business operations are conducted in the PRC. During the normal course of business, the Company extends unsecured credit to its customers. Management reviews its accounts receivable on a regular basis to determine if an allowance for doubtful accounts is necessary and adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Through the date of these financial statements, the Company has never experienced a significant bad debt.  As a result, no allowance for doubtful accounts has been recorded. Trade accounts receivable at March 31, 2011 and June 30, 2010 consisted of the following:
 
 March 31, 2011

(in thousands)

June 30, 2010

(in thousands)Trade Accounts Receivable

$
27,746


$
25,837Less: Allowance for Doubtful Accounts


-



-Totals

$
27,746


$
25,837
 
 NOTE 5 – INVENTORIES
 
 As of March 31, 2011 and June 30, 2010, inventory consisted of significant quantities of diesel and gasoline, among others, as outlined herein:
 
 March 31, 2011

(in thousands)


June 30, 2010

(in thousands)Diesel

$
31,762


$
19,775Gasoline


24,418



12,539Fuel Oil


1,535



800Solvents


2,036



631Total

$
59,751


$
33,745
 
  F - 9
 
 NOTE 6 – ADVANCES TO SUPPLIERS
 
 As of March 31, 2011 and June 30, 2010, advances to suppliers consisted of significant deposits on account with the Company’s refinery partners.  The deposits are held by the Company’s refinery partners to ensure that the delivery of inventory to the Company is made in a timely manner.  The Company attempts to maintain a significant balance on account with refinery partners with the expectation of receiving preferential pricing and delivery from our suppliers.
  March 31, 2011

(in thousands)


June 30, 2010

(in thousands)Advances to Suppliers

$
48,623


$
74,287Other


-



-Total

$
48,623


$
74,287
 
 NOTE 7 – DEPOSIT
 
 Longwei entered into a letter of intent with Shangxi Jiangtong Chemicals Co., Ltd. (“Jiangtong”) to acquire the assets of Jiangtong’s wholly-owned subsidiary Haujie Petroleum Co., Ltd. (“Haujie”).  The Company intends to acquire the assets of a fuel storage depot in northern Shanxi Province (located in Xingyuan, Shanxi) including fuel tanks with a 100,000 metric ton storage capacity. We have paid a deposit of 215 million RMB (approximately US $32.8 million) toward the full purchase price of 700 million RMB (approximately US $106.5 million).  The assets are non-operational with no revenue-producing history and include land use rights for 98 acres of land, 100,000 tonnage fuel tanks with accessory facilities and equipment, a special transportation railway line, and a 3,000-square-meter office building.  The acqusition is subject to final due diligence and board approval.  The Company intends to use its cash on hand, bank and other financing, and working capital assets to finance the acquisition.
  The Company engaged a third-party, independent valuation firm for the appraisal of the fair market value of the assets to be acquired.  The independent valuation firm has provided their report with a detailed list of assets acquired and valuation, including the following classifications:
  (1)
Land (Land-Use-Rights) - 279,300,000 RMB (approximately $42.6 million USD)
  (2)
Machinery & Equipment - 113,165,841 RMB (approximately $17.3 million USD)
  (3)
Buildings - 63,926,295 RMB (approximately $9.7 million USD)
  (4)
Fire Controls - 17,348,924 RMB (approximately $2.6 million USD)
  (5)
Railroad & Equipment - 239,540,000 RMB (approximately 36.5 million USD)
  TOTAL:  713,281,060 RMB (approximately $108.7 million USD)
  Longwei will account for the purchase of the proposed assets as an Asset Purchase.  The Company will use this accounting treatment for the purchase of assets because the purchase does not meet the definition of a “Business” for a business combination.  The accounting requirements for an acquisition of net assets or equity interests that are deemed to be an Asset Purchase differs from those used for a Business Combination, which may require audited financial statements of the entity acquired.
  Because the definition of a Business in Rule 11-01(d), differs somewhat from that of ASC 805, the Company has undertaken a separate analysis under Rule 11-01(d) when evaluating the reporting requirements of SEC Regulation S-X, as well as the definition of a Business in ASC 805.  Rule 11-01(d) of Regulation S-X defines a Business for determining when separate financial statements are required to be filed with the SEC.  The principle in the rule is whether there is sufficient continuity in the revenue generating activity so that pre-acquisition financial statements would be meaningful to investors.  The assets to be acquired do not meet the definition of a Business under rule 11-01(d).  FASB ASC Topic 805 defines a Business as capable of being conducted and managed as an integrated set of activities utilizing its assets and requires two essential elements - inputs and processes applied to those inputs, which together are or will be used to create outputs. The assets to be acquired have no inputs, no operating history, no employees or other attributes described above, as well as no liabilities or encumbrances and do not meet the definition of a Business under ASC 805.  Therefore, based on the Company’s evaluations performed for the purposes of determining the accounting treatment of the assets to be acquired, the assets do not constitute a Business as defined above and should be properly accounted for as Asset Purchase.
  
  
  
  
 
  F - 10
 
 NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
 
 Property, plant and equipment consisted of the following:
 March 31, 2011

(in thousands)


June 30, 2010

(in thousands)Land and Buildings

$
46,855


$
44,394Machinery and Production Equipment


3,839



2,814Railway


2,022



1,448Motor Vehicles


256



215Total Property, Plant and Equipment


52,972



48,871Accumulated Depreciation


(6,917
)


(5,294
)Total

$
46,055


$
43,577
 
 Depreciation expense (in thousands) for the nine and three months ended March 31, 2011 and 2010 was $1,399 and $469 and $231 and $77, respectively.
 
