UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


______________




FORM
10-Q




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





For the
quarterly period ended December 31, 2009





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from ______ to ______.




Commission
file number: 001-33470




NEW
ORIENTAL ENERGY & CHEMICAL CORP.


(Exact
name of registrant as specified in its charter)




Delaware
              (State or other jurisdiction of
              incorporation or
      organization)
            
            20-1917956
              (I.R.S.  Employer
      Identification No.)





Xicheng
      Industrial Zone of
              Luoshan,
      Xinyang
              Henan
      Province, The People’s
              Republic
      of China
              (Address
      of principal executive
              offices)
            `
            464200
              (Zip
      Code)




(86)
27 853 75701


(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  þ       
        No   ̈





Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).





Yes   ̈    
          No  þ





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





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





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





Yes   ̈                No  þ





Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date.





Class
            
            Outstanding at February 16,
      2010Common
      Stock, $.001 par value per share
            
            12,640,000
      shares










PART
I – FINANCIAL INFORMATION





Item
1.               Financial
Statements.





New
Oriental Energy & Chemical Corp. And Subsidiaries


Condensed
Consolidated Financial Statements


For
the Three and Nine Months Ended December 31, 2009 And 2008


PageCondensed
      Consolidated Balance Sheets as of December 31, 2009
      (Unaudited)and
      March 31, 2009
                        
                        F-2Condensed
      Consolidated Statements Operations and Comprehensive Lossfor
      the Three and Nine Months Ended December 31, 2009 and 2008(Unaudited)
                        
                        F-3Condensed
      Consolidated Statements of Cash Flows for the Nine Months
      EndedDecember
      31, 2009 and 2008 (Unaudited)
                        
                        F-4Notes
      to Condensed Consolidated Financial Statements for the Three and
      NineMonths
      Ended December 31, 2009 and 2008 (Unaudited)
                        
                        F-5-18




F-1




NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


CONDENSED CONSOLIDATED
BALANCE SHEETS





December
      31, 2009
                      
                      
                      March
      31, 2009(Unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                      
                      $
                      267,333
                      
                      
                      $
                      410,870Restricted
      cash
                      
                      
                      3,661,287
                      
                      
                      
                      4,388,596Notes
      receivable, net of reserve of $146,451 and $146,287at
      December 31, 2009 and March 31, 2009, respectively
                      
                      
                      585,806
                      
                      
                      
                      722,242Inventories,
      net
                      
                      
                      4,981,091
                      
                      
                      
                      1,678,626Prepayments
      for goods
                      
                      
                      925,714
                      
                      
                      
                      301,450Due
      from employees
                      
                      
                      431,147
                      
                      
                      
                      18,424Other
      assets
                      
                      
                      5,475
                      
                      
                      
                      19,152Due
      from a related party
                      
                      
                      223,869
                      
                      
                      
                      253,959Deferred
      taxes
                      
                      
                      155,887
                      
                      
                      
                      307,404Total
      current assets
                      
                      
                      11,237,609
                      
                      
                      
                      8,100,723Long-term
      investment
                      
                      
                      -
                      
                      
                      
                      469,580Plant
      and equipment, net
                      
                      
                      16,850,398
                      
                      
                      
                      18,695,469Land
      use rights, net
                      
                      
                      1,612,220
                      
                      
                      
                      1,637,352Construction
      in progress
                      
                      
                      27,953,577
                      
                      
                      
                      25,703,868Deposits
                      
                      
                      1,208,270
                      
                      
                      
                      2,123,963Deferred
      taxes
                      
                      
                      1,424,359
                      
                      
                      
                      1,422,756Other
      long-term assets
                      
                      
                      8,975
                      
                      
                      
                      11,049Total
      long-term assets
                      
                      
                      49,057,799
                      
                      
                      
                      50,064,037TOTAL
      ASSETS
                      
                      $
                      60,295,408
                      
                      
                      $
                      58,164,760LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                      
                      $
                      7,275,214
                      
                      
                      $
                      9,697,419Other
      payables and accrued liabilities
                      
                      
                      1,146,628
                      
                      
                      
                      887,920Short-term
      debt
                      
                      
                      18,236,138
                      
                      
                      
                      15,743,355Customer
      deposits
                      
                      
                      7,102,482
                      
                      
                      
                      2,907,587Due
      to employees
                      
                      
                      27,644
                      
                      
                      
                      11,419Payable
      to contractors
                      
                      
                      1,298,728
                      
                      
                      
                      1,477,066Due
      to related parties
                      
                      
                      13,860,469
                      
                      
                      
                      8,350,223Deferred
      taxes
                      
                      
                      445,755
                      
                      
                      
                      432,232Taxes
      payable
                      
                      
                      570,618
                      
                      
                      
                      570,009Total
      current liabilities
                      
                      
                      49,963,676
                      
                      
                      
                      40,077,230LONG-TERM
      LIABILITIESLong-term
      bank loan
                      
                      
                      2,929,030
                      
                      
                      
                      2,925,730Long-term
      note payable
                      
                      
                      531,619
                      
                      
                      
                      531,020Deferred
      taxes
                      
                      
                      654,500
                      
                      
                      
                      452,242Due
      to employees
                      
                      
                      130,983
                      
                      
                      
                      160,271Total
      long-term liabilities
                      
                      
                      4,246,132
                      
                      
                      
                      4,069,263TOTAL
      LIABILITIES
                      
                      $
                      54,209,808
                      
                      
                      $
                      44,146,493SHAREHOLDERS'
      EQUITYCommon
      stock, par value $0.001 per share; 30,000,000 shares authorized,
      12,640,000 shares issued and outstanding at December 31,2009 and March
      31, 2009, respectively
                      
                      
                      12,640
                      
                      
                      
                      12,640Additional
      paid-in capital
                      
                      
                      4,573,205
                      
                      
                      
                      4,573,205Retained
      earnings (restricted portion was $0 and $950,327 at December 31, 2009
      and March 31, 2009, respectively)
                      
                      
                      (1,043,430
                      )
                      
                      
                      6,897,492Accumulated
      other comprehensive income
                      
                      
                      2,543,185
                      
                      
                      
                      2,534,930TOTAL
      SHAREHOLDERS' EQUITY
                      
                      
                      6,085,600
                      
                      
                      
                      14,018,267TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                      
                      $
                      60,295,408
                      
                      
                      $
                      58,164,760





See
accompanying notes to the condensed consolidated financial
statements.





F-2




NEW ORIENTAL ENERGY & CHEMICAL
CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND


COMPREHENSIVE
LOSS


(UNAUDITED)





Three Months Ended
                      December 31,
                    
                    
                    Nine Months Ended
                      December 31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008REVENUES
                    
                    $
                    8,770,449
                    
                    
                    $
                    10,614,418
                    
                    
                    $
                    24,704,321
                    
                    
                    $
                    40,533,491COST
      OF GOODS SOLD
                    
                    
                    (8,515,088
                    )
                    
                    
                    (11,971,384
                    )
                    
                    
                    (28,006,407
                    )
                    
                    
                    (40,097,429
                    )GROSS
      PROFIT (LOSS)
                    
                    
                    255,361
                    
                    
                    
                    (1,356,966
                    )
                    
                    
                    (3,302,086
                    )
                    
                    
                    436,062General
      and administrative
                    
                    
                    622,722
                    
                    
                    
                    546,822
                    
                    
                    
                    1,829,231
                    
                    
                    
                    1,996,928Selling
      and distribution
                    
                    
                    367,075
                    
                    
                    
                    367,424
                    
                    
                    
                    914,635
                    
                    
                    
                    928,534Research
      and development
                    
                    
                    14,707
                    
                    
                    
                    14,292
                    
                    
                    
                    57,375
                    
                    
                    
                    123,392LOSS
      FROM OPERATIONS
                    
                    
                    (749,143
                    )
                    
                    
                    (2,285,504
                    )
                    
                    
                    (6,103,327
                    )
                    
                    
                    (2,612,792
                    )OTHER
      INCOME (EXPENSES)Interest
      expense, net
                    
                    
                    (597,012
                    )
                    
                    
                    (485,891
                    )
                    
                    
                    (1,484,457
                    )
                    
                    
                    (897,869
                    )Government
      grants
                    
                    
                    -
                    
                    
                    
                    501,622
                    
                    
                    
                    -
                    
                    
                    
                    1,490,489Other
      income (expenses), net
                    
                    
                    10,551
                    
                    
                    
                    -
                    
                    
                    
                    13,300
                    
                    
                    
                    (33,418
                    )LOSS
      BEFORE INCOME TAXES
                    
                    
                    (1,335,604
                    )
                    
                    
                    (2,269,773
                    )
                    
                    
                    (7,574,484
                    )
                    
                    
                    (2,053,590
                    )INCOME
      TAX (EXPENSE) BENEFIT
                    
                    
                    (280,804
                    )
                    
                    
                    138,946
                    
                    
                    
                    (366,438
                    )
                    
                    
                    195,324NET
      LOSS
                    
                    
                    (1,616,408
                    )
                    
                    
                    (2,130,827
                    )
                    
                    
                    (7,940,922
                    )
                    
                    
                    (1,858,266
                    )OTHER COMPREHENSIVE INCOMEForeign
      currency translation gain
                    
                    
                    18,681
                    
                    
                    
                    73,288
                    
                    
                    
                    8,255
                    
                    
                    
                    478,332OTHER
      COMPREHENSIVE INCOME
                    
                    
                    18,681
                    
                    
                    
                    73,288
                    
                    
                    
                    8,255
                    
                    
                    
                    478,332COMPREHENSIVE
      LOSS
                    
                    $
                    (1,597,727
                    )
                    
                    $
                    (2,057,539
                    )
                    
                    $
                    (7,932,667
                    )
                    
                    $
                    (1,379,934
                    )WEIGHTED
      AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED
                    
                    
                    12,640,000
                    
                    
                    
                    12,640,000
                    
                    
                    
                    12,640,000
                    
                    
                    
                    12,640,000NET
      LOSS PER SHARE, BASIC AND DILUTED
                    
                    $
                    (0.13
                    )
                    
                    $
                    (0.17
                    )
                    
                    $
                    (0.63
                    )
                    
                    $
                    (0.15
                    )





See
accompanying notes to the condensed consolidated financial
statements.





F-3





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





Nine Months Ended
                    December 31,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (7,940,922
                  )
                  
                  $
                  (1,858,266
                  )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
                  
                  
                  1,951,571
                  
                  
                  
                  2,044,546Gain
      on disposal of plant and equipment
                  
                  
                  -
                  
                  
                  
                  (2,844
                  )Deferred
      taxes
                  
                  
                  365,695
                  
                  
                  
                  46,180Write-down
      of inventories to net realizable value
                  
                  
                  146,674
                  
                  
                  
                  158,980Changes
      in operating assets and liabilities:(Increase)
      Decrease In:Inventories
                  
                  
                  (3,449,139
                  )
                  
                  
                  (2,105,005
                  )Prepayments
      for goods
                  
                  
                  (624,264
                  )
                  
                  
                  939,173Other
      assets
                  
                  
                  13,677
                  
                  
                  
                  86,190Due
      from a related party
                  
                  
                  30,090
                  
                  
                  
                  (254,317
                  )Increase
      (Decrease) In:Accounts
      payable
                  
                  
                  (2,422,205
                  )
                  
                  
                  5,281,606Other
      payables and accrued liabilities
                  
                  
                  258,708
                  
                  
                  
                  103,228Customer
      deposits
                  
                  
                  4,194,895
                  
                  
                  
                  2,645,247Due
      to employees
                  
                  
                  16,225
                  
                  
                  
                  12,421Due
      to a related party
                  
                  
                  (47,265
                  )
                  
                  
                  28,873Taxes
      payable
                  
                  
                  -
                  
                  
                  
                  (790,367
                  )Net
      cash (used in) provided by operating activities
                  
                  
                  (7,506,260
                  )
                  
                  
                  6,335,645CASH
      FLOWS FROM INVESTING ACTIVITIES:Restricted
      cash
                  
                  
                  727,309
                  
                  
                  
                  1,049,379Payment
      for long-term investment
                  
                  
                  -
                  
                  
                  
                  (433,100
                  )Purchases
      of plant and equipment
                  
                  
                  (31,782
                  )
                  
                  
                  (150,033
                  )Purchases
      of construction in progress
                  
                  
                  (2,001,416
                  )
                  
                  
                  (13,378,109
                  )Deposits
                  
                  
                  917,564
                  
                  
                  
                  (42,781
                  )Purchases
      of other long-term assets
                  
                  
                  -
                  
                  
                  
                  (9,961
                  )Proceeds
      from disposition of long-term investment
                  
                  
                  469,841
                  
                  
                  
                  -Proceeds
      on disposal of plant and equipment
                  
                  
                  -
                  
                  
                  
                  96,197Due
      from employees
                  
                  
                  (412,723
                  )
                  
                  
                  (14,571
                  )Notes
      receivable
                  
                  
                  137,172
                  
                  
                  
                  67,516Net
      cash provided by (used in) investing activities
                  
                  
                  (194,035
                  )
                  
                  
                  (12,815,463
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from short-term debt
                  
                  
                  26,448,676
                  
                  
                  
                  22,365,306Repayments
      of short-term debt
                  
                  
                  (23,975,059
                  )
                  
                  
                  (25,022,377
                  )Due
      to related parties
                  
                  
                  5,122,876
                  
                  
                  
                  1,950,848Net
      cash provided by (used in) financing activities
                  
                  
                  7,596,493
                  
                  
                  
                  (706,223
                  )NET
      DECREASE IN CASH AND CASH QUIVALENTS
                  
                  
                  (103,802
                  )
                  
                  
                  (7,186,041
                  )Effect
      of exchange rate changes on cash
                  
                  
                  (39,735
                  )
                  
                  
                  144,261Cash
      and cash equivalents at beginning of period
                  
                  
                  410,870
                  
                  
                  
                  7,487,808CASH AND CASH EQUIVALENTS AT END OF
      PERIOD
                  
                  $
                  267,333
                  
                  
                  $
                  446,028SUPPLEMENTARY
      CASH FLOW INFORMATIONIncome
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  591,904Interest
      paid
                  
                  $
                  856,989
                  
                  
                  $
                  366,391




SUPPLEMENTAL
      NON-CASH DISCLOSURES:





During
the nine months ended December 31, 2009 and 2008, $25,653 and $761,243,
respectively, was transferred from construction in progress to plant and
equipment.