 NOTE 9 – TAXES
 
 Taxes payable consisted of the following:
 March 31, 2011

(in thousands)


June 30, 2010

(in thousands)Income Tax Payable

$
5,737


$
5,827Value Added Tax Payable


(634
)


1,255Business Taxes and Other Payables


-



47Total

$
5,103


$
7,129
 
 NOTE 10 – PREFERRED STOCK - OCTOBER 2009 FINANCING
 
 On October 29, 2009 (the “Closing Date”), the Company entered into a securities purchase agreement (the “Purchase Agreement”), with several investors, including institutional, accredited and non-US persons and entities (the “Investors”), pursuant to which the Company issued and sold units, comprised of its newly designated Series A Convertible Perpetual Preferred Stock (the “Series A Preferred Stock”), and warrants (the “Warrants”), for a purchase price of US$1.10 per unit (the “October 2009 Financing”).  The Company sold 13,499,274 units in the aggregate, which included (i) 13,499,274 shares of Series A Preferred Stock and (ii) Warrants to purchase an additional 13,499,274 shares of common stock at an exercise price of US$2.255 per share (the “Exercise Price”) with a three-year term.  Gross proceeds totaled $14,849,201, or net proceeds of $12,381,281 net of issuance costs of $2,467,920.  The Company’s placement agent also received 1,349,927 Warrants as part of their compensation under the same terms as the Investors.
 
 The Warrants have an Exercise Price which is subject to adjustments in certain circumstances for stock splits, combinations, dividends and distributions, reclassification, exchange or substitution, reorganization, merger, consolidation or sales of assets, issuance of additional shares of common stock or equivalents.  The Warrants may not be exercised if it would result in the holder beneficially owning more than 4.9% of the Company’s outstanding common shares.
 
 Accounting for the Warrants
 
 The Company analyzed the Warrants in accordance with ASC Topic 815 to determine whether the Warrants meet the definition of a derivative under ASC Topic 815 and, if so, whether the Warrants meet the scope exception of ASC Topic 815, which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC Topic 815.  The Company adopted the provisions of ASC Topic 815 subtopic 40 “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“ASC Topic 815 subtopic 40”) on July 1, 2009, which applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by ASC Topic 815 and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.  As a result of adopting ASC Topic 815 subtopic 40, the Company concluded that the Warrants issued in the October 2009 Financing should be treated as a derivative liability because the Warrants are entitled to a price adjustment provision to allow the Conversion Price to be reduced in the event the Company issues or sells any additional shares of common stock at a price per share less than the then-applicable Exercise Price or without consideration, which is typically referred to as a “down-round protection” or “anti-dilution” provision.  According to ASC Topic 815 subtopic 40, the “down-round protection” provision is not considered to be an input to the fair value of a fixed-for-fixed option on equity shares which leads the Warrants to fail to be qualified as indexed to the Company’s own stock and then to fail to meet the scope exceptions of ASC Topic 815. Therefore, the Company accounted for the Warrants as derivative liabilities under ASC Topic 815 (codification of EITF 00-19).  Pursuant to ASC Topic 815, derivatives should be measured at fair value and re-measured at fair value with changes in fair value recorded in earnings under the other income/expense in the consolidated statement of operations at each reporting period.  During the nine and three month period ended March 31, 2011, the Company recorded a loss on warrant re-valuation of $7,947,841 and a gain of 9,220,821, respectively.  During the nine and three month period ended March 31, 2010, the Company recorded a loss on warrant re-valuation of $15,483,000 and $1,207,000.
   F - 11
  
 Fair Value of the Warrants
 
 Fair value is generally based on independent sources such as quoted market prices or dealer price quotations. To the extent certain financial instruments trade infrequently or are non-marketable securities, they may not have readily determinable fair values. The Company estimated the fair value of the Warrants and Series A Preferred Stock using a Lattice pricing model and available information that management deems most relevant. Among the factors considered in determining the fair value of financial instruments are discounted anticipated cash flows, the cost, terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price and trading history of similarly traded securities, and other factors generally pertinent to the valuation of financial instruments. The following table provides the valuation inputs used to value the Warrants issued in connection with the October 2009 Financing.
  October 2009 Financing Warrants - Valuation InputsAttribute

March 31,

2011


June 30,

2010


October 29,

2009Stock Price

$
1.83


$
1.95


$
2.05Risk Free Interest Rate


1.30
%


1.13
%


1.50
%Volatility


62.6
%


80.1
%


63.9
%Exercise Price

$
2.255


$
2.255


$
2.255Dividend Yield


0
%


0
%


0
%Contractual Life (Years)


1.60



2.36



3Fair Market Value

$
5,394,367


$
2,084,131


$
7,327,517
 
 In accordance with ASC Topic 470-20, “Debt with Conversion and Other Options,” the gross proceeds of $14,849,201 from the October 2009 Financing were first allocated to the warrant derivative based on its fair value of $7,327,517 with the residual value of $7,521,684 allocated to the Series A Preferred Stock as of October 29, 2009.  The remeasured fair value of the Warrants as of March 31, 2011 was $5,394,367.
 
 Accounting for the Series A Preferred Stock
 
 The Series A Preferred Stock has been classified as permanent equity as there was no redemption provision at the option of the holders that is not within the control the Company on or after an agreed upon date. The Company evaluated the embedded conversion feature in its Series A Preferred Stock to determine if there was an embedded derivative requiring bifurcation.  The Company concluded that the embedded conversion feature of the Series A Preferred Stock is not required to be bifurcated because the conversion feature is clearly and closely related to the host instrument. The Company believes the economic risks and characteristics of the Series A Preferred Stock itself and the common stock the embedded conversion feature allows the Investor to convert into have similar economic risks and characteristics.
 
 Key Terms of October 2009 Financing - Filed in 8K
 
 Additional key terms of the Series A Preferred Stock sold by the Company in the October 2009 Financing were filed in a Form 8-K on November 2, 2009 to provide the complete contractual terms and actual copies of the documents associated with the October 2009 Financing.
 
 
 
 
 
 
 
 
 
 F - 12
 
 Stock Warrant Activity
 
 The following is a summary of the Company’s stock warrant activity through March 31, 2011, only one class of warrants outstanding - related to the October 2009 Financing stock warrants, adjusted for any changes in the exercise price of the stock warrants:
 
 Stock

Warrants


Weighted Average Exercise PriceOutstanding – June 30, 2010


14,849,201


$
2.255Exercisable – June 30, 2010


14,849,201


$
2.255Granted


-


$
-Exercised


3,306,949


$
2.255Forfeited/Cancelled


-


$
-Outstanding – March  31, 2011


11,542,252


$
2.255Exercisable – March 31, 2011


11,542,252


$
2.255
 
 The following is a summary of the Company’s stock warrants outstanding as of March 31, 2011, only one class of warrants outstanding – related to the October 2009 Financing stock warrants, adjusted for any changes in the exercise price of the stock warrants:
 
 Warrants Outstanding


Warrants ExercisableRange of

exercise price


Number Outstanding

Weighted Average Remaining Contractual Life

(in years)

Weighted Average Exercise Price


Number Exercisable


Weighted Average Exercise Price$
2.255



11,542,252

1.60 years

$
2.255



11,542,252


$
2.255
 
 NOTE 11 – STOCKHOLDERS’ EQUITY
 
 The Company is authorized to issue 600,000,000 shares, in aggregate, consisting of 500,000,000 shares of common stock, no par value, and 100,000,000 shares of preferred stock, no par value. The Company's current Certificate of Incorporation authorizes the Board of Directors (the “Board”) to determine the preferences, limitations and relative rights of any class or series of preferred stock prior to issuance.  Each such class or series must be given distinguishable designated rights prior to issuance. As of March 31, 2011, 1,313,411 shares of the Company’s preferred stock and 100,329,198 shares of the Company’s common stock were issued and outstanding.  As of June 30, 2010, 6,934,273 shares of the Company’s preferred stock and 92,633,485 shares of the Company’s common stock were issued and outstanding.
 
 Recent Sale of Securities
 
 Such securities have not been registered under the Securities Act of 1933. The issuance of these shares was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.
 
 During January 2011, the holders of Convertible Preferred Stock elected to convert 87,657 shares of preferred stock into 87,657 shares of common stock.
 
 During January 2011, the holders of Warrants elected to exercise 51,000 warrants on a cashless basis into 8,866 shares of common stock.
 
 During February 2011, the holders of Convertible Preferred Stock elected to convert 105,269 shares of preferred stock into 105,269 shares of common stock.
 
 During March 2011, the holders of Convertible Preferred Stock elected to convert 135,000 shares of preferred stock into 135,000 shares of common stock.
 
 During March 2011, the Chief Financial Officer earned and was vested in 15,000 shares of common stock as part of his consulting agreement.
 
 NOTE 12 – EARNINGS PER SHARE
 
 FASB ASC Topic 260, earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.
 
 
 
 
  F - 13
 
 The Company only has common stock and the following convertible instruments outstanding at March 31, 2011:
 
 1.
1,313,411 Preferred Shares – convertible on a 1:1 basis for common shares
 2.
11,542,252 October 2009 Financing Warrants – exercisable at $2.255 per share
 3.
15,000 Common Shares – issuable to officers and directors under agreement
 
 Total number of Dilutive Shares outstanding as of March 31, 2011 was 12,870,663 common shares.
 
 Basic earnings per share is calculated dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is based on the assumption that all dilutive convertible shares, stock options, warrants and other equity awards were converted or exercised during the period. Dilution is computed by applying the treasury stock method. Under this method, warrants and options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
 
 The following table sets forth the computation of basic and dilutive net income per share:
 (In Thousands, Except Per Share Data) For the Nine Months Ended

March 31,2011


2010Net income (loss) attributable to common stockholders

$
40,681


$
6,718Basic weighted average outstanding shares of common stock


96,931



84,263Weighted number of dilutive shares


4,577



9,450Diluted weighted average common stock and

common stock equivalents


101,508



93,713Earnings (loss) per share:Basic

$
0.42


$
0.08Fully Dilutive

$
0.40


$
0.07
  (In Thousands, Except Per Share Data) For the Three Months Ended

March 31,2011


2010Net income (loss) attributable to common stockholders

$
26,346


$
11,888Basic weighted average outstanding shares of common stock


100,197



86,160Weighted number of dilutive shares


1,940



14,051Diluted weighted average common stock and

common stock equivalents


102,137



100,211Earnings (loss) per share:Basic

$
0.26


$
0.14Fully Dilutive

$
0.26


$
0.12
 
 
 
 
 F - 14
 NOTE 13 - SEGMENT INFORMATION
 
 The Company operates under the two business segments determined in accordance with FASB ASC Topic 280, “Segment Reporting.”
 
 1.
Product Sales - The Company purchases and sells diesel, gasoline, fuel oil and solvents in the PRC.2.
Agency Fees - The Company acts as an agent in the purchase and sale of the Products by other intermediaries in the PRC.
 (In Thousands)

Nine Months Ended

March 31, 2011

Product

Sales


Agency

Sales


Consolidated

TotalNet Sales

$
336,397


$
16,709


$
353,106Cost of Sales


283,397



-



283,397Operating Income


54,081



11,531



65,612Segment Assets


247,312



-



247,312Segment Liabilities


10,898



-



10,898
 
 (In Thousands)

Nine Months Ended

March 31, 2010

Product

Sales


Agency

Sales


Consolidated

TotalNet Sales

$
215,527


$
11,969


$
227,496Cost of Sales


182,435



-



182,436Operating Income


30,244



11,969



42,213Segment Assets


168,579



-



168,578Segment Liabilities


27,724



-



27,724
  (In Thousands)

Three Months Ended

March 31, 2011

Product

Sales


Agency

Sales


Consolidated

TotalNet Sales

$
114,396


$
5,178


$
119,574Cost of Sales


95,486



-



95,486Operating Income


17,885



5,178



23,007Segment Assets


247,312



-



247,312Segment Liabilities


10,898



-



10,898
 
 (In Thousands)

Three Months Ended

March 31, 2010

Product

Sales


Agency

Sales


Consolidated

TotalNet Sales

$
91,884


$
5,015


$
96,899Cost of Sales


77,376



-



77,376Operating Income


13,068



5,015



18,083Segment Assets


168,579



-



168,579Segment Liabilities


27,724



-



27,724
 
 Product Sales
 
 The Company derives the bulk of its revenue from sales of diesel, gasoline, fuel oil and solvents. These product sales revenues are recognized when customers take possession of goods in accordance with the terms of purchase order agreements that evidence agreed upon pricing and when collectability is reasonably assured. Cost of revenues for product sales include costs to purchase and transport the product to the Company, costs to deliver the goods to the customer and depreciation on product storage and delivery equipment.
 