F-4





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





1.
            ORGANIZATION
      AND PRINCIPAL ACTIVITIES





New
Oriental Energy & Chemical Corp. was incorporated under the laws of the
State of Delaware on November 15, 2004. The principal activities of New Oriental
Energy & Chemical Corp. and subsidiaries (“NOEC” or the “Company”) are the
manufacture and distribution of fertilizer and chemical products. The products
are distributed to markets in the People’s Republic of China (the
“PRC”).





2.
            BASIS
      OF PRESENTATION





The
unaudited condensed consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the requirements for reporting on Form
10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
However, such information reflects all adjustments (consisting solely of normal
recurring adjustments), which are, in the opinion of management, necessary for
the fair presentation of the consolidated financial position and the
consolidated results of operations. Results shown for interim periods are not
necessarily indicative of the results to be obtained for a full year. The
condensed consolidated balance sheet information as of March 31, 2009 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K. These interim financial statements should
be read in conjunction with that report.





On July
1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of
Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards
Codification and Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162). ASC 105-10 establishes the FASB ASC as
the source of authoritative accounting principles recognized by the FASB to be
applied in preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America. The adoption of
this standard had no impact on the Company’s condensed consolidated financial
statements.





3.
            GOING
      CONCERN





The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company had a
net loss of $7,940,922 for the nine months ended December 31, 2009, and has a
working capital deficit of $38,726,067 at December 31, 2009.





The
Company will need to obtain additional financing to continue operations beyond
2009. Its primary source of capital is cash generated from operations as well as
through loans. If the Company is unable to obtain additional financing, it will
not be able to sustain its operations and would likely be required to cease its
operations.





The major
shareholder has committed to provide financial assistance of RMB 50 to 80
million (approximately $7.3 to $11.7 million) over the next few years, if
necessary.





On
January 4, 2010, the Company obtained a short-term bank loan for RMB 16 million
(approximately $2.34 million) with an interest rate of 10.08% per annum from
Xinyang Commercial Bank, which is due on January 4, 2011. See Note
17.





4.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





(a)
            Principles
      of Consolidation





The
consolidated financial statements include the accounts of New Oriental Energy
& Chemical Corp. and the following subsidiaries:





(i)  Kinfair
Holding Limited. (“KHL”) (An inactive holding company, 100% subsidiary of
NOEC).





(ii)  Henan
Jinding Chemicals Co., Ltd. (“Henan Jinding”) (100% subsidiary of
KHL)





(iii)  Luoshan
Jinding Chemicals Co., Ltd. (“Luoshan Jinding”) (100% subsidiary of Henan
Jinding)





Inter-company
accounts and transactions have been eliminated in consolidation.





F-5





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





4.
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)





(b)
            Concentrations





The
Company has major customers who accounted for the following percentage of total
sales and total customer deposits:





Customer
                      
                      Sales
                      
                      
                      Customer
      DepositsNine Months Ended December
    31,
                      
                      
                      As of December 31,
                      
                      
                      As of March 31,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2009Company
      A
                      
                      
                      20.68
                      %
                      
                      
                      3.11
                      %
                      
                      
                      61.80
                      %
                      
                      
                      49.94
                      %Company
      B
                      
                      
                      16.59
                      %
                      
                      
                      11.32
                      %
                      
                      
                      8.39
                      %
                      
                      
                      14.45
                      %Company
      C
                      
                      
                      6.84
                      %
                      
                      
                      22.28
                      %
                      
                      
                      3.43
                      %
                      
                      
                      3.56
                      %Company
      D
                      
                      
                      5.58
                      %
                      
                      
                      -
                      
                      
                      
                      11.82
                      %
                      
                      
                      -





The
Company has major suppliers who accounted for the following percentage of total
purchases and total accounts payable/deposits:





Supplier
                          
                          Purchases
                          
                          
                          Accounts
      Payable
                            /DepositsNine Months Ended December
    31,
                          
                          
                          As of December 31,
                            2009
                          
                          
                          As of March 31,
                            20092009
                          
                          
                          2008Company
      E
                          
                          
                          25.81
                          %
                          
                          
                          -
                          
                          
                          
                          58.08
                          %
                          
                          
                          -Company
      F
                          
                          
                          21.27
                          %
                          
                          
                          17.09
                          %
                          
                          
                          13.08
                          %
                          
                          
                          9.52
                          %Company
      G
                          
                          
                          15.92
                          %
                          
                          
                          15.23
                          %
                          
                          
                          3.34
                          %
                          
                          
                          6.89
                          %Company
      H
                          
                          
                          14.15
                          %
                          
                          
                          0.38
                          %
                          
                          
                          5.02
                          %
                          
                          
                          12.27
                          %Company
      I
                          
                          
                          11.62
                          %
                          
                          
                          20.82
                          %
                          
                          
                          6.39
                          %
                          
                          
                          1.39
                          %





The sole
market of the Company is the PRC for the nine months ended December 31, 2009 and
2008.





(c)
            Economic
      and Political Risks





The
Company's operations are conducted in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general
stateof the PRC
economy. The Company's operations in the PRC are subject to special
considerations and significant risks not typically associated with companies in
North America and Western Europe. These include risks associated with, among
others, the political, economic and legal environment and foreign currency
exchange. The Company's results may be adversely affected by changes in the
political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion, remittances abroad, and rates and methods of taxation,
among other things.





(d)
            Use
      of Estimates





The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
periods.





Management
makes these estimates using the best information available at the time the
estimates are made. Actual results could differ materially from those
estimates.





(e)
            Fair
      Value of Financial Instruments





ASC
820-10 (formerly SFAS No. 157, Fair Value Measurements) establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The hierarchy prioritizes the inputs into three levels based on the extent to
which inputs used in measuring fair value are observable in the
market.





F-6





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





4.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





These
tiers include:





•Level
1—defined as observable inputs such as quoted prices in active
markets;


•Level
2—defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and


•Level
3—defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.


The
assets measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820-10 as of December 31, 2009 are as
follows:


Fair Value Measurements at Reporting Date UsingCarrying value
                            as of
                            December
                            31,2009
                          
                          
                          Quoted Prices
                            in Active
                            Markets for
                            Identical
                            Assets
                          
                          
                          Significant
                            Other
                            Observable
                            Inputs
                          
                          
                          Significant
                            Unobservable
                            Inputs(Level
      1)
                          
                          
                          (Level
      2)
                          
                          
                          (Level
      3)Cash
      and cash equivalents
                          
                          $
                          267,333
                          
                          
                          $
                          267,333
                          
                          
                          $
                          -
                          
                          
                          $
                          -Restricted
      cash
                          
                          $
                          3,661,287
                          
                          
                          $
                          3,661,287
                          
                          
                          $
                          -
                          
                          
                          $
                          -





Cash and
cash equivalents consist primarily of high rated money market funds at a variety
of well-known institutions with original maturities of three months or less.
Restricted cash represent time deposits on account to secure short-term debt.
The original cost of these assets approximates fair value due to their short
term maturity.





(f)
            Cash
      and Cash Equivalents





For
financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturity of three months or less to be cash
equivalents.





Restricted
cash represents time deposits on account to secure short-term debt. See Note 12.
These balances are subject to withdrawal restrictions and totaled $3,661,287 and
$4,388,596 as of December 31, 2009 and March 31, 2009,
respectively.





(g)
            Inventories





Inventories
are stated at the lower of cost or net realizable value (market). The cost of
raw materials is determined on a weighted average basis. Finished goods costs
are determined on a weighted average basis and comprise direct materials, direct
labor and an appropriate proportion of overhead.





Net
realizable value is based on estimated selling prices less any further costs
expected to be incurred for completion and disposal.





(h)
              Capitalized
      Interest





The
interest cost associated with debt relating to construction projects is
capitalized and included in the cost of the project. When no debt is incurred
specifically for a project, interest is capitalized on amounts expended on the
project using weighted-average cost of the Company’s outstanding borrowings.
Capitalization of interest ceases when the project is substantially complete or
development activity is suspended for more than a brief period. Capitalized
interest for the nine months ended December 31, 2009 and 2008 was $423,836 and
$288,709, respectively.





(i)
              Revenue
      Recognition





Revenue
represents the invoiced value of goods sold recognized upon the delivery of
goods to customers. Revenue is recognized when all of the following criteria are
met:





F-7





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





4.
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(CONTINUED)





-Persuasive
evidence of an arrangement exists,


-Delivery
has occurred or services have been rendered,


-The
seller’s price to the buyer is fixed or determinable, and


-Collectability
is reasonably assured.





(j)
              Foreign
      Currency Translation





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





December 31, 2009
                  
                  
                  March 31, 2009
                  
                  
                  December 31, 2008Year
      end RMB: $ exchange rate
                  
                  
                  6.8282
                  
                  
                  
                  6.8359
                  
                  
                  
                  -Average
      yearly RMB: $ exchange rate
                  
                  
                  6.8321
                  
                  
                  
                  -
                  
                  
                  
                  6.9268





(k)
            Loss
      Per Share





Basic
loss per share is computed by dividing income available to common shareholders
by the weighted-average number of common shares outstanding during the period.
Diluted loss per share is computed similar to basic loss per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. There were no potentially
dilutive securities for the three and nine months ended December 31, 2009 and
2008.





(l)
            Segments





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





The
Company has determined that there are two reportable segments:





The
fertilizer segment is made up of four business units, which involve the
manufacture and sale of Urea, Carbonate Hydrogen Ammonia, Liquefied Ammonia and
Ammonia Water.





The fuel
segment involves the manufacture and sale of Methanol, Dimethyl Ether. The
Company believes it is not feasible to separately identify the assets and
operating expenses of each segment because of the similarities shared by each in
the manufacturing process. Both segments share the same coal-to-gas primary
system, and also share the same manufacturing sub-systems and cycles. Therefore,
the following represents the revenue, cost of goods sold and gross profit by
each product within each segment:





Fuel
Segment:




For
      The Three Months Ended December 31, 2009DME
                            
                            
                            Methanol
                            
                            
                            Segment
      TotalRevenues
                            
                            
                            -
                            
                            
                            $
                            1,180,852
                            
                            
                            $
                            1,180,852COGS
                            
                            
                            -
                            
                            
                            
                            1,393,273
                            
                            
                            
                            1,393,273Gross
      loss
                            
                            
                            -
                            
                            
                            $
                            (212,421
                            )
                            
                            $
                            (212,421
                            )


F-8





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)




4.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
 
 (l)
              Segments
      (Continued)


For
      The Three Months Ended December 31, 2008DME
                            
                            
                            Methanol
                            
                            
                            Segment
      TotalRevenues
                            
                            $
                            2,254,460
                            
                            
                            $
                            199,899
                            
                            
                            $
                            2,454,359COGS
                            
                            
                            2,865,038
                            
                            
                            
                            299,189
                            
                            
                            
                            3,164,227Gross
      loss
                            
                            $
                            (610,578
                            )
                            
                            $
                            (99,290
                            )
                            
                            $
  For
      The Nine Months Ended December 31, 2009DME
                          
                          
                          Methanol
                          
                          
                          Segment
      TotalRevenues
                          
                          
                          -
                          
                          
                          $
                          3,558,221
                          
                          
                          $
                          3,558,221COGS
                          
                          
                          -
                          
                          
                          
                          5,272,545
                          
                          
                          
                          5,272,545Gross
      loss
                          
                          
                          -
                          
                          
                          $
                          (1,714,324
                          )
                          
                          $
                          (1,714,324
                          )
  For
      The Nine Months Ended December 31, 2008DME
                          
                          
                          Methanol
                          
                          
                          Segment
      TotalRevenues
                          
                          $
                          11,090,320
                          
                          
                          $
                          909,053
                          
                          
                          $
                          11,999,373COGS
                          
                          
                          11,310,064
                          
                          
                          
                          972,846
                          
                          
                          
                          12,282,910Gross
      loss
                          
                          $
                          (219,744
                          )
                          
                          $
                          (63,793
                          )
                          
                          $
                          (283,537
                          )


Fertilizer
Segment:





For The Three Months Ended December 31,
      2009Urea
                
                
                Ammonium Bicarbonate
                
                
                Liquefied
                  Ammonia
                
                
                Ammonia
                  Water
                
                
                Segment TotalRevenues
                
                $
                6,419,619
                
                
                $
                834,984
                
                
                $
                217,468
                
                
                $
                117,526
                
                
                $
                7,589,597COGS
                
                
                5,918,724
                
                
                
                884,773
                
                
                
                210,776
                
                
                
                107,542
                
                
                
                7,121,815Gross
      profit (loss)
                
                $
                500,895
                
                
                $
                (49,789
                )
                
                $
                6,692
                
                
                $
                9,984
                
                
                $
                467,782





For The Three Months Ended December 31,
      2008Urea
                  
                  
                  Ammonium
                    Bicarbonate
                  
                  
                  Liquefied Ammonia
                  
                  
                  Ammonia
                    Water
                  
                  
                  Segment TotalRevenues
                  
                  $
                  6,255,938
                  
                  
                  $
                  1,137,658
                  
                  
                  $
                  647,371
                  
                  
                  $
                  119,092
                  
                  
                  $
                  8,160,059COGS
                  
                  
                  6,788,555
                  
                  
                  
                  1,070,997
                  
                  
                  
                  822,863
                  
                  
                  
                  124,742
                  
                  
                  
                  8,807,157Gross
      (loss) profit
                  
                  $
                  (532,617
                  )
                  
                  $
                  66,661
                  
                  
                  $
                  (175,492
                  )
                  
                  $
                  (5,650
                  )
                  
                  $
                  (647,098
                  )




For The Nine Months Ended December 31,
      2009Urea
                  
                  
                  Ammonium Bicarbonate
                  
                  
                  Liquefied
                    Ammonia
                  
                  
                  Ammonia
                    Water
                  
                  
                  Segment TotalRevenues
                  
                  $
                  18,246,429
                  
                  
                  $
                  2,081,507
                  
                  
                  $
                  518,877
                  
                  
                  $
                  299,287
                  
                  
                  $
                  21,146,100COGS
                  
                  
                  19,438,789
                  
                  
                  
                  2,363,438
                  
                  
                  
                  620,220
                  
                  
                  
                  311,415
                  
                  
                  
                  22,733,862Gross
      loss
                  
                  $
                  (1,192,360
                  )
                  
                  $
                  (281,931
                  )
                  
                  $
                  (101,343
                  )
                  
                  $
                  (12,128
                  )
                  
                  $
                  (1,587,762
                  )


For The Nine Months Ended December 31,
      2008Urea
                  
                  
                  Ammonium
                    Bicarbonate
                  
                  
                  Liquefied Ammonia
                  
                  
                  Ammonia
                    Water
                  
                  
                  Segment TotalRevenues
                  
                  $
                  24,593,181
                  
                  
                  $
                  2,853,455
                  
                  
                  $
                  799,867
                  
                  
                  $
                  287,615
                  
                  
                  $
                  28,534,118COGS
                  
                  
                  23,407,650
                  
                  
                  
                  3,060,673
                  
                  
                  
                  1,009,359
                  
                  
                  
                  336,837
                  
                  
                  
                  27,814,519Gross
      profit (loss)
                  
                  $
                  1,185,531
                  
                  
                  $
                  (207,218
                  )
                  
                  $
                  (209,492
                  )
                  
                  $
                  (49,222
                  )
                  
                  $
                  719,599




F-9





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





4.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





(m)
              New
      Accounting Pronouncements





On April
1, 2009, the FASB approved ASC 205-10 (formerly FSP FAS 141(R)-1) Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, which amends Statement ASC 805 and eliminates the
distinction between contractual and non-contractual contingencies. Under ASC
205-10, an acquirer is required to recognize at fair value an asset acquired or
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value cannot be
determined, the acquirer applies the recognition criteria in SFAS No. 5,
Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of
the Amount of a Loss – and Interpretation of FASB Statement No. 5,” to determine
whether the contingency should be recognized as of the acquisition date or after
it. The Company is currently evaluating the impact of the adoption of ASC
205-10.





ASC
320-10 (formerly FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. It did not amend existing recognition and measurement guidance
related to other-than-temporary impairments of equity securities. We are
required to adopt this FSP for our interim and annual reporting periods ending
after June 15, 2009. This FSP does not require disclosures for periods presented
for comparative purposes at initial adoption. This FSP requires comparative
disclosures only for periods ending after initial adoption. The adoption of ASC
320-10 did not have a material impact on the Company’s condensed consolidated
financial statements.





On April
9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1 and APB 28-1)
Interim Disclosures about Fair Value of Financial Instruments to require
disclosures about fair value of financial instruments in interim period
financial statements of publicly traded companies and in summarized financial
information required by APB Opinion No. 28, Interim Financial Reporting. We are
required to adopt this FSP for our interim and annual reporting periods ending
after June 15, 2009. This FSP does not require disclosures for periods presented
for comparative purposes at initial adoption. This FSP requires comparative
disclosures only for periods ending after initial adoption. The adoption of ASC
825-10 did not have a material impact on the Company’s condensed consolidated
financial statements.





In June
2009, the FASB issued ASC 810-10 (formerly SFAS No. 167) Amendments to FASB
Interpretation No. 46(R)), which require an enterprise to perform an analysis
and ongoing reassessments to determine whether the enterprises variable interest
or interests give it a controlling financial interest in a variable interest
entity and amends certain guidance for determining whether an entity is a
variable interest entity. It also requires enhanced disclosures that will
provide users of financial statements with more transparent information about an
enterprise’s involvement in a variable interest entity. SFAS No. 167 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009 and for all interim reporting periods
after that. The Company is currently evaluating the impact of the adoption of
SFAS No. 167.




5.
            INVENTORIES




Inventories
consist of the following:




December 31, 2009
                  
                  
                  March 31, 2009(Unaudited)Finished
      goods
                  
                  $
                  2,477,738
                  
                  
                  $
                  182,559Raw
      materials
                  
                  
                  1,958,530
                  
                  
                  
                  1,006,135Packing
      materials
                  
                  
                  544,823
                  
                  
                  
                  489,932Total
      inventories, net
                  
                  $
                  4,981,091
                  
                  
                  $
                  1,678,626





The net
book value of $2,477,738 and $182,559 of finished goods inventory is pledged as
collateral for short-term debt at December 31, 2009 and March 31, 2009,
respectively. See Note 11.





For the
nine months ended December 31, 2009 and 2008, the Company recorded a write-down
of inventories to net realizable value of $146,674 and $158,980,
respectively.





F-10





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





6.
            RELATED
      PARTY TRANSACTIONS





(I)
              Due
      from Related Parties





December 31, 2009
                  
                  
                  March 31, 2009(Unaudited)Current:Huaiyang
      Desheng Chemical Co., Ltd
                  
                  $
                  223,869
                  
                  
                  $
                  253,959





Huaiyang
Desheng Chemical Co., Ltd (“Huaiyang Desheng”) is a company controlled by a
director of the Company. For the nine months ended December 31, 2009 and 2008,
Huaiyang Desheng purchased $0 and $29,944 of raw materials from Henan Jinding,
and sold $0 and $68,051 of finished goods to Henan Jinding. The remaining
balance represents an advance for the purchase of raw materials from Huaiyang
Desheng. The amount is unsecured, interest free, and has no fixed repayment
terms.





(II)
              Due
      to Related Parties




December 31, 2009
                    
                    
                    March 31, 2009(Unaudited)Principal:Xinyang
      Hong Chang Pipeline Gas Co., Ltd.
                    (a)
                    
                    $
                    10,105,152
                    
                    
                    $
                    4,973,742Long
      Triumph Investments Limited
                    (b)
                    
                    
                    1,344,328
                    
                    
                    
                    1,344,328Chen
      Siqiang
                    (c)
                    
                    
                    1,025,160
                    
                    
                    
                    1,024,006Wang
      Guiquan
                    (d)
                    
                    
                    131,806
                    
                    
                    
                    131,658Zhou
      Dianchang
                    (e)
                    
                    
                    73,226
                    
                    
                    
                    73,143Mai
      Xiaofu
                    (f)
                    
                    
                    146,451
                    
                    
                    
                    146,287Yu
      Zhiyang
                    (g)
                    
                    
                    43,935
                    
                    
                    
                    43,886Yang
      Hongtao
                    (h)
                    
                    
                    43,935
                    
                    
                    
                    43,886Subtotal
                    
                    
                    $
                    12,913,993
                    
                    
                    $
                    7,780,936Interest:Xinyang
      Hong Chang Pipeline Gas Co., Ltd.
                    (a)
                    
                    
                    694,049
                    
                    
                    
                    422,472Chen
      Siqiang
                    (c)
                    
                    
                    179,608
                    
                    
                    
                    105,677Wang
      Guiquan
                    (d)
                    
                    
                    21,546
                    
                    
                    
                    12,042Zhou
      Dianchang
                    (e)
                    
                    
                    11,970
                    
                    
                    
                    6,690Mai
      Xiaofu
                    (f)
                    
                    
                    24,565
                    
                    
                    
                    14,004Yu
      Zhiyang
                    (g)
                    
                    
                    7,369
                    
                    
                    
                    4,201Yang
      Hongtao
                    (h)
                    
                    
                    7,369
                    
                    
                    
                    4,201Subtotal
                    
                    
                    $
                    946,476
                    
                    
                    $
                    569,287Total
                    
                    
                    $
                    13,860,469
                    
                    
                    $
                    8,350,223





(a)
            Xinyang
      Hong Chang Pipeline Gas Co., Ltd. is a company controlled by the Chairman
      of the board and chief executive officer of the Company. The amount
      represents advances from Xinyang Hong Chang Pipeline Gas Co., Ltd, and the
      amount is unsecured. Included in the $10,105,152 is $2,929,032 which has
      an interest rate of 8.748% per annum and is due on June 30, 2010. Also
      included in the $10,105,152 is $732,257, which has an interest rate of 15%
      per annum and is due on September 25, 2010, $439,354, which has an
      interest rate of 10.62% per annum and is due on August 13, 2010,
      $1,025,160, which has an interest rate of 10.62% per annum and is due on
      August 20, 2010, $732,257, which has an interest rate of 10.62% per annum
      and is due on September 1, 2010, $585,806, which has an interest rate of
      10.62% per annum and is due on October 9, 2010, $878,709, which has an
      interest rate of 10.62% per annum and is due on October 14, 2010,
      $732,257, which has an interest rate of 10.62% per annum and is due on
      December 10, 2010, $439,354, which has an interest rate of 10.62% per
      annum and is due on December 28, 2010, and $292,903, which has an interest
      rate of 10.62% per annum and is due on December 31, 2010. Interest expense
      for the nine months ended December 31, 2009 and 2008 is $401,028 and
      $220,867, respectively. Of the $401,028 of interest expense, $318,391 was
      capitalized interest in construction in progress, since the amount was
      used for construction. Also see Note 10. The remaining balance of
      $1,318,063 is unsecured, interest free, and has no fixed repayment
      terms.





(b)
            Long
      Triumph Investments Limited is a former shareholder of the Company. The
      amount represents advances from Long Triumph Investments Limited. The
      amount is unsecured, interest free, and has no fixed repayment
      terms.





F-11





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





6.
            RELATED
      PARTY TRANSACTIONS (CONTINUED)





(II)
              Due
      to Related Parties
(continued)





(c)
              Chen
      Siqiang is the chairman of the board and chief executive officer of the
      Company. The amount is unsecured, has an interest rate of 9.6% per annum
      and is due on February 3, 2010. The interest expense for the nine
      months    ended December 31, 2009 and 2008 of $73,812
      and $69,065 was capitalized in construction in progress, since the amount
      was used for construction. Also see Note
10.





(d)
              Wang
      Guiquan is the president and director of the Company. The amount is
      unsecured, has an interest rate of 9.6% per annum and is due on April 18,
      2010. The interest expense for the nine months ended December 31, 2009 and
      2008 of $9,490 and $8,766 was capitalized interest in construction in
      progress, since the amount was used for construction. Also see Note
      10.





(e)
              Zhou
      Dianchang is a director of the Company. The amount is unsecured, has an
      interest rate of 9.6% per annum and is due April 18, 2010. The interest
      expense for the nine months ended December 31, 2009 and 2008 of $5,272 and
      $4,870 was capitalized in construction in progress, since the amount was
      used for construction. Also see Note
10.





(f)
              Mai
      Xiaofu is a director of the Company. The amount is unsecured, has an
      interest rate of 9.6% per annum and is due on April 2, 2010. The interest
      expense for the nine months ended December 31, 2009 and 2008 of $10,545
      and $10,356 was capitalized in construction in progress, since the amount
      was used for construction. Also see Note
10.




(g)
              Yu
      Zhiyang is a significant shareholder of the Company. The amount is
      unsecured, has an interest rate of 9.6% per annum and is due on April 2,
      2010. The interest expense for the nine months ended December 31, 2009 and
      2008 of $3,163 and $3,107 was capitalized in construction in progress,
      since the amount was used for construction. Also see Note
    10.





(h)
              YangHongtao is a
      significant shareholder of the Company. The amount is unsecured, has an
      interest rate of 9.6% perannum
      and is due on April 2, 2010. The interest expense for the nine months
      ended December 31, 2009, 2009 and 2008 of $3,163 and $3,107 was
      capitalized in construction in progress, since the amount was used for
      construction. Also see Note
10.




(III)
                Due
      from employees





December 31, 2009
                  
                  
                  March 31, 2009(Unaudited)Current
                  
                  $
                  431,147
                  
                  
                  $
                  18,424Total
      amounts due from employees
                  
                  $
                  431,147
                  
                  
                  $
                  18,424





Amounts
due from employees are interest-free, unsecured and have no fixed repayment
terms. The amounts primarily represent payments made by the Company on behalf of
employees for their purchase of apartments.





7.
              LONG-TERM
      INVESTMENT





December 31, 2009
                  
                  
                  March 31, 2009(Unaudited)Luoshan
      Rural Credit Cooperatives
                  
                  $
                  -
                  
                  
                  $
                  469,580





The
amount represented a 3.07% interest in Luoshan Rural Credit Cooperatives and the
Company accounted for its investment in Luoshan Rural Credit Cooperative using
the cost method. In November 2009, the Company sold all its interest in Luoshan
Rural Credit Cooperative, for $469,841. The net gain from the sale was $261 and
is included in “Other income” in the Condensed Consolidated Statements of
Operations and Comprehensive Loss.