 
 
 
 F - 15
 Agency Fees
 
 Agency fee revenues consist of fees charged to intermediaries who lack the required licenses to purchase directly from refineries. The Company allocates a portion of its purchasing quota to these customers for a fee similar to a sales commission. Agency fee revenues are recognized when there is evidence of an arrangement that specifies pricing and irrevocable allocation of a portion of the Company’s purchase quota and collection has occurred. Cost of agency fee service revenues may consist of selling commission, transportation or other costs, if any, associated with the agency fee arrangement.  For year ended June 30, 2010 and thereafter, the Company stopped transporting or handling the Products associated with the agency sales and only acted in a broker capacity allowing other intermediaries to use its licenses to take possession of the Products.
 
 NOTE 14 – SUBSEQUENT EVENTS
 
 The Company has evaluated for subsequent events between the balance sheet date of March 31, 2011 and May 16, the date the unaudited condensed consolidated financial statements were issued.
 
 During the period from third quarter ended March 31, 2011 through May 13, 2011, the holders of Convertible Preferred Stock elected to convert 398,768 shares of preferred stock into 398,768 shares of common stock.
 
 F - 16
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR RESULTS OF OPERATIONS.





This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as “believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,” and similar expressions to identify forward-looking statements, including statements regarding our ability to continue to generate new business based on our sales and marketing efforts, referrals and existing relationships, our financing strategy and ability to access the capital markets and other risks discussed in our Risk Factor section included in our Form 10-K for the year ended June 30, 2010, as filed with the Securities and Exchange Commission on September 28, 2010. Although we believe the expectations expressed in the forward-looking statements included in this Form 10-Q are based on reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause our actual results to differ materially from those expressed in any forward-looking statements. We cannot assure you that the results or developments expected or anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.





Highlights and Executive Summary





Longwei Petroleum Investment Holding Limited (the “Company”) is an energy company engaged in the wholesale distribution of finished petroleum products in the People’s Republic of China (the “PRC”).  Our oil and gas operations consist of transporting, storage and selling finished petroleum products, entirely in the PRC.  We purchase diesel, gasoline, fuel oil and solvents (the “Products”) from various petroleum refineries in the PRC. Our headquarters are located in Taiyuan City, Shanxi Province (“Taiyuan”). The Company has a storage capacity for its Products of 120,000 metric tons located at its fuel depot storage facilities in Taiyuan and in Gujiao, Shanxi (“Gujiao”), 50,000 metric tons and 70,000 metric tons of capacity respectively at each location. The Gujiao facility was acquired in January of 2009 and commenced operations in January of 2010. The Company is 1 of 3 licensed intermediaries in Taiyuan and the sole licensed intermediary in Gujiao that operates its own large scale storage tanks. The Company has the necessary licenses to operate and sell Products not only in Shanxi but throughout the entire PRC. The Company seeks to earn profits by selling its Products at competitive prices with timely delivery to coal mining operations, power supply customers, large-scale gas stations and small, independent gas stations. The Company also earns revenue under an agency fee by acting as a purchasing agent for other intermediaries in Shanxi, and through limited sales of diesel and gasoline at two retail gas stations, each located at the Company’s facilities. The sales price and the cost basis of the Company’s products are largely dependent on regulations and price control measures instituted and controlled by the PRC government as well as the price of crude oil. The price of crude oil is subject to fluctuation due to a variety of factors, all of which are beyond the Company’s control.





The Company was incorporated under the laws of the State of Colorado on March 17, 2000 as Tabatha II, Inc.  On October 12, 2007, the Company changed its name to Longwei Petroleum Investment Holding Limited.





RESULTS OF OPERATIONS





(All numbers referenced are "in thousands,” except price per metric ton “mt” and earnings per share)




For the Nine Months Ended March 31, 2011 Compared to the Nine Months Ended March 31, 2010





Revenues





For the nine months ended March 31, 2011, we reported revenues of $353,106, an increase of $125,610 or 55% from revenues of $227,496 reported for the nine months ended March 31, 2010.  We continued to expand our customer base and distribution platform.  Our Taiyuan and Gujiao fuel storage depots generated revenues of $198,331 and $138,066, respectively, and we earned an additional $16,709 in agency fees during the nine months ended March 31, 2011.  During this period our product mix as a percentage of sales was split between diesel 51%, gasoline 47%, and other petroleum products 2% of total sales.  The sales increase was primarily due to the addition of our Gujiao facility, which began operations in January of 2010, and petroleum price increases.  The weighted average sales price per metric ton (“mt”) of product sold increased approximately 18% to $973/mt from $822/mt during the nine months ended March 31, 2011 and 2010, respectively.





Costs of Sales





Costs of sales for the nine months ended March 31, 2011 were $283,397 as compared to $182,436 for the nine months ended March 31, 2010.  The increase of $100,961 or 55% was directly attributable to the increase in sales. The Company’s gross profit remained flat at approximately 20% of revenues, for the nine months ended March 31, 2011 and 2010. The average cost per metric ton of product the Company purchases have been steadily increasing in recent quarters and we have carefully managed our inventory levels to adjust to pricing fluctuations.  The weighted average cost basis per metric ton (“mt”) of product sold increased approximately 18% to $817/mt from $693/mt during the nine months ended March 31, 2011 and 2010, respectively.  We earn an agency fee commission by acting in a purchasing agent role by allowing intermediaries to use our licenses to buy directly from refineries. The product ships direct to the customer and we do not incur any cost of sales under this arrangement.