F-12





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





8.
              PLANT
      AND EQUIPMENT





Plant and
equipment consist of the following:




December 31, 2009
                  
                  
                  March 31, 2009(Unaudited)At
      cost:Buildings
                  
                  $
                  2,435,595
                  
                  
                  $
                  2,432,852Machinery
                  
                  
                  25,185,840
                  
                  
                  
                  25,102,781Motor
      vehicles
                  
                  
                  329,249
                  
                  
                  
                  328,878Office
      equipment
                  
                  
                  272,764
                  
                  
                  
                  269,74328,223,448
                  
                  
                  
                  28,134,254Less:  Accumulated
      depreciationBuildings
                  
                  
                  488,485
                  
                  
                  
                  413,860Machinery
                  
                  
                  10,483,935
                  
                  
                  
                  8,699,555Motor
      vehicles
                  
                  
                  235,282
                  
                  
                  
                  196,885Office
      equipment
                  
                  
                  165,348
                  
                  
                  
                  128,48511,373,050
                  
                  
                  
                  9,438,785Plant
      and equipment, net
                  
                  $
                  16,850,398
                  
                  
                  $
                  18,695,469





Depreciation
expense for the nine months ended December 31, 2009 and 2008 is $1,922,522 and
$2,016,890, respectively.





The net
book value of machinery of $7,330,286 and $7,322,029 is pledged as collateral
for a long-term bank loan at December 31, 2009 and March 31, 2009, respectively.
See Note 13.





9.
              LAND
      USE RIGHTS





December 31, 2009
                  
                  
                  March 31, 2009(Unaudited)Cost
                  
                  $
                  1,798,568
                  
                  
                  $
                  1,796,542Less:
      Accumulated amortization
                  
                  
                  186,348
                  
                  
                  
                  159,190Land
      use rights, net
                  
                  $
                  1,612,220
                  
                  
                  $
                  1,637,352





Amortization
expense for the nine months ended December 31, 2009 and 2008 is $26,963 and
$26,595, respectively.





The net
book value of $1,612,220 and $0 of land use rights are pledged as collateral for
short-term bank loans at December 31, 2009 and March 31, 2009, respectively. See
Note 11.





Amortization
expense for the next five years and thereafter is as follows:





Three
      months ended March 31, 2010
                  
                  $
                  8,9932011
                  
                  
                  35,9712012
                  
                  
                  35,9712013
                  
                  
                  35,9712014
                  
                  
                  35,971Thereafter
                  
                  
                  1,459,343Total
                  
                  $
                  1,612,220




F-13





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)




10.
            CONSTRUCTION
      IN PROGRESS





Construction
in progress consists of the following:




December 31, 2009
                    
                    
                    March 31, 2009(Unaudited)Plant
                    
                    $
                    25,782,526
                    
                    
                    $
                    23,461,536Machinery
                    
                    
                    1,860,321
                    
                    
                    
                    2,086,359Other
                    
                    
                    310,730
                    
                    
                    
                    155,973$
                    27,953,577
                    
                    
                    $
                    25,703,868




Capitalized
interest for the nine months ended December 31, 2009 and 2008 is $423,836 and
$288,709, respectively.





Plant
construction in progress of $3,138,895 and $3,107,418 is pledged as collateral
for the short-term bank loans at December 31, 2009 and March 31, 2009,
respectively. See Note 11.





11.
            SHORT-TERM
      DEBT





Short-term
debt consists of the following:




December 31,
                        2009
                      
                      
                      March 31,
                        2009(Unaudited)Bank
      Loans:Xinyang
      Commercial Bank, due April 28, 2010, interest rate at 10.08% per annum,
      collateralized by finished goods inventory.
                      
                      $
                      1,464,515
                      
                      
                      $
                      -Guangdong
      Development Bank, due May 13, 2010, interest rate at 5.31% per annum,
      collateralized by land use rights and guaranteed by Xinyang Hong Chang
      Pipeline Gas Co., Ltd.
                      
                      
                      4,393,544
                      
                      
                      
                      -Rural
      Credit Cooperatives, due June 16, 2010, interest rate at 9.56% per annum,
      collateralized by construction in progress.
                      
                      
                      556,516
                      
                      
                      
                      -Rural
      Credit Cooperatives, due October 23, 2010, interest rate at 10.62% per
      annum, collateralized by construction in progress.
                      
                      
                      571,161
                      
                      
                      
                      -Xinyang
      Commercial Bank, due April 25, 2009, interest rate at 11.56% per annum,
      collateralized by finished goods inventory. (Subsequently repaid on its
      due date)
                      
                      
                      -
                      
                      
                      
                      1,462,865Rural
      Credit Cooperatives, due June 12, 2009, interest rate at 14.19% per annum,
      collateralized by construction in progress. (Subsequently repaid on its
      due date)
                      
                      
                      -
                      
                      
                      
                      570,517Rural
      Credit Cooperatives, due October 16, 2009, interest rate at 14.19% per
      annum, collateralized by construction in progress. (Subsequently repaid on
      its due date)
                      
                      
                      -
                      
                      
                      
                      570,517Xinyang
      Commercial Bank, due August 3, 2009, interest rate at 11.34% per annum,
      collateralized by finished goods inventory. (Subsequently repaid on its
      due date)
                      
                      
                      -
                      
                      
                      
                      1,462,865




F-14





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





December 31,
                        2009
                      
                      
                      March 31,
                        2009(Unaudited)Xinyang
      Commercial Bank, due December 29, 2009, interest rate at 11.56% per annum,
      collateralized by finished goods inventory. (Subsequently repaid on its
      due date)
                      
                      $
                      -
                      
                      
                      $
                      2,340,584Xinyang
      Commercial Bank, due August 4, 2010, interest rate at 10.08% per annum,
      collateralized by finished goods inventory.
                      
                      
                      1,464,515
                      
                      
                      
                      -Notes Payable to Unrelated
      Companies:Due
      July 15, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      731,433Due
      July 16, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      731,433Due
      July 23, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      877,719Due
      August 10, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      585,146Due
      January 22, 2010 (subsequently repaid on its due date)
                      
                      
                      732,257
                      
                      
                      
                      -Due
      January 23, 2010 (subsequently repaid on its due date)
                      
                      
                      1,610,966
                      
                      
                      
                      -Due
      February 25, 2010
                      
                      
                      585,806
                      
                      
                      
                      -Due
      May 2, 2010
                      
                      
                      2,196,772Due
      May 26, 2010
                      
                      
                      2,196,772Due
      January 5, 2010 (subsequently repaid on its due date)
                      
                      
                      1,464,515Due
      April 28, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      731,433Due
      April 30, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      1,462,866Due
      May 24, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      877,719Due
      May 25, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      877,719Due
      May 26, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      1,024,006Due
      May 27, 2009 (subsequently repaid on its due date)
                      
                      
                      -
                      
                      
                      
                      877,719Notes Payable to Unrelated
      Individuals:Due
      June 3, 2010
                      
                      
                      559,445
                      
                      
                      
                      558,814Due
      April 13, 2010
                      
                      
                      439,354
                      
                      
                      
                      -$
                      18,236,138
                      
                      
                      $
                      15,743,355





Interest
expense for the nine months ended December 31, 2009 and 2008 was $1,287,211 and
$934,740, respectively.




Notes
payable to unrelated companies are interest-free and were paid on their due
dates. All the notes payable are subject to bank charges of 0.05% of the
principal as a commission on each loan transaction. Bank charges for notes
payable were $8,050 and $8,467 for the nine months ended December 31, 2009 and
2008, respectively.





Notes
payable to unrelated individuals are unsecured. The amount of $559,445 has an
interest rate of 15% per annum and is due on June 3, 2010. The amount of
$439,354 has an interest rate of 7.2% per annum and is due on April 13,
2010.





Restricted
cash of $3,661,287 and $4,388,596 collateralizes notes payable at December 31,
2009 and March 31, 2009 respectively.





Inventory
of $2,477,738 and $182,559 collateralizes notes payable at December 31, 2009 and
March 31, 2009 respectively.




The net
book value of $2,477,738 and $182,559 of finished goods inventory is pledged as
collateral for short-term bank loans at December 31, 2009 and March 31, 2009
respectively. See Note 5.





F-15





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





12.
            LONG-TERM
      NOTES PAYABLE





In
September 2003, the Company purchased a plant and machinery, a building and a
land use right from Luoshan Fertilizer Plant, a bankrupt company, for
$4,633,601. The remaining balance at December 31, 2009 and March 31, 2009 is
$531,619 and $531,020, respectively. The note is unsecured, interest free and
due on December 31, 2010.The Company estimates the
note will be extended on its due date.





13.
            LONG-TERM
      BANK LOAN





December 31, 2009
                  
                  
                  March 31, 2009(Unaudited)Luoshan
      Rural Credit Cooperatives
                  
                  $
                  2,929,030
                  
                  
                  $
                  2,925,730





The
long-term bank loan is collateralized by the Company’s machinery, has an
interest rate of 9.558% per annum and is due March 19, 2012. See Note
8.




14.
            INCOME
      TAXES





Corporation
Income Tax (“CIT”)





On March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the PRC (the “new CIT Law”), which is effective from January 1, 2008.
The new CIT rate applicable to the Company starting January 1, 2008 is 25%,
replacing the previous tax rate of 33%.





Income
tax (expense) benefit for the nine months ended December 31, 2009 and 2008 is
summarized as follows:





Nine Months Ended December
    31,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Current:CIT
                  
                  $
                  -
                  
                  
                  $
                  225,079Deferred:CIT
                  
                  
                  (366,438
                  )
                  
                  
                  (29,755
                  )Income
      tax (expense) benefit
                  
                  $
                  (366,438
                  )
                  
                  $
                  195,324





The
Company’s income tax (expense) benefit differs from the “expected” tax expense
(computed by applying the CIT rate of 25% percent to income before income taxes)
as follows:





Nine Months Ended December
    31,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Computed
      “expected” benefit (expense)
                  
                  $
                  1,893,621
                  
                  
                  $
                  513,398Permanent
      differences
                  
                  
                  -
                  
                  
                  
                  (318,074
                  )Valuation
      allowance
                  
                  
                  (2,260,059
                  )
                  
                  
                  -Income
      tax (expense) benefit
                  
                  $
                  (366,438
                  )
                  
                  $
                  195,324





F-16





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





14.
            INCOME
      TAXES (CONTINUED)




The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities are as follows:





December 31, 2009
                        
                        
                        March 31, 2009(Unaudited)Deferred
      tax assets:Current
      portion:Cost
      of sales
                        
                        $
                        47,532
                        
                        
                        $
                        169,956Financial
      expense
                        
                        
                        12,171
                        
                        
                        
                        13,876Welfare
                        
                        
                        10,297
                        
                        
                        
                        21,263Provision
      for notes receivable
                        
                        
                        36,613
                        
                        
                        
                        36,571Other
      expense
                        
                        
                        49,274
                        
                        
                        
                        65,738Total
      current deferred tax assets
                        
                        
                        155,887
                        
                        
                        
                        307,404Non-current
      portion:Net
      operating loss carry forward
                        
                        
                        3,684,418
                        
                        
                        
                        1,422,756Valuation
      allowance
                        
                        
                        (2,260,059
                        )
                        
                        
                        -Total
      non-current deferred tax assets
                        
                        
                        1,424,359
                        
                        
                        
                        1,422,756Total
      deferred tax assets
                        
                        
                        1,580,246
                        
                        
                        
                        1,730,160Deferred
      tax liabilities:Current
      portion:Cost
      of sales
                        
                        
                        368,201
                        
                        
                        
                        348,565Government
      grant
                        
                        
                        34,782
                        
                        
                        
                        49,006Investment
      income
                        
                        
                        17,254
                        
                        
                        
                        17,233Other
      expenses
                        
                        
                        25,518
                        
                        
                        
                        17,428Total
      current deferred tax liabilities
                        
                        
                        445,755
                        
                        
                        
                        432,232Non-current
      portion:Amortization
                        
                        
                        30,718
                        
                        
                        
                        26,586Depreciation
                        
                        
                        623,782
                        
                        
                        
                        425,656Total
      non-current deferred tax liabilities
                        
                        
                        654,500
                        
                        
                        
                        452,242Total
      deferred tax liabilities
                        
                        
                        1,100,255
                        
                        
                        
                        884,474Net
      deferred tax assets
                        
                        $
                        479,991
                        
                        
                        $
                        845,686




In June
2006, the FASB issued ASC 740-10 (formerly FIN 48, Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement No. 109), which seeks to
reduce the diversity in practice associated with the accounting and reporting
for uncertainty in income tax positions. This interpretation prescribes a
comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be
taken in an income tax return. ASC 740-10 presents a two-step process for
evaluating a tax position. The first step is to determine whether it is more
likely than not that a tax position will be sustained upon examination, based on
the technical merits of the position. The second step is to measure the benefit
to be recorded from tax positions that meet the more likely than not recognition
threshold, by determining the largest amount of tax benefit that is greater than
50 percent likely of being realized upon ultimate settlement, and recognizing
that amount in the financial statements. At the date of adoption, and as of
December 31, 2009, the Company does not have a liability for unrecognized tax
benefits. There was no effect on financial condition or results of operations as
a result of implementing ASC 740-10.




The PRC
net loss carried forward for tax purposes will expire five years from when the
loss is incurred. The expiring amounts for the five years after 2010 are as
follows:




Expired
      year
                  
                  Amount2010
                  
                  $
                  -2011
                  
                  
                  -2012
                  
                  
                  -2013
                  
                  
                  5,697,436Total
                  
                  $
                  5,697,436




F-17





NEW
ORIENTAL ENERGY & CHEMICAL CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR THE THREE AND NINE
MONTHS ENDED DECEMBER 31, 2009 AND 2008


(UNAUDITED)





14.
            INCOME
      TAXES (CONTINUED)




The
Company files income tax returns in the U.S. federal jurisdiction and various
states. The Company is subject to U.S. Federal or State income tax examinations
by tax authorities for years after 2006. During the periods open to examination,
the Company has net operating loss (“NOL”) and tax credit carry forwards for
U.S. federal and state tax purposes that have attributes from closed periods.
Since these NOLs and tax credit carry forwards may be utilized in future
periods, they remain subject to examination. FASB ASC 740 (formerly SFAS No. 109
Accounting for Income Taxes) requires that a valuation allowance be established
when it is more likely than not that all or a portion of deferred tax assets
will not be realized. The Company estimates they will not have net operating
income in the United States. As such, the Company recorded a 100% valuation
allowance against its net deferred tax asset associated with net operating loss
carry forward as of December 31, 2009.  The Company also files certain
tax returns in the PRC. As of December 31, 2009 the Company was not aware of any
pending income tax examinations by tax authorities in the PRC.





The
Company’s policy is to record interest and penalties on uncertain tax positions
as income tax expense. As of December 31, 2009, the Company has no accrued
interest or penalties related to uncertain tax positions.




15.
            CONTINGENCIES





On
December 29, 2004, the Company entered into an agreement (the “Luoshan
Agreement”) to purchase Luoshan Fertilizer Plant, a bankrupt company and to
assume $1.3 million in debt owed by Xixian Fertilizer Plant (the principal
shareholder of Luoshan Fertilizer Plant). Under the Luoshan Agreement, the
Company was to receive reimbursements of $650,000 from both the Luoshan county
government and the Xi county government, which were to be received before
December 29, 2007. Luoshan county government paid its note of $650,000 to the
Company on its due date.





In
November 2007, the Company initiated a lawsuit in the Intermediate Court of
Xinyang City against the Xi county government and Henan Shiji Jinyuan Chemicals
Co., Ltd. (the “Shiji Jinyuan”, formerly Xixian Fertilizer Plant) for
non-payment of the Xi county government note receivable of $650,000 on its due
date as set forth under the Luoshan Agreement, and sought the enforcement of the
terms of the note receivable and the Luoshan Agreement for payment of the
$650,000 by both the Xi county government and Shiji Jinyuan. On June 12, 2009,
the court entered final judgment against Xi county government and Shiji Jinyuan
in amount of $650,000 to be paid before June 22, 2009. In addition, the judgment
ordered the Xi county government and Shiji Jinyuan to pay the Company interest
and late fee based on market rates. On December 16, 2009, Xi county government
and Shiji Jinyuan appealed to the Higher Court of Henan Province, the final
judgement is pending. At December 31, 2009, the Company has a reserve against
the $650,000 note of $146,451 due to the uncertainty of collection.





16.
            CAPITAL
      COMMITMENT





As of
December 31, 2009, the Company entered into an agreement and made a down payment
of $2.48 million toward the purchase of production equipment to be used in the
Methanol project. The Company is required to pay the remainder of the purchase
price of approximately $8.1 million prior to delivery of the equipment, which is
estimated to occur in 2010. The amount paid is recorded in construction in
progress. Through December 31, 2009, the Company used its working capital and
borrowed money from its shareholders to fund the project. The Company originally
planned on completing the project by December 2009, however, financing needs
have delayed the estimated completion date of the project until June
2010.





17.
            SUBSEQUENT
      EVENT





On
January 4, 2010, the Company obtained a short-term bank loan for RMB 16 million
(approximately $2.34 million) with an interest rate of 10.08% per annum from
Xinyang Commercial Bank, which is due on January 4, 2011. The Company’s finished
goods inventory is pledged as collateral for the short-term bank
loan.





In
preparing the unaudited condensed consolidated financial statements, the Company
has evaluated all subsequent events and transactions for potential recognition
or disclosure through February 16, 2010, the date the unaudited condensed
financial statements were issued.





F-18





Item
    2.
            Management’s
      Discussion and Analysis of Financial Conditions and Results of
      Operations





The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations (“MD&A”)
should be read together with the condensed consolidated financial statements and
the accompanying notes of New Oriental Energy & Chemical Corp. (the
“Company”, “we” or “our”) for the quarter ended December 31, 2009. The condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles of the United States
(“GAAP”).





Forward
Looking Statements




We are including the following
discussion to inform our existing and potential security holders of some of the
risks and uncertainties that can affect us and to take advantage of the “safe
harbor” protection for forward-looking statements that applicable federal
securities laws afford. From time to time, our management or persons acting on
our behalf make forward-looking statements to inform existing and potential
security holders about our Company. These forward-looking statements include
information about possible or assumed future results of our operations. All
statements, other than statements of historical facts, included or incorporated
by reference in this report that address activities, events or developments that
we expect or anticipate may occur in the future, including such things as future
capital expenditures, business strategy, competitive strengths, goals, growth of
our business and operations, plans and references to future successes, may be
considered forward-looking statements. Also, when we use words such as
“anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,” “forecast,”
“may,” “should,” “budget,” “goal,” “expect,” “probably” or similar expressions,
we are making forward-looking statements. Many risks and uncertainties may
impact the matters addressed in these forward-looking statements. Our
forward-looking statements speak only as of the date made and we will not
update such forward-looking statements unless the securities laws require us to
do so.




Some of
the key factors which could cause our future financial results and performance
to vary from those expected include:




Ÿ
            The
      loss of primary customers;




Ÿ
            Our
      ability to implement productivity improvements, cost reduction initiatives
      or facilities expansions;




Ÿ
            Market
      developments affecting, and other changes in, the demand for our products
      and the introduction of new competing
products;




Ÿ
            Availability
      or increases in the price of our primary raw materials or active
      ingredients;




Ÿ
            The
      timing of planned capital
expenditures;




Ÿ
            Our
      ability to identify, develop or acquire, and market additional product
      lines and businesses necessary to implement our business strategy and our
      ability to finance such acquisitions and
  development;




Ÿ
            The
      condition of the capital markets generally, which will be affected by
      interest rates, foreign currency fluctuations and general economic
      conditions;




Ÿ
            The
      ability to obtain registration and re-registration of our products under
      applicable law;




Ÿ
            The
      political and economic climate in the foreign or domestic jurisdictions in
      which we conduct business; and




Ÿ
            Other
      People’s Republic of China (the “PRC”) or foreign regulatory or
      legislative developments which affect the demand for our products
      generally or increase the environmental compliance cost for our products
      or impose liabilities on the manufacturers and distributors of such
      products.




19




The information contained in this
report identifies additional factors that could cause our results or performance
to differ materially from those we express in our forward-looking statements.
Although we believe that the assumptions underlying our forward-looking
statements are reasonable, any of these assumptions and, therefore, the
forward-looking statements based on these assumptions, could themselves prove to
be inaccurate. In light of the significant uncertainties inherent in the
forward-looking statements which are included in this report and the exhibits
and other documents incorporated herein by reference, our inclusion of this
information is not a representation by us or any other person that our
objectives and plans will be achieved.




Critical Accounting Policies and
Estimates





Use
of estimates





The preparation of financial statements
in conformity with GAAP requires the Company 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.
Actual results could differ from those estimates.





Accounts
receivable





The Company reviews the composition of
accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer
payment patterns to evaluate the turnover and adequacy of accounts receivable
and adjust its collection strategies.





Inventories





Inventories are valued at the lower of
cost (determined on a weighted average basis) or market. The Company compares
the cost of inventories with the market value and allowance is made for writing
down the inventories to their market value, if lower.





Property and equipment





Property and equipment are stated at
cost. Expenditures for maintenance and repairs are charged to earnings as
incurred; additions, renewals and betterments are capitalized. When property and
equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
included in operations. Depreciation of property and equipment is provided using
the straight-line method for substantially all assets with estimated lives of:
30 years for building, 10 years for machinery, 5 years for office equipment and
8 years for vehicles.





Revenue
recognition





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





Income
taxes





The Company utilizes ASC 740 (formerly
SFAS No. 109, “Accounting for Income Taxes”), which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized.





20





Foreign currency transactions and comprehensive income
(loss)





Accounting principles generally require
that recognized revenue, expenses, gains and losses be included in net income.
Certain statements, however, require entities to report specific changes in
assets and liabilities, such as gain or loss on foreign currency translation, as
a separate component of the equity section of the balance sheet. Such items,
along with net income, are components of comprehensive income. Transactions
occur in Chinese Renminbi (“RMB”). The unit of RMB is in Yuan.





Recent
Accounting Pronouncements





The
following recently issued but not yet enacted accounting standards have not yet
been codified by the FASB, as described in Note 2, “Basis of
Presentation.”





On April
1, 2009, the FASB approved ASC 205-10 (formerly FSP FAS 141(R)-1) Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, which amends Statement ASC 805 and eliminates the
distinction between contractual and non-contractual contingencies. Under ASC
205-10, an acquirer is required to recognize at fair value an asset acquired or
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value cannot be
determined, the acquirer applies the recognition criteria in SFAS No. 5,
Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of
the Amount of a Loss – and Interpretation of FASB Statement No. 5,” to determine
whether the contingency should be recognized as of the acquisition date or after
it. The Company is currently evaluating the impact of the adoption of ASC
205-10.





ASC
320-10 (formerly FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. It did not amend existing recognition and measurement guidance
related to other-than-temporary impairments of equity securities. We are
required to adopt this FSP for our interim and annual reporting periods ending
after June 15, 2009. This FSP does not require disclosures for periods presented
for comparative purposes at initial adoption. This FSP requires comparative
disclosures only for periods ending after initial adoption. The adoption of ASC
320-10 did not have a material impact on the Company’s condensed consolidated
financial statements.





On April
9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments to require
disclosures about fair value of financial instruments in interim period
financial statements of publicly traded companies and in summarized financial
information required by APB Opinion No. 28, Interim Financial Reporting. We are
required to adopt this FSP for our interim and annual reporting periods ending
after June 15, 2009. This FSP does not require disclosures for periods presented
for comparative purposes at initial adoption. This FSP requires comparative
disclosures only for periods ending after initial adoption. The adoption of ASC
825-10 did not have a material impact on the Company’s condensed consolidated
financial statements.





In June
2009, the FASB issued ASC 810-10 (formerly SFAS No. 167, Amendments to FASB
Interpretation No. 46(R)), which require an enterprise to perform an analysis
and ongoing reassessments to determine whether the enterprises variable interest
or interests give it a controlling financial interest in a variable interest
entity and amends certain guidance for determining whether an entity is a
variable interest entity. It also requires enhanced disclosures that will
provide users of financial statements with more transparent information about an
enterprise’s involvement in a variable interest entity. SFAS No. 167 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009 and for all interim reporting periods
after that. The Company is currently evaluating the impact of the adoption
of SFAS No. 167.





21





Overview





The Company was incorporated in the
State of Delaware on November 15, 2004, and its operating subsidiary, Henan
Jinding Chemical Industry Co. Ltd. (“Henan Jinding”), is headquartered in Henan
Province, the PRC. The Company is a leading manufacturer and marketer of various
products, including Urea, liquefied ammonia, ammonia water, methanol, ammonium
bicarbonate and dimethyl ether (“DME”).





On October 11, 2006, a share exchange
agreement was entered into by and among the Company, Kinfair Holdings Limited
(“KHL”) and KHL’s shareholders, whereby the Company issued 7,500,000 shares,
representing 59.34% of total common stock in exchange of 100% of KHL common
stock (the “Share Exchange”). Henan Jinding is a wholly owned subsidiary of KHL.
Jinding is the principal operating subsidiary of KHL.





After the Share Exchange, KHL and its
wholly owned subsidiary, Henan Jinding, became a wholly-owned subsidiary of the
Company and Henan Jinding became the principal operating subsidiary of the
Company and is deemed to be the accounting acquirer and the exchange transaction
has been accounted for as a reverse acquisition in accordance with Statement of
Financial Accounting Standards (“SFAS”) No.141, Business Combinations. The Share
Exchange has been accounted for as the recapitalization of Henan
Jinding.





On November 13, 2007, Luoshan Jinding
Chemical Co., Ltd. (“Luoshan Jinding”) was incorporated as a wholly owned
subsidiary of Henan Jinding under the laws of the PRC.





We aim to continue to improve our
products in order to maintain our market leadership and to support our
performance. We are focused on applying innovation and technology to make our
processes more productive and profitable and provide improved products to our
customers. Our capabilities in alternative fuel and traditional chemical
products are generating a rich product pipeline that is expected to drive
long-term growth.