3





Operating Expenses





Operating expenses for the nine months ended March 31, 2011 increased to $4,097 from $2,847 for the nine months ended March 31, 2010.  The increase of $1,250 or 44% was primarily due to higher depreciation expense associated with Gujiao facility and public company expenses associated with legal, accounting, insurance and other professional fees.  As a percentage of sales, operating expenses remained approximately 1% of sales during the nine months ended March 31, 2011 and 2010, respectively.





Operating Income





Operating income for the nine months ended March 31, 2011 increased $23,399 or 55% to $65,612 from $42,213 for the nine months ended March 31, 2010, primarily driven by strong revenue growth, and inventory and cost management.





Income Before Taxes





Income before taxes for the nine months ended March 31, 2011 increased $35,623 or 133% to $62,314 from $26,691 for the nine months ended March 31, 2010, primarily due to the increase in revenues and in other expenses associated with the accounting for the non-cash warrant derivative liability charge.





Other expense for the nine months ended March 31, 2011 decreased $7,586 or 49% to $7,948 from $15,522 for the nine months ended March 31, 2010.  In accordance with GAAP, we recorded a non-cash expense for the change in the fair value of the warrant derivative. The financial instrument classified as derivatives consisted of stock warrants issued in connection with our October 2009 Financing.  The warrants have a three year term that expire October 29, 2012 and have an exercise price per share of $2.255.  The warrant derivative liability expense (a non-cash charge) decreased $7,535 or 49% to $7,948 from $15,483 for the nine months ended March 31, 2011 and 2010, respectively.  The decrease in the warrant derivative liability expense was attributable to the decline in the calculation variables for this expense that factors in stock price and duration outstanding for the warrants, both of which decreased during the nine months ended March 31, 2011.





Income tax expense for the nine months ended March 31, 2011 increased $5,845 or 53% to $16,809 from $10,964 for the nine months ended March 31, 2010, due to the increase in operating income earned during the period.





Net Income





Net income for the nine months ended March 31, 2011 increased $25,142 or 160% to $40,867 from $15,727 for the nine months ended March 31, 2010, due to the reasons set forth above.  Comprehensive income for the nine months ended March 31, 2011 increased $34,534 or 217% to $56,417 from $15,885 for the nine months ended March 31, 2010, due to the increase in net income, including the increase in foreign currency translation adjustment of $9,392 between the periods.





Basic and Diluted Income Attributable to Common Shareholders per Share





The Company’s basic net income attributable to common shareholders per share increased $0.34 or 425% to $0.42 from $0.08 for the nine months ended March 31, 2011 and 2010, respectively. In accordance with GAAP, we recorded a non-cash expense for the change in the fair value of derivatives of $7,948 or $0.08 per basic share and $15,483 or $0.18 per basic share for the nine months ended March 31, 2011 and 2010, respectively.





The Company’s diluted net income attributable to common shareholders per share increased $0.33 or 471% to $0.40 from $0.07 for the nine months ended March 31, 2011 and 2010, respectively.  In accordance with GAAP, we recorded a non-cash expense for the change in the fair value of derivatives of $7,948 or $0.08 per diluted share and $15,483 or $0.17 per diluted share for the nine months ended March 31, 2011 and 2010, respectively.





For the Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010





Revenues





For the three months ended March 31, 2011, we reported revenues of $119,574, an increase of $22,675 or 23% from revenues of $96,899 reported for the three months ended March 31, 2010.  We continued to expand our customer base and distribution platform.  Our Taiyuan and Gujiao fuel storage depots generated revenues of $63,100 and $51,296, respectively, and we earned an additional $5,178 in agency fees during the three months ended March 31, 2011.  During this period our product mix as a percentage of sales was split between diesel 47%, gasoline 51%, and other petroleum products 2% of total sales.  The sales increase was primarily due to the addition of our Gujiao facility, which began operations in January of 2010, and petroleum price increases.  The weighted average sales price per metric ton (“mt”) of product sold increased approximately 23% to $1,055/mt from $856/mt during the three months ended March 31, 2011 and 2010, respectively.





The Chinese New Year is typically celebrated during our third fiscal quarter ended March 31.  During this national holiday celebration the Company’s operating activities are significantly curtailed for approximately two weeks.




4





Costs of Sales





Costs of sales for the three months ended March 31, 2011 were $95,486 as compared to $77,376 for the three months ended March 31, 2010.  The increase of $18,110 or 23% was directly attributable to the increase in sales. The Company’s gross profit remained flat at 20% of revenues, for the three months ended March 31, 2011 and 2010. The average cost per metric ton of product the Company purchases have been steadily increasing in recent quarters and we have carefully managed our inventory levels to adjust to pricing fluctuations.  The weighted average cost basis per metric ton (“mt”) of product sold increased approximately 22% to $875/mt from $719/mt during the three months ended March 31, 2011 and 2010, respectively.  We earn an agency fee commission by acting in a purchasing agent role by allowing intermediaries to use our licenses to buy directly from refineries. The product ships direct to the customer and we do not incur any cost of sales under this arrangement.





Operating Expenses





Operating expenses for the three months ended March 31, 2011 decreased to $1,080 from $1,440 for the three months ended March 31, 2010.  The decrease of $360 or 25% was primarily due to lower public company expenses associated with professional fees.  As a percentage of sales, operating expenses remained approximately 1% of sales during the three months ended March 31, 2011 and 2010, respectively.





Operating Income





Operating income for the three months ended March 31, 2011 increased $4,924 or 27% to $23,007 from $18,083 for the three months ended March 31, 2010, primarily driven by revenue growth, and inventory and cost management.





Income Before Taxes





Income before taxes for the three months ended March 31, 2011 increased $15,350 or 91% to $32,231 from $16,881 for the three months ended March 31, 2010, primarily due to the increase revenues and in other expenses associated with the accounting for the non-cash warrant derivative liability charge.