22





RESULTS
OF OPERATIONS





Three
Months Ended December 31, 2009 as Compared to


Three
Months Ended December 31, 2008





Three
      Months Ended
                                December
      31, 2009
                              
                              
                              Three
      Months Ended
                                December
      31, 2008
                              
                              
                              ComparisonsAmount
                              
                              
                              Percentage
      of
                                Revenues
                              
                              
                              Amount
                              
                              
                              Percentage
                                of
      Revenues
                              
                              
                              Change
      in
                                Amount
                              
                              
                              Increase
                                (Decrease)
      in
                                PercentageItem
                              
                              US
      $
                              
                              
                              (%)
                              
                              
                              US
      $
                              
                              
                              (%)
                              
                              
                              US
      $
                              
                              
                              (%)Revenues
                              
                              
                              8,770,449
                              
                              
                              
                              100.00
                              %
                              
                              
                              10,614,418
                              
                              
                              
                              100.00
                              %
                              
                              
                              (1,843,969
                              )
                              
                              
                              (17.37
                              )%Cost
      of Goods Sold
                              
                              
                              (8,515,088
                              )
                              
                              
                              (97.09
                              )%
                              
                              
                              (11,971,384
                              )
                              
                              
                              (112.78
                              )%
                              
                              
                              3,456,296
                              
                              
                              
                              (28.87
                              )%Gross  profit
      (loss)
                              
                              
                              255,361
                              
                              
                              
                              2.91
                              %
                              
                              
                              (1,356,966
                              )
                              
                              
                              (12.78
                              )%
                              
                              
                              1,612,327
                              
                              
                              
                              (118.82
                              )%General
      & administrative
                              
                              
                              622,722
                              
                              
                              
                              7.10
                              %
                              
                              
                              546,822
                              
                              
                              
                              5.15
                              %
                              
                              
                              75,900
                              
                              
                              
                              13.88
                              %Selling
      and distribution
                              
                              
                              367,075
                              
                              
                              
                              4.19
                              %
                              
                              
                              367,424
                              
                              
                              
                              3.46
                              %
                              
                              
                              (349
                              )
                              
                              
                              (0.10
                              )%Research
      and development
                              
                              
                              14,707
                              
                              
                              
                              0.17
                              %
                              
                              
                              14,292
                              
                              
                              
                              0.14
                              %
                              
                              
                              415
                              
                              
                              
                              2.90
                              %Loss
      from operations
                              
                              
                              (749,143
                              )
                              
                              
                              (8.54
                              )%
                              
                              
                              (2,285,504
                              )
                              
                              
                              (21.53
                              )%
                              
                              
                              1,536,361
                              
                              
                              
                              (67.22
                              )%Interest
      expense, net
                              
                              
                              (597,012
                              )
                              
                              
                              (6.81
                              )%
                              
                              
                              (485,891
                              )
                              
                              
                              (4.58
                              )%
                              
                              
                              (111,121
                              )
                              
                              
                              22.87
                              %Government
      grants
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              501,622
                              
                              
                              
                              4.73
                              %
                              
                              
                              (501,622
                              )
                              
                              
                              (100.00
                              )%Other
      income, net
                              
                              
                              10,551
                              
                              
                              
                              0.12
                              %
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              10,551
                              
                              
                              
                              100.00
                              %Loss
      before income taxes
                              
                              
                              (1,335,604
                              )
                              
                              
                              (15.23
                              )%
                              
                              
                              (2,269,773
                              )
                              
                              
                              (21.38
                              )%
                              
                              
                              934,169
                              
                              
                              
                              (41.16
                              )%Income
      tax (expense) benefit
                              
                              
                              (280,804
                              )
                              
                              
                              (3.20
                              )%
                              
                              
                              138,946
                              
                              
                              
                              1.31
                              %
                              
                              
                              (419,750
                              )
                              
                              
                              (302.10
                              )%Net
      loss
                              
                              
                              (1,616,408
                              )
                              
                              
                              (18.43
                              )%
                              
                              
                              (2,130,827
                              )
                              
                              
                              (20.08
                              )%
                              
                              
                              514,419
                              
                              
                              
                              (24.14
                              )%Foreign
      currency translation gain
                              
                              
                              18,681
                              
                              
                              
                              0.21
                              %
                              
                              
                              73,288
                              
                              
                              
                              0.69
                              %
                              
                              
                              (54,607
                              )
                              
                              
                              (74.51
                              )%Weighted
      average shares outstanding basic and diluted
                              
                              
                              12,640,000
                              
                              
                              
                              
                              
                              
                              
                              12,640,000
                              
                              
                              
                              
                              
                              
                              
                              0
                              
                              
                              
                              0.00
                              %Net
      loss per share, basic and diluted
                              
                              
                              (0.13
                              )
                              
                              
                              
                              
                              
                              (0.17
                              )
                              
                              
                              
                              
                              
                              0.04
                              
                              
                              
                              -





Revenues,
Cost of Goods Sold and Gross Profit (Loss)





Revenues for the three months ended
December 31, 2009 were $8,770,449, which represented a decrease of 17.37% from
the same period in the prior year. The decrease was mainly due to the decrease
in the selling price of DME resulting in a negative gross profit of DME.
Therefore, the management ceased the production of DME temporarily. Based on
management's estimation, when the market price of DME increases to over RMB
3,150 per ton in China, the Company's DME will have positive gross profit. The
Company plans to resume the production of DME in near future, and recover to the
normal level within one year.





Cost
of Goods Sold (“COGS”) for the three months ended December 31, 2009 was
$8,515,088, which was 97.09% of total revenues and represents a 28.87% decrease,
as compared to $11,971,384, and 112.78% of total revenues for the three months
ended December 31, 2008. This was mainly due to the decrease in sales volume of
DME as compared to the same period last year.





23





COGS as a percentage of revenue may
fluctuate in the future. This fluctuation may primarily be due to changes in the
price of raw materials, which can have a significant impact on the
COGS.





Gross profit is calculated by deducting
from revenues the cost of raw materials used to produce the finished products as
well as charges for depreciation, employee welfare, repairs to machinery and
equipment, all inventory costs and all other costs incident to or necessary for
the production of our products. The Company’s COGS line item does not include
any inbound freight charges, purchasing and receiving costs, inspection costs,
warehousing costs, internal transfer costs, and the other costs of our
distribution network.  The Company’s gross profit may not be
comparable to those of other entities, since some entities include all of the
costs related to their distribution network in COGS and others exclude a portion
of them from gross profit.





Gross profit increased by
$1,612,327, or 118.82%, to $255,361for the three months ended
December 31, 2009 as compared to $(1,356,966) for the three months
ended December 31, 2008. This increase was mainly due to the decrease in
the production cost as compared to the same period last year.





DME
                                                    
                                                    
                                                    Methanol
                                                    
                                                    
                                                    Urea
                                                    
                                                    
                                                    Ammonium
                                                      Bicarbonate
                                                    
                                                    
                                                    Liquefied
                                                      Ammonia
                                                    
                                                    
                                                    Ammonia
                                                      Water2010Q3
                                                    
                                                    Revenues
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,180,852
                                                    
                                                    
                                                    
                                                    6,419,619
                                                    
                                                    
                                                    
                                                    834,984
                                                    
                                                    
                                                    
                                                    217,468
                                                    
                                                    
                                                    
                                                    117,526COGS
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,393,273
                                                    
                                                    
                                                    
                                                    5,918,724
                                                    
                                                    
                                                    
                                                    884,773
                                                    
                                                    
                                                    
                                                    210,776
                                                    
                                                    
                                                    
                                                    107,542Gross
      (Loss) Profit
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (212,421
                                                    )
                                                    
                                                    
                                                    500,895
                                                    
                                                    
                                                    
                                                    (49,789
                                                    )
                                                    
                                                    
                                                    6,692
                                                    
                                                    
                                                    
                                                    9,984Gross
      Margin
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (17.99
                                                    )%
                                                    
                                                    
                                                    7.80
                                                    %
                                                    
                                                    
                                                    (5.96
                                                    )%
                                                    
                                                    
                                                    3.08
                                                    %
                                                    
                                                    
                                                    8.50
                                                    %2009Q3
                                                    
                                                    Revenues
                                                    
                                                    
                                                    
                                                    2,254,460
                                                    
                                                    
                                                    
                                                    199,899
                                                    
                                                    
                                                    
                                                    6,255,938
                                                    
                                                    
                                                    
                                                    1,137,658
                                                    
                                                    
                                                    
                                                    647,371
                                                    
                                                    
                                                    
                                                    119,092COGS
                                                    
                                                    
                                                    
                                                    2,865,038
                                                    
                                                    
                                                    
                                                    299,189
                                                    
                                                    
                                                    
                                                    6,788,555
                                                    
                                                    
                                                    
                                                    1,070,997
                                                    
                                                    
                                                    
                                                    822,863
                                                    
                                                    
                                                    
                                                    124,742Gross
      Profit (Loss)
                                                    
                                                    
                                                    
                                                    (610,578
                                                    )
                                                    
                                                    
                                                    (99,290
                                                    )
                                                    
                                                    
                                                    (532,617
                                                    )
                                                    
                                                    
                                                    66,661
                                                    
                                                    
                                                    
                                                    (175,492
                                                    )
                                                    
                                                    
                                                    (5,650
                                                    )Gross
      Margin
                                                    
                                                    
                                                    
                                                    (27.08
                                                    )%
                                                    
                                                    
                                                    (49.67
                                                    )%
                                                    
                                                    
                                                    (8.51
                                                    )%
                                                    
                                                    
                                                    5.86
                                                    %
                                                    
                                                    
                                                    (27.11
                                                    )%
                                                    
                                                    
                                                    (4.74
                                                    )%Changes
                                                    
                                                    Revenues
                                                    
                                                    
                                                    
                                                    (2,254,460
                                                    )
                                                    
                                                    
                                                    980,953
                                                    
                                                    
                                                    
                                                    163,681
                                                    
                                                    
                                                    
                                                    (302,674
                                                    )
                                                    
                                                    
                                                    (429,903
                                                    )
                                                    
                                                    
                                                    (1,566
                                                    )Percentage
                                                    
                                                    
                                                    
                                                    (100
                                                    )%
                                                    
                                                    
                                                    490.72
                                                    %
                                                    
                                                    
                                                    2.62
                                                    %
                                                    
                                                    
                                                    (26.61
                                                    )%
                                                    
                                                    
                                                    (66.41
                                                    )%
                                                    
                                                    
                                                    (1.32
                                                    )%





Sales of Urea increased $163,681, or
2.62%, to $6,419,619 for the three months ended December 31, 2009, as compared
to $6,255,938 for the three months ended December 31, 2008. This increase was
mainly due to the increase in sales volume as compared to the same period of
last year.





The gross margin of Urea increased to
7.80% for the three months ended December 31, 2009, as compared to (8.51)% for
the three months ended December 31, 2008. This was mainly due to the decrease in
the production cost as compared to the same period last year.





Sales of ammonium bicarbonate for the
three months ended December 31, 2009 were $834,984, which represented a decrease
of 26.61% from the same period in the prior year. This was mainly due to the
decrease in sales volume and the selling price was greater than the decrease in
the corresponding cost per unit.





The gross margins of ammonium
bicarbonate decreased to (5.96)% for the three months ended December 31, 2009 as
compared to 5.86 % for the same period of the prior year. This was mainly due to
the decrease in the selling price as compared to the same period of last
year.





Sales of methanol for the three months
ended December 31, 2009 increased 490.72% to $1,180,852, from $199,899 for the
three months ended December 31, 2008. This increase was mainly due to the
increase in sales volume and the selling price of Methanol as compared to the
same period of last year. Methanol incurred a negative gross margin of 17.99%
for the three months ended December 31, 2009, which was mainly due to the growth
rate of the product selling price was lower than the growth rate of the product
cost per unit.





Sales of liquefied
ammonia decreased $429,903, or 66.41%, to $217,468 for the three months
ended December 31, 2009, as compared to $647,371 for the three months ended
December 31, 2008. This was mainly due to the decrease in sales volume as
compared to the same period last year.





24





The gross margin of liquefied ammonia
increased to 3.08%% for the three months ended December 31, 2009, as compared to
(27.11)% for the three months ended December 31, 2008. This was mainly due to
the decrease in the production cost of liquefied ammoniaas compared to the same
period of last year.





Sales of DME decreased to $0 for the
three months ended December 31, 2009. This decrease was mainly due to the
decrease in the selling price resulted in a negative gross profit of DME.
Therefore, the management ceased the production of DME temporarily. Based on the
management's estimation, when the market price of DME increases to over RMB
3,150 per ton in China, the Company's DME will have positive gross profit. The
Company plans to resume the production of DME in near future, and recover to the
normal level within one year.





The gross margin of ammonia water
increased to 8.50% for the three months ended December 31, 2009 as compared to
(4.74)% for the same period prior year. This was mainly due to the fact that the
decrease in the production cost of ammonia water as compared to the same period
of last year.





Three
      Months Ended
                        December
      31, 2009
                      
                      
                      Three
      Months Ended
                        December
      31, 2008
                      
                      
                      ComparisonsProvinces
                      
                      Amount
                        US
      $
                      
                      
                      Percentage
                        of
      Revenues
                        (%)
                      
                      
                      Amount
                        US
      $
                      
                      
                      Percentage
                        of
      Revenues
                        (%)
                      
                      
                      Change
      in
                        Amount
                        US
      $
                      
                      
                      Increase
                        (Decrease)
      in
                        Percentage
                        (%)Henan
      Province
                      
                      
                      2,530,198
                      
                      
                      
                      28.85
                      %
                      
                      
                      4,471,399
                      
                      
                      
                      42.13
                      %
                      
                      
                      (1,941,201
                      )
                      
                      
                      (43.41
                      )%Guangdong
      Province
                      
                      
                      3,748,320
                      
                      
                      
                      42.74
                      %
                      
                      
                      3,807,832
                      
                      
                      
                      35.87
                      %
                      
                      
                      (59,512
                      )
                      
                      
                      (1.56
                      )%Hubei
      Province
                      
                      
                      536,295
                      
                      
                      
                      6.12
                      %
                      
                      
                      1,058,549
                      
                      
                      
                      9.97
                      %
                      
                      
                      (522,254
                      )
                      
                      
                      (49.34
                      )%Anhui
      Province
                      
                      
                      1,875,964
                      
                      
                      
                      21.39
                      %
                      
                      
                      515,363
                      
                      
                      
                      4.86
                      %
                      
                      
                      1,360,601
                      
                      
                      
                      264.01
                      %Hunan
      Province
                      
                      
                      79,672
                      
                      
                      
                      0.91
                      %
                      
                      
                      107,734
                      
                      
                      
                      1.02
                      %
                      
                      
                      (28,062
                      )
                      
                      
                      (26.05
                      )%Hebei
      Province
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      8,014
                      
                      
                      
                      0.08
                      %
                      
                      
                      (8,014
                      )
                      
                      
                      (100.00
                      )%Jiangxi
      Province
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      473,597
                      
                      
                      
                      4.46
                      %
                      
                      
                      (473,597
                      )
                      
                      
                      (100.00
                      )%Shandong
      Province
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      171,930
                      
                      
                      
                      1.62
                      %
                      
                      
                      (171,930
                      )
                      
                      
                      (100.00
                      )%Total
                      
                      
                      8,770,449
                      
                      
                      
                      100.00
                      %
                      
                      
                      10,614,418
                      
                      
                      
                      100.00
                      %
                      
                      
                      (1,843,969
                      )
                      
                      
                      (17.37
                      )%





The sales
for the three months ended December 31, 2009 in Anhui Province increased by
264.01% as compared to the same period last year. This increase was mainly
attributable to the Company’s reinforcement of its marketing strategy and
expansion of the market share.





The sales
for the three months ended December 31, 2009 in other provinces decreased as
compared to the same period last year. The decrease was mainly due to the
decrease in the selling price of DME. As a result, the decrease in the selling
price resulted in a negative gross profit of DME. Therefore, the management
ceased the production of DME temporarily, and the sales of DME decreased in
these provinces. Based on the management's estimation, when the market price of
DME increases to over RMB 3,150 per ton in China, the Company's DME will have
positive gross profit. The Company plans to resume the production of DME in near
future, and recover to the normal level within one year.





Operating
Expenses





The Company incurred selling and
distribution expenses of $367,075 for the three months ended December 31, 2009,
a decrease of $349, or 0.10%, as compared to $367,424 for the three months ended
December 31, 2008.





The Company incurred general and
administrative expenses of $622,722 for the three months ended December 31,
2009, representing a increase of $75,900, or 13.88%, as compared to $546,822 for
the three months ended December 31, 2008.





25





The Company incurred R&D expenses
of $14,707 for the three months ended December 31, 2009, representing a decrease
of $415, or 2.90%, compared to $14,292 for the three months ended December 31,
2008.





Income
Tax





The Company incurred income tax expense
of $280,804 for the three months ended December 31, 2009, an increase of
$419,750, or 302.10%, as compared to income tax benefit of $138,946 for the
three months ended December 31, 2008. This increase is mainly attributable to
the increase in the Company’s deferred income tax expense.





Net
Loss





The Company’s net loss of $1,616,408
for the three months ended December 31, 2009 represented a increase of $514,419,
or 24.14%, as compared to a net loss of $2,130,827 for the three months ended
December 31, 2008. This decrease was mainly dueto the decrease in the
production cost as compared to the same period last year.





Nine
Months Ended December 31, 2009 as Compared to


Nine
Months Ended December 31, 2008





Nine
      Months Ended
                        December
      31, 2009
                      
                      
                      Nine
      Months Ended
                        December
      31, 2008
                      
                      
                      ComparisonsAmount
                      
                      
                      Percentage
      of
                        Revenues
                      
                      
                      Amount
                      
                      
                      Percentage
                        of
      Revenues
                      
                      
                      Change
      in
                        Amount
                      
                      
                      Increase
                        (Decrease)
      in
                        PercentageItem
                      
                      US
      $
                      
                      
                      (%)
                      
                      
                      US
      $
                      
                      
                      (%)
                      
                      
                      US
      $
                      
                      
                      (%)Revenues
                      
                      
                      24,704,321
                      
                      
                      
                      100.00
                      %
                      
                      
                      40,533,491
                      
                      
                      
                      100.00
                      %
                      
                      
                      (15,829,170
                      )
                      
                      
                      (39.05
                      )%Cost
      of Goods Sold
                      
                      
                      (28,006,407
                      )
                      
                      
                      (113.37
                      )%
                      
                      
                      (40,097,429
                      )
                      
                      
                      (98.92
                      )%
                      
                      
                      12,091,022
                      
                      
                      
                      (30.15
                      )%Gross
      (loss) profit
                      
                      
                      (3,302,086
                      )
                      
                      
                      (13.37
                      )%
                      
                      
                      436,062
                      
                      
                      
                      1.08
                      %
                      
                      
                      (3,738,148
                      )
                      
                      
                      (857.25
                      )%General
      & administrative
                      
                      
                      1,829,231
                      
                      
                      
                      7.40
                      %
                      
                      
                      1,996,928
                      
                      
                      
                      4.93
                      %
                      
                      
                      (167,697
                      )
                      
                      
                      (8.40
                      )%Selling
      and distribution
                      
                      
                      914,635
                      
                      
                      
                      3.70
                      %
                      
                      
                      928,534
                      
                      
                      
                      2.29
                      %
                      
                      
                      (13,899
                      )
                      
                      
                      (1.50
                      )%Research
      and development
                      
                      
                      57,375
                      
                      
                      
                      0.23
                      %
                      
                      
                      123,392
                      
                      
                      
                      0.30
                      %
                      
                      
                      (66,017
                      )
                      
                      
                      (53.50
                      )%Loss
      from operations
                      
                      
                      (6,103,327
                      )
                      
                      
                      (24.71
                      )%
                      
                      
                      (2,612,792
                      )
                      
                      
                      (6.45
                      )%
                      
                      
                      (3,490,535
                      )
                      
                      
                      133.59
                      %Interest
      expense, net
                      
                      
                      (1,484,457
                      )
                      
                      
                      (6.01
                      )%
                      
                      
                      (897,869
                      )
                      
                      
                      (2.22
                      )%
                      
                      
                      (586,588
                      )
                      
                      
                      65.33
                      %Government
      grants
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,490,489
                      
                      
                      
                      3.68
                      %
                      
                      
                      (1,490,489
                      )
                      
                      
                      (100.00
                      )%Other
      income (expenses), net
                      
                      
                      13,300
                      
                      
                      
                      0.05
                      %
                      
                      
                      (33,418
                      )
                      
                      
                      (0.08
                      )%
                      
                      
                      46,718
                      
                      
                      
                      (139.80
                      )%Loss
      before income taxes
                      
                      
                      (7,574,484
                      )
                      
                      
                      (30.66
                      )%
                      
                      
                      (2,053,590
                      )
                      
                      
                      (5.07
                      )%
                      
                      
                      (5,520,894
                      )
                      
                      
                      268.84
                      %Income
      tax (expense) benefit
                      
                      
                      (366,438
                      )
                      
                      
                      (1.48
                      )%
                      
                      
                      195,324
                      
                      
                      
                      0.48
                      %
                      
                      
                      (561,762
                      )
                      
                      
                      (287.61
                      )%Net
      loss
                      
                      
                      (7,940,922
                      )
                      
                      
                      (32.14
                      )%
                      
                      
                      (1,858,266
                      )
                      
                      
                      (4.59
                      )%
                      
                      
                      (6,082,656
                      )
                      
                      
                      327.33
                      %Foreign
      currency translation gain
                      
                      
                      8,255
                      
                      
                      
                      0.03
                      %
                      
                      
                      478,332
                      
                      
                      
                      1.18
                      %
                      
                      
                      (470,077
                      )
                      
                      
                      (98.27
                      )%Weighted
      average shares outstanding basic and diluted
                      
                      
                      12,640,000
                      
                      
                      
                      
                      
                      
                      
                      12,640,000
                      
                      
                      
                      
                      
                      
                      
                      0
                      
                      
                      
                      0.00
                      %Net
      loss per share, basic and diluted
                      
                      
                      (0.63
                      )
                      
                      
                      
                      
                      
                      (0.15
                      )
                      
                      
                      
                      
                      
                      (0.48
                      )
                      
                      
                      -




26





Revenues,
Cost of Goods Sold and Gross Profit (Loss)





Revenues for the nine months ended
December 31, 2009 were $24,704,321, which represented a decrease of 39.05% from
the same period in the prior year.The decrease was mainly
due to the following factors:  (i) the decrease in the selling price
resulted in a negative gross profit of DME. Therefore, the management ceased the
production of DME temporarily. Based on the management's estimation, when the
market price of DME increases to over RMB 3,150 per ton in China, the Company's
DME will have positive gross profit. The Company plans to resume the production
of DME in near future, and recover to the normal level within one year,
and (ii) the decrease in the selling price and the sales volume of Urea as
compared to the same period last year.





Cost of Goods Sold (“COGS”) for the
nine months ended December 31, 2009 was $28,006,407, which is 113.37% of total
revenues and represents a 30.15% decrease as compared to $40,097,429 and 98.92%
of total revenues for the nine months ended December 31, 2008. This was mainly
due to the decrease in sales volume of products as compared to the same period
last year.





Gross profit decreased $3,738,148, or
857.25%, to $(3,302,086) for the nine months ended December 31, 2009 as compared
to $436,062 for the nine months ended December 31, 2008. This decrease was
mainly due to the decrease in sales volume and the selling price of product as
compared to the same period last year.





Nine
      Months Ended
                          December
      31, 2009
                        
                        
                        Nine
      Months Ended
                          December
      31, 2008
                        
                        
                        ComparisonsProducts
                        
                        Amount
                          US
      $
                        
                        
                        Percentage
                          of
      Revenues
                          (%)
                        
                        
                        Amount
                          US
      $
                        
                        
                        Percentage
                          of
      Revenues
                          (%)
                        
                        
                        Change
      in
                          Amount
                          US
      $
                        
                        
                        Increase
                          (Decrease)
      in
                          Percentage
                          (%)Urea
                        
                        
                        18,246,429
                        
                        
                        
                        73.86
                        %
                        
                        
                        24,593,181
                        
                        
                        
                        60.67
                        %
                        
                        
                        (6,346,752
                        )
                        
                        
                        (25.81
                        )%Ammonium
      bicarbonate
                        
                        
                        2,081,507
                        
                        
                        
                        8.43
                        %
                        
                        
                        2,853,455
                        
                        
                        
                        7.04
                        %
                        
                        
                        (771,948
                        )
                        
                        
                        (27.05
                        )%Methanol
                        
                        
                        3,558,221
                        
                        
                        
                        14.40
                        %
                        
                        
                        909,053
                        
                        
                        
                        2.24
                        %
                        
                        
                        2,649,168
                        
                        
                        
                        291.42
                        %Liquefied
      Ammonia
                        
                        
                        518,877
                        
                        
                        
                        2.10
                        %
                        
                        
                        799,867
                        
                        
                        
                        1.97
                        %
                        
                        
                        (280,990
                        )
                        
                        
                        (35.13
                        )%DME
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        11,090,320
                        
                        
                        
                        27.36
                        %
                        
                        
                        (11,090,320
                        )
                        
                        
                        (100.00
                        )%Ammonia
      Water
                        
                        
                        299,287
                        
                        
                        
                        1.21
                        %
                        
                        
                        287,615
                        
                        
                        
                        0.71
                        %
                        
                        
                        11,672
                        
                        
                        
                        4.06
                        %Total
                        
                        
                        24,704,321
                        
                        
                        
                        100.00
                        %
                        
                        
                        40,533,491
                        
                        
                        
                        100.00
                        %
                        
                        
                        (15,829,170
                        )
                        
                        
                        (39.05
                        )%




Sales of
Urea decreased $6,346,752, or 25.81%, to $18,246,429 for the nine months ended
December 31, 2009 as compared to $24,593,181 for the nine months ended December
31, 2008. This was mainly due to the decrease in sales volume and the selling
price of Urea as compared to the same period of last year.





Sales of
methanol increased 291.42% to $3,558,221, from $909,053 for the three months
ended December 31, 2008. This increase was mainly due to the increase in sales
volume and the selling price of Methanol as compared to the same period of last
year.





Sales of
DME decreased to $0 for the nine months ended December 31, 2009. This decrease
was mainly due to the decrease in the selling price resulted in a negative gross
profit of DME. Therefore, the management ceased the production of DME
temporarily. Based on the management's estimation, when the market price of DME
increases to over RMB 3,150 per ton in China, the Company's DME will have
positive gross profit. The Company plans to resume the production of DME in near
future, and recover to the normal level within one year.





27





Divided
by Regions




Nine
      Months Ended
                        December
      31, 2009
                      
                      
                      Nine
      Months Ended
                        December
      31, 2008
                      
                      
                      ComparisonsProvinces
                      
                      Amount
                        US
      $
                      
                      
                      Percentage
                        of
      Revenues
                        (%)
                      
                      
                      Amount
                        US
      $
                      
                      
                      Percentage
                        of
      Revenues
                        (%)
                      
                      
                      Change
      in
                        Amount
                        US
      $
                      
                      
                      Increase
                        (Decrease)
      in
                        Percentage
                        (%)Henan
      Province
                      
                      
                      8,010,033
                      
                      
                      
                      32.42
                      %
                      
                      
                      15,380,771
                      
                      
                      
                      37.95
                      %
                      
                      
                      (7,370,738
                      )
                      
                      
                      (47.92
                      )%Guangdong
      Province
                      
                      
                      10,754,267
                      
                      
                      
                      43.53
                      %
                      
                      
                      16,184,684
                      
                      
                      
                      39.93
                      %
                      
                      
                      (5,430,417
                      )
                      
                      
                      (33.55
                      )%Hubei
      Province
                      
                      
                      886,745
                      
                      
                      
                      3.59
                      %
                      
                      
                      4,026,829
                      
                      
                      
                      9.94
                      %
                      
                      
                      (3,140,084
                      )
                      
                      
                      (77.98
                      )%Anhui
      Province
                      
                      
                      4,816,643
                      
                      
                      
                      19.50
                      %
                      
                      
                      1,686,159
                      
                      
                      
                      4.16
                      %
                      
                      
                      3,130,484
                      
                      
                      
                      185.66
                      %Hunan
      Province
                      
                      
                      174,415
                      
                      
                      
                      0.71
                      %
                      
                      
                      175,209
                      
                      
                      
                      0.43
                      %
                      
                      
                      (794
                      )
                      
                      
                      (0.45
                      )%Hebei
      Province
                      
                      
                      31,948
                      
                      
                      
                      0.13
                      %
                      
                      
                      485,284
                      
                      
                      
                      1.20
                      %
                      
                      
                      (453,336
                      )
                      
                      
                      (93.42
                      )%Jiangxi
      Province
                      
                      
                      30,270
                      
                      
                      
                      0.12
                      %
                      
                      
                      754,473
                      
                      
                      
                      1.86
                      %
                      
                      
                      (724,203
                      )
                      
                      
                      (95.99
                      )%Shandong
      Province
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,840,082
                      
                      
                      
                      4.54
                      %
                      
                      
                      (1,840,082
                      )
                      
                      
                      (100.00
                      )%Total
                      
                      
                      24,704,321
                      
                      
                      
                      100.00
                      %
                      
                      
                      40,533,491
                      
                      
                      
                      100.00
                      %
                      
                      
                      (15,829,170
                      )
                      
                      
                      (39.05
                      )%





The sales for the nine months ended
December 31, 2009 in the Anhui Province increased by 185.66% as compared to the
same period last year. This increase was mainly attributable to the fact that
the Company’s reinforcement of its marketing strategy and expansion of the
market share.