Other income for the three months ended March 31, 2011 increased $10,426 or 867% to $9,224 from an expense of $1,202 for the three months ended March 31, 2010.  In accordance with GAAP, we recorded non-cash income for the change in the fair value of the warrant derivative. The financial instrument classified as derivatives consisted of stock warrants issued in connection with our October 2009 Financing.  The warrants have a three year term that expire October 29, 2012 and have an exercise price per share of $2.255.  The warrant derivative liability income (non-cash income) was $9,221, and was an expense (non-cash charge) of $1,207 for the three months ended March 31, 2011 and 2010, respectively.  The warrant derivative liability income (non-cash income) increased $10,428 or 864% to income of $9,221 from an expense of $1,207 for the three months ended March 31, 2011 and 2010, respectively.  The increase in the warrant derivative liability income was attributable to the decline in the calculation variables for this income that factors in stock price and duration outstanding for the warrants, both of which decreased during the three months ended March 31, 2011.





Income tax expense for the three months ended March 31, 2011increased $1,076 or 22% to $5,860 from $4,784 for the three months ended March 31, 2010, due to the increase in operating income earned during the period.





Net Income





Net income for the three months ended March 31, 2011 increased $14,275 or 118% to $26,372 from $12,097 for the three months ended March 31, 2010, due to the reasons set forth above.  Comprehensive income for the three months ended March 31, 2011 increased $17,522 or 145% to $29,644 from $12,122 for the three months ended March 31, 2010, due to the increase in net income, including the increase foreign currency translation adjustment of $3,247 between the periods.





Basic and Diluted Income Attributable to Common Shareholders per Share





The Company’s basic net income attributable to common shareholders per share increased $0.14 or 140% to $0.26 from $0.12 for the three months ended March 31, 2011 and 2010, respectively. In accordance with GAAP, we recorded non-cash income for the change in the fair value of derivatives of $9,221 or $0.09 per basic share and a non-cash expense of $1,207 or $0.01 per basic share for the three months ended March 31, 2011 and 20010, respectively.





The Company’s diluted net income attributable to common shareholders per share increased $0.16 or 160% to $0.26 from $0.10 for the three months ended March 31, 2011 and 2010, respectively.  In accordance with GAAP, we recorded non-cash income for the change in the fair value of derivatives of $9,221 or $0.09 per diluted share and a non-cash expense of $1,207 or $0.01 per diluted share for the three months ended March 31, 2011 and 2010, respectively.




5





Reconciliation of GAAP to non-GAAP Financial Measures





The following table contains financial measures that are not calculated in accordance with GAAP.  Such measures, which are unaudited and should only be read in conjunction with our financial statements and related notes included elsewhere in this report, are intended to serve as a supplement to the GAAP results.  The unaudited non-GAAP information reflects the adjustment to GAAP Net Income Attributable to Common Shareholders on a non-GAAP basis, whereby the effect of the noncash adjustment for each period presented of the change in the fair value of derivatives associated with the October 2009 Warrants is added back to the GAAP Net Income Attributable to Common Shareholders.  This non-GAAP adjustment has been used to calculate the non-GAAP basic and diluted earnings per share.  The non-GAAP operating results for the quarters presented are not necessarily indicative of results for any future periods, but management believes these non-GAAP financial measures provide useful information to investors for a more accurate picture of the Company’s operations on an ongoing basis.





Longwei Petroleum Investment Holding Limited


RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES


(in thousands, except per share data)





For the Nine Months Ended

March 31,


For the Three Months Ended

March 31,2011


2010


2011


2010GAAP Net Income Attributable to Common Shareholders

$
40,867,


$
6,718


$
26,371


$
6,662Non-GAAP adjustments:Add: Non-Cash Charge for theChange in Fair Value of Derivative


7,948



15,483



(9,221
)


1,207Non-GAAP Net Income Attributable to Common Shareholders (a)

$
48,815


$
22,201


$
17,150


$
7,869GAAP Earnings Per Share:Basic

$
0.42


$
0.08


$
0.26


$
0.14Diluted

$
0.40


$
0.07


$
0.26


$
0.12Non-GAAP Earnings Per Share:Basic

$
0.50


$
0.26


$
0.17


$
0.09Diluted

$
0.48


$
0.24


$
0.17


$
0.08Weighted Average Common Shares Outstanding:Basic


96,931,079



84,262,503



100,197,482



86,160,133Diluted


101,508,266



93,712,618



102,136,976



100,210,772





(a) Non-GAAP adjustment net of the non-cash expense for the change in the fair value of the warrant derivative liability is added back to the GAAP Net Income Attributable to Common Shareholders in order to calculate the Non-GAAP Net Income Attributable to Common Shareholders and Non-GAAP Earnings Per Share.  A reconciliation of these calculations is provided above.   (The warrant derivative liability non-cash charge is associated with the issuance of Warrants for the October 2009 Financing.  The Warrants have a three year term and exercise price of $2.255 per share.)




6





Liquidity and Capital Resources





General





Cash and cash equivalents totaled $32,363 at March 31, 2011.  As of March 31, 2011 our current assets increased $57,263 or 40% from $143,994 at year end June 30, 2010 to $201,257 at the nine month period ended March 31, 2011.  Overall, we had an increase in cash flows of $22,238 during the nine month period ended March 31, 2011 resulting from $53,265 of cash provided by operating activities, cash used in investing activities of $(34,192) and cash provided by financing activities of $2,722.





Our current ratio is approximately 15:1 (current assets to current liabilities) and improves to approximately 30:1 net of the fair value of the warrant derivative liability at March 31, 2011.  We have no long term debt as of March 31, 2011.  Accounts receivable turnover improved from 27 days to 21 days during the nine month period.  Inventory turnover decreased from 32 days to 57 days to account for additional product held in on-hand inventory during this period of rising prices to take advantage of our large storage capacity.  The ratio of advances to suppliers to inventory decreased from 2.2:1 to 0.8:1 from year ended June 30, 2010 to March 31, 2011, respectively, but the combined balance in both inventory on-hand and advances to suppliers remained the same during the period at approximately $108 million.  We have continued to improve our working capital management to enhance our flexibility on inventory management and purchasing capability to react to changes in market prices.