The sales
for the nine months ended December 31, 2009 in other provinces decreased as
compared to the same period last year. The decrease was mainly due to the
following factors:  (i) the decrease in the selling price resulted in
a negative gross profit of DME. Therefore, the management ceased the production
of DME temporarily. Based on the management's estimation, when the market price
of DME increases to over RMB 3,150 per ton in China, the Company's DME will have
positive gross profit. The Company plans to resume the production of DME in near
future, and recover to the normal level within one year, and (ii) the decrease
in the selling price and the sales volume of Urea as compared to the same period
last year.





Operating
Expenses





The Company incurred selling and
distribution expenses of $914,635 for the nine months ended December 31, 2009, a
decrease of $13,899, or 1.50%, as compared to $928,534 for the nine months ended
December 31, 2008.





The Company incurred general and
administrative expenses of $1,829,231 for the nine months ended December 31,
2009, representing a decrease of $167,697 or 8.40%, as compared to $1,996,928
for the nine months ended December 31, 2008. This was mainly due to the decrease
in consulting fees as compared to the same period last year.





The Company incurred R&D expenses
of $57,375 for the nine months ended December 31, 2009, representing a decrease
of $66,017, or 53.50%, compared to $123,392 for the nine months ended December
31, 2008. This was mainly due to the decrease in consulting fees and evaluation
fees of R&D project as compared to the same period last year.





28





Income
Tax





The Company incurred income tax expense
of $366,438 for the nine months ended December 31, 2009, a decrease of $561,762,
or 287.61%, as compared to income tax benefit of $195,324 for the nine months
ended December 31, 2008. This increase is mainly attributable to the increase in
the Company’s deferred income taxes expenses.





Net
Income (Loss)





The Company’s net loss of $7,940,922
for the nine months ended December 31, 2009 represented a decrease of
$6,082,656, or 327.33%, as compared to a net loss of $1,858,266 for the nine
months ended December 31, 2008. This decrease was mainly due to the following
factors:  (i) the decrease in the selling price resulted in a negative
gross profit of DME. Therefore, the management ceased the production of DME
temporarily. Based on the management's estimation, when the market price of DME
increases to over RMB 3,150 per ton in China, the Company's DME will have
positive gross profit. The Company plans to resume the production of DME in near
future, and recover to the normal level within one year, and (ii) the decrease
in the selling price and sales volume of Urea as compared to the same period
last year, which resulted in the decrease in the sales revenue of
Urea.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
Flows





Ninemonths
      endedDecember31,2009
                    
                    
                    2008Net
      cash provided by (used in)Operating
      activities
                    
                    $
                    (7,506,260
                    )
                    
                    $
                    6,335,645Investing
      activities
                    
                    
                    (194,035
                    )
                    
                    
                    (12,815,463
                    )Financing
      activities
                    
                    
                    7,596,493
                    
                    
                    
                    (706,223
                    )Net
      change in cash and cash equivalents
                    
                    
                    (103,802
                    )
                    
                    
                    (7,186,041
                    )Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    (39,735
                    )
                    
                    
                    144,261Cash
      and cash equivalents at beginning of period
                    
                    
                    410,870
                    
                    
                    
                    7,487,808Cash
      and cash equivalents at end of period
                    
                    $
                    267,333
                    
                    
                    $
                    446,028





Cash flows used in operating activities
during the nine months ended December 31, 2009 amounted to $7,506,260, which was
mainly due to the Company’s net loss of $7,940,922 in the reporting period and
the decrease in accounts payable by $2,422,205.





As of December 31, 2009, the cash used
in investing activities was $194,035, which represented the expenditure on
construction of the third phase of the 600,000 ton DME facility
project.





As of December 31, 2009, the cash
provided by financing activities was $7,596,493, which represented thenet increase short-term
debt and the increase in due to related parties in the reporting
period.





Liquidity





The Company has a working capital
deficit of $38,726,067 as of December 31, 2009, and the Company incurred a net
loss of $7,940,922 for the nine months ended December 31, 2009. These matters
raise substantial doubt about the Company’s ability to continue as a going
concern. Management recognizes that the Company’s continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to allow
the Company to continue the development of its business plans and satisfy its
current and long-term obligations on a timely basis. The Company believes that
it will be able to complete the necessary steps in order to meet its cash
requirements for the next twelve months. The condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





29





The major
shareholder has committed to provide financial assistance of RMB 50 to 80
million (approximately $7.3 to $11.7 million) over the next few years, if
necessary.





On
January 4, 2010, the Company obtained a short-term bank loan for RMB 16 million
(approximately $2.34 million) with an interest rate of 10.08% per annum from
Xinyang Commercial Bank, which is due on January 4, 2011.





Capital
Resources





As of December 31, 2009, our total
assets were $60,295,408 and our total liabilities were $54,209,808. Our debt to
asset ratio, calculated as total liabilities (including short-term debt and
payables) over total assets, was 90%.





As of December 31, 2009, our total
assets were $60,295,408 and our operating revenue for the nine months ended
December 31, 2009 was $24,704,321, reflecting a total asset turnover of
0.41.





As of December 31, 2009, we had working
capital deficit of $38,726,067. This was mainly due tothe increase in the
Company’s net loss.




CONTINGENT
LIABILITIES





None.





OFF
BALANCE SHEET ARRANGEMENTS





None.





Item 3.             Quantitative
and Qualitative Disclosures About Market Risk.





Not Applicable.





Item
4.             Controls
and Procedures.





A.
Evaluation of Disclosure Controls and Procedures:





The Company maintains disclosure
controls and procedures and internal controls designed to ensure that
information required to be disclosed in the Company's filings under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. The Company's management, with the participation of its
principal executive and financial officers, has evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q. The Company's principal executive
and financial officers have concluded, based on such evaluation, that such
disclosure controls and procedures were effective for the purpose for which they
were designed as of the end of such period.





B.
Changes in Internal Control over Financial Reporting:





There
was no change in the Company's internal control over financial reporting that
was identified in connection with such evaluation that occurred during the
period covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.





30





PART
II – OTHER INFORMATION





Item
1.            Legal
Proceedings.





On
December 29, 2004, the Company entered into an agreement (the “Luoshan
Agreement”) to purchase Luoshan Fertilizer Plant, a bankrupt company and to
assume $1.3 million in debt owed by Xixian Fertilizer Plant (the principal
shareholder of Luoshan Fertilizer Plant). Under the Luoshan Agreement, the
Company was to receive reimbursements of $650,000 from both the Luoshan county
government and the Xi county government, which were to be received before
December 29, 2007. Luoshan county government paid its note of $650,000 to the
Company on its due date.





In
November 2007, the Company initiated a lawsuit in the Intermediate Court of
Xinyang City against the Xi county government and Henan Shiji Jinyuan Chemicals
Co., Ltd. (the “Shiji Jinyuan”, formerly Xixian Fertilizer Plant) for
non-payment of the Xi county government note receivable of $650,000 on its due
date as set forth under the Luoshan Agreement, and sought the enforcement of the
terms of the note receivable and the Luoshan Agreement for payment of the
$650,000 by both the Xi county government and Shiji Jinyuan. On June 12, 2009,
the court entered final judgment against Xi county government and Shiji Jinyuan
in amount of $650,000 to be paid before June 22, 2009. In addition, the judgment
ordered the Xi county government and Shiji Jinyuan to pay the Company interest
and late fee based on market rates. On December 16, 2009, Xi county government
and Shiji Jinyuan appealed to the Higher Court of Henan Province and final
judgement is pending. At December 31, 2009, the Company has a reserve against
the $650,000 note of $146,451 due to the uncertainty of collection.





Item
1A.         Risk
Factors.





Not
required.





Item
2.            Unregistered
Sales of Equity Securities and Use of Proceeds.





None.





Item
3.            Defaults
Upon Senior Securities.





None.





Item
4.            Submission
of Matters to a Vote of Security Holders.





None.





Item
5.            Other
Information.





(a)        There
is no information required to be disclosed on Form 8-K during the period covered
by this Form 10-Q that was not so reported.





(b)        There
were no material changes to the procedures by which security holders may
recommend nominees to the registrant's board of directors during the quarter
ended December 31, 2009.





31





Item
6.            Exhibits.





The
following exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by reference
herein:





Exhibit
                    Number
                  
                  Exhibit
      Description2.1
                  
                  Share
      Exchange Agreement dated as of October 11, 2006, between Sports Source,
      Kinfair Holdings Limited and Auto Chance International Limited.
      (2)2.2
                  
                  Share
      Transfer Agreement, dated February 29, 2006, between Kinfair Holdings
      Limited, Xinyang Hongchang Channel Gas Engineering Co., Ltd., Mai XiaoFu,
      Wang Guiquan, Yu Zhiyang and Yang Hongtao. (2)2.3
                  
                  Stock
      Purchase Agreement, dated February 19, 2006, by and between Henan Jinding
      Chemical Industry Co., Ltd. and Kinfair Holdings Limited.
    (2)3.1
                  
                  Certificate
      of Incorporation of the Company, as amended by the current report on Form
      8-K filed with the SEC on February 7, 2007 (1)3.2
                  
                  Bylaws
      of the Company, as amended by the current report on Form 8-K/A filed with
      the SEC on February 23, 2007 (1)4.1
                  
                  Specimen
      of Common Stock Certificate (3)10.1
                  
                  Form
      of Labor Contract for Henan Jinding Chemical Industry Co., Ltd.
      (2)10.2
                  
                  Land
      Use Certificates issued to Luoshan Jinding Chemical Industry Co., Ltd. by
      the People’s Government of Luoshan County. (2)31.1
                  
                  Certification
      of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 (4)31.2
                  
                  Certification
      of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 (4)32.1
                  
                  Certification
      of Principal Executive Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002 (4)32.2
                  
                  Certification
      of Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002 (4)99.1
                  
                  Loan
      Agreement, dated August 8, 2008, by and between New Oriental Energy &
      Chemical Corp. and Xinyang Hong Chang Pipeline Gas Co., Ltd.
      (5)







(1)
              Incorporation
      by reference to the Company's Registration Statement on Form SB-2, as
      amended (Registration No.
333-125131).


(2)
              Incorporated
      by reference to the Company's Current Report on Form 8-K dated October 13,
      2006.


(3)
              Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the period
      ended December 31, 2008.


(4)
              Filed
      herewith.


(5)
              Incorporated
      by reference to the Company’s Form 10-Q for the period ended June 30,
      2008.





32





SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.





NEW
      ORIENTAL ENERGY & CHEMICAL CORP.By:
              /s/ Chen Si QiangChen
      Si QiangChief
      Executive Officer and Chairman of the BoardBy:
              /s/Donglai
      LiDonglai
      LiChief
      Financial Officer





DATED:  February
16, 2010











INDEX
TO EXHIBITS





Exhibit
                Number
              
              Exhibit Description2.1
              
              Share
      Exchange Agreement dated as of October 11, 2006, between Sports Source,
      Kinfair Holdings Limited and Auto Chance International Limited.
      (2)2.2
              
              Share
      Transfer Agreement, dated February 29, 2006, between Kinfair Holdings
      Limited, Xinyang Hongchang Channel Gas Engineering Co., Ltd., Mai XiaoFu,
      Wang Guiquan, Yu Zhiyang and Yang Hongtao. (2)2.3
              
              Stock
      Purchase Agreement, dated February 19, 2006, by and between Henan Jinding
      Chemical Industry Co., Ltd. and Kinfair Holdings Limited.
    (2)3.1
              
              Certificate
      of Incorporation of the Company, as amended by the current report on Form
      8-K filed with the SEC on February 7, 2007 (1)3.2
              
              Bylaws
      of the Company, as amended by the current report on Form 8-K/A filed with
      the SEC on February 23, 2007 (1)4.1
              
              Specimen
      of Common Stock Certificate (3)10.1
              
              Form
      of Labor Contract for Henan Jinding Chemical Industry Co., Ltd.
      (2)10.2
              
              Land
      Use Certificates issued to Luoshan Jinding Chemical Industry Co., Ltd. by
      the People’s Government of Luoshan County. (2)31.1
              
              Certification
      of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 (4)31.2
              
              Certification
      of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 (4)32.1
              
              Certification
      of Principal Executive Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002 (4)32.2
              
              Certification
      of Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002 (4)99.1
              
              Loan
      Agreement, dated August 8, 2008, by and between New Oriental Energy &
      Chemical Corp. and Xinyang Hong Chang Pipeline Gas Co., Ltd.
      (5)







(1)
              Incorporation
      by reference to the Company's Registration Statement on Form SB-2, as
      amended (Registration No.
333-125131).


(2)
              Incorporated
      by reference to the Company's Current Report on Form 8-K dated October 13,
      2006.


(3)
              Incorporated
      by reference to the Company's Quarterly Report on Form 10-Q for the period
      ended December 31, 2008.


(4)
              Filed
      herewith.


(5)
              Incorporated
      by reference to the Company’s Form 10-Q for the period ended June 30,
      2008.