As of March 31, 2011 we have a deposit balance of 215 million RMB (approximately $32.8 million) toward the purchase price of 700 million RMB (approximately $106.5 million) in fuel storage depot assets.  We have entered into a letter of intent with Shangxi Jiangtong Chemicals Co., Ltd. (“Jiangtong”) to acquire the assets of Jiangtong’s wholly-owned subsidiary Haujie Petroleum Co., Ltd. (“Haujie”).  The Company intends to acquire the assets of a fuel storage depot in northern Shanxi Province (located in Xingyuan, Shanxi) including fuel tanks with a 100,000 metric ton storage capacity. The assets are non-operational with no revenue-producing history and include land use rights for 98 acres of land, 100,000 tonnage fuel tanks with accessory facilities and equipment, a special transportation railway line, and a 3,000-square-meter office building.  The acqusition is subject to final due diligence and board approval.  The Company intends to use its cash on hand, bank and other financing, and working capital assets to finance the acquisition.




The Company engaged a third-party, independent valuation firm for the appraisal of the fair market value of the assets to be acquired.  The independent valuation firm has provided their report with a detailed list of assets acquired and valuation, including the following classifications:




(1)
Land (Land-Use-Rights) - 279,300,000 RMB (approximately $42.6 million USD)




(2)
Machinery & Equipment - 113,165,841 RMB (approximately $17.3 million USD)




(3)
Buildings - 63,926,295 RMB (approximately $9.7 million USD)




(4)
Fire Controls - 17,348,924 RMB (approximately $2.6 million USD)




(5)
Railroad & Equipment - 239,540,000 RMB (approximately 36.5 million USD)




TOTAL:  713,281,060 RMB (approximately $108.7 million USD)




Longwei will account for the purchase of the proposed assets as an Asset Purchase.  The Company will use this accounting treatment for the purchase of assets because the purchase does not meet the definition of a “Business” for a business combination.  The accounting requirements for an acquisition of net assets or equity interests that are deemed to be an Asset Purchase differs from those used for a Business Combination, which may require audited financial statements of the entity acquired.




The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:





(In thousands)

Nine Months Ended

March 31,2011


2010Cash at beginning of period

$
10,125


$
7,308Net cash (used in) provided by operating activities


53,265



(1,716)Net cash (used in) provided by investing activities


(34,192
)


(7,654)Net cash (used in) provided by financing activities


2,722



13,896Effect of exchange rate changes on cash


443



158Cash at end of period

$
32,363


$
11,992








7





Cash Flows from Operating Activities





For the nine months ended March 31, 2011, net cash provided by operations was $53,265 compared to net cash used in operations of $(1,716) for the nine months ended March 31, 2010.  The increase of $54,981 or 3,204% in net cash provided by operations was primarily due to the increase in net income of $48,815, net of the effect for the non-cash warrant derivative liability charge, as well as the net effect of $5,178 for the decrease in advances to suppliers offset by the increase in on-hand inventory.  The ratio of advances to suppliers to inventory decreased from 2.2:1 to 0.8:1 from year ended June 30, 2010 to March 31, 2011, respectively, but the combined balance in both inventory on-hand and advances to suppliers remained the same during the period at approximately $108 million.  We increased our on-hand inventory as our capacity utilization has expanded from 50,000mt to 120,000mt during the last fiscal year with operations commencing at the Gujiao facility in January of 2010.  Based on the nine months ended March 31, 2011 inventory product mix we have 67mt (or 22.3M gallons) of Product on-hand or 56% of our total storage capacity of 120,000mt valued at $59,751.  Our supplier advance balance with refineries allows us to lock-in supply so that we can react quickly to purchases based on the timing of the PRC pricing levels adjustments and adjust our on-hand inventory levels accordingly.





Cash Flows from Investing Activities





For the nine months ended March 31, 2011, net cash used in investing activities was $(34,192) compared to net cash used in investing activities of $(7,654) for the nine months ended March 31, 2010.  The increase of $26,538 or 347% in net cash used in investing activities was primarily due to the deposit of $32,232 paid for the acquisition of fixed assets. The capital expenditures for the nine months ended March 31, 2010 included the investment into the renovation and retrofit of the Gujiao facility, as well as improvements to our Taiyuan facility.





Cash flows from Financing Activities





For the nine months ended March 31, 2011, net cash provided by financing activities was $2,722 compared to net cash provided by financing activities of $13,896 for the nine months ended March 31, 2010.  The decrease of $11,174 or 80% in net cash provided by financing activities was primarily due to $13,820 from the proceeds from the sale of preferred stock during the nine months ended March 31, 2010 compared to $2,908 from the proceeds from the exercise of warrants during the nine months ended March 31, 2011.





Plan of Operations





As described herein, we anticipate the completion of the approximately $106.5 million asset purchase of the assets of Haujie Petroleum by the end of our current fiscal year.  We expect to continue to expand our customer base utilizing our distribution platforms.  Our strategy is to leverage our customer and supplier relationships to develop additional business.  We may also look for opportunities to expand our business that we consider accretive to earnings.





We will continue to operate within our business model, which allows us a competitive advantage by utilizing our large storage capacity to adjust inventory levels based on the anticipated movement of industry pricing and acts as a hedge on pricing levels.  Utilizing our excess storage capacity allows us flexibility to take advantage of pricing, supply and demand fluctuations within the marketplace.  Our inventory on-hand and supplier advance balance with refineries allows us to lock-in supply so that we can react quickly to purchases based on the timing of the PRC pricing levels adjustments.





Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements, financings, or other relationships that are currently material or reasonably likely to be material to our financial position or results of operations.





Critical Accounting Policies and Estimates





The discussion and analysis of the Company’s results of operations and liquidity and capital resources are based on the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. In connection with the preparation of consolidated financial statements, the Company is required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. The assumptions, estimates and judgments included within these estimates are based on historical experience, current trends and other factors the Company believes to be relevant at the time the consolidated financial statements were prepared. On a regular basis, the accounting policies, assumptions, estimates and judgments are reviewed to ensure that the consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from the assumptions and estimates, and such differences could be material.





The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used for, but are not limited to: (1) inventory costs and reserves; (2) asset impairments (3) and depreciable lives of assets. Future events and their effects cannot be predicted with certainty, and accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates these assumptions and estimates on an ongoing basis and may employ outside experts to assist with these evaluations. Actual results could differ from the estimates that have been used.




8





Significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to the accompanying consolidated financial statements. The Company believes the following accounting policies are the most critical to aid in fully understanding and evaluating the Company’s reported financial results, as they require management to make difficult, subjective or complex judgments, and to make estimates about the effect of matters that are inherently uncertain.





Warrant Derivative Liability





The Company issued warrants in connection with financing instruments.  The Company analyzed the accounting treatment and classification of the warrants and summarized the effects and conclusions. The Company accounts for the warrants pursuant to FASB ASC Topic 815.





Impairment analysis for long-lived assets and intangible assets





The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, “ Property, Plant, and Equipment”, and FASB ASC Topic 205 “ Presentation of Financial Statements ”.  The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset.  If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates on asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through March 31, 2011, the Company had not experienced impairment losses on its long-lived assets.





Inventories





Inventories consist of finished petroleum products.  Inventories are stated at the lower of cost, determined on a weighted average basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale.  When inventories are sold, their carrying amount is charged to expense in the year in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the year the impairment or loss occurs. There were no declines in net realizable value of inventory for the nine months ended March 31, 2011 and 2010.





Management has discussed the development and selection of these critical accounting policies with the Board of Directors and the Board has reviewed the disclosures presented above relating to them.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not required for smaller reporting companies.





ITEM 4.  CONTROLS AND PROCEDURES.
 
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 
 We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
 As of March 31, 2011, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer, Cai Yongjun, and Chief Financial Officer, Michael Toups, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
 Our conclusion that our disclosure controls were not effective was based on the fact that, as more fully disclosed in our Current Report on Form 8-K filed on May 16, 2011, we identified a number of “significant deficiencies” in the process of preparing our financial statements for the third fiscal quarter ended March 31, 2011.  On May 13, 2011, the Chief Executive Officer and Chief Financial Officer for the Company concluded that the previously issued financial statements for the fiscal second quarter ended December 31, 2010 should no longer be relied upon and that disclosure should be made and action taken to prevent future reliance.
 
 On May 16, 2011, the Company filed an amendment to the second fiscal quarter ended December 31, 2011 Form 10Q, which filing contains restated financial statements for the second fiscal quarter ended December 31, 2011 in its Form 10Q/A for the period.
 
 The purpose of the restatement in our amended Quarterly Report for our second fiscal quarter ended December 31, 2010was to: (i) amend and restate our financials to reflect warrants exercised during the second fiscal quarter ended December 31, 2010 that were not correctly recorded. When warrants were exercised we did not debit warrant derivative liability expense (a non-cash charge) for $4,589 thousands and credited common stock for the same amount. Consequently, we understated common stock and warrant derivative liability expenses; (ii) amend fully dilutive earnings per share to correctly apply the treasury stock method when computing dilution. Under this method, warrants and options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Consequently, we overstated the fully diluted weighted average common shares outstanding. The fully diluted weighted average common shares outstanding were 103,136,580 and 101,216,165 for the six and three month ended December 31, 2010.


9


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  Our management has discussed the significant deficiencies identified in the Amendment with our board of directors and has engaged in the following remediation efforts to ensure that the significant deficiencies do not reoccur, which include adding additional accounting staff with greater expertise to assist the Company in preparation of its financial statements and allocating significant financial and human resources to strengthen the internal control structure.  As part of our efforts to comply with Section 404 of the Sarbanes-Oxley Act for the fiscal year 2011, we have been actively working with external consultants to assess our data collection, financial reporting, and control procedures and to strengthen our internal controls over financials reporting.
  These remediation efforts are designed to address the significant deficiencies identified and to improve and strengthen our overall control environment.  We believe these actions will prevent the significant deficiencies from recurring.  Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that disclosure controls or internal controls over financial reporting will prevent all errors, even as the aforementioned remediation measures are implemented and further improved to address all deficiencies.  The design of any system of controls is based in part upon certain assumptions about likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
  The implementation of our remediation plan will require substantial expenditures, could take a significant period of time to complete, and could distract our officers and employees from the operation of our business.  However, our management believes that these remediation efforts will be completed by the end of the Company’s fiscal year ended June 30, 2011





ITEM 1. LEGAL PROCEEDINGS.





We may be involved in litigation, negotiation and settlement matters that may occur in our day-to-day operations. Management does not believe the implication of this type of litigation will have a material impact on our consolidated financial statements.





ITEM 1A.  RISK FACTORS





Not required for smaller reporting companies.








ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





Recent Sale of Securities





Such securities have not been registered under the Securities Act of 1933. The issuance of these shares was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.





During January 2011, the holders of Convertible Preferred Stock elected to convert 87,657 shares of preferred stock into 87,657 shares of common stock.





During January 2011, the holders of Warrants elected to exercise 51,000 warrants on a cashless basis into 8,866 shares of common stock.





During February 2011, the holders of Convertible Preferred Stock elected to convert 105,269 shares of preferred stock into 105,269 shares of common stock.





During March 2011, the holders of Convertible Preferred Stock elected to convert 135,000 shares of preferred stock into 135,000 shares of common stock.





During March 2011, the Chief Financial Officer earned and was vested in 15,000 shares of common stock as part of his consulting agreement.





ITEM 3. DEFAULTS UPON SENIOR SECURITIES.





None.





ITEM 4. REMOVED AND RESERVED .








ITEM 5. OTHER INFORMATION.





None.





ITEM 6.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





Exhibit No.

Description31.1

Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification of Chief Executive Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

Certification of Chief Financial Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002








10














SIGNATURES





In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Principal Executive Officers of

Longwei Petroleum Investment Holding LimitedMay 16, 2011
By:
/s/ Cai YongjunCai Yongjun

Chief Executive Officer

(Principal Executive Officer)By:
/s/ Michael ToupsMichael Toups

Chief Financial Officer

(Principal Financial and Principal Accounting Officer)














